FCC clamps down further on foreign ownership of US telcos
- Rubber-stamping of International Section 214 Authorizations will end
- Extra scrutiny of foreign holdings and individuals, especially those with dual or multiple citizenships
- Threshold drops to a 5% foreign ownership, interest or holding
- Ten-yearly renewals of authorisation of foreign ownership and provision of services
US regulator, the Federal Communications Commission (FCC), is to take further powers to increase its control over foreign participation in the US telecoms marketplace. The issuance of an Order and Notice of Proposed Rulemaking (NPRM) expanded the FCC’s remit to require telecoms companies with International Section 214 Authorizations to disclose more about their holdings and activities: It requires all foreign persons with a 10% or greater direct or indirect voting or equity interest in a telco operating or participating in the US telecoms market to declare their interests and involvement. Should they not do so, and submissions will be closely policed and subject to stringent verification, they “may” – and given prevailing sentiments that almost certainly means “will” – have their 214 Authorization cancelled. To ensure compliance with the modified regulations, carriers must undertake “due diligence” and certify their disclosures to be true.
The FCC’s current regulation requires companies seeking to offer international services originating or terminating in the United States to obtain International Section 214 Authorizations which, once issued, have no expiry date and are very rarely, if ever, re-examined. As part of the initial Section 214 application process, the FCC relies on the Committee for the Assessment of Foreign Participation in the United States Telecommunications Services Sector to examine the national security and law enforcement risks of proposed services.
Hitherto, once an International Section 214 Authorization has been issued, the FCC has had no further power subsequently to review what it has authorised. Indeed, it is entirely reliant on a company participating in the US telecom sector to provide it with updates as to its composition and interests. Unsurprisingly, given the tensions with China and Russia, the FCC intends to put in place additional processes to allow it to review the ownership of current authorisation holders, with the goal of being able to better detect and prevent threats to national security and US economic interests.
Under the new regulations, Section 214 Authorization holders must identify direct and indirect foreign equity holders of 10% or more and place them in one of two categories. The first is for foreign interest holders from countries considered “foreign adversaries” to the US: These are defined as China [including Hong Kong], Cuba, Iran, North Korea, Russia, and the Maduro Regime in Venezuela. The second category is for foreign interest holders from countries that are not categorised as adversaries.
Furthermore, for each foreign interest holder identified, the authorisation holder must disclose whether that equity holder has dual or multiple citizenships and must identify and itemise all the countries where citizenship is held. Some people do have multiple citizenships and, I can tell you from personal experience of working in a law enforcement agency, such individuals are always of interest to various state bodies and enforcement services.
The FCC says the information must be submitted to it within 30 days following the effective date as published in the Federal Register. The regulator adds that the FCC will “strictly enforce compliance with the requirement to update current ownership information.” Furthermore, “if an authorisation holder fails to respond in a timely and complete manner”, the FCC will not only revoke the authorisation but will impose forfeitures and “other measures”. The decks are being cleared for swift and punitive action should it prove necessary.
Closing the stable door, hopefully while the horse is still in residence
The mechanism for renewing 214 Authorizations is based on several criteria, including the substantive amount of a carrier’s foreign ownership, and the time elapsed since the FCC’s previous review of the carrier. The FCC has designated five prioritised groups for renewal consideration. In group one are all carriers with reportable foreign ownership, including from a foreign adversary country, with no existing mitigation agreement, and that the FCC has not reviewed in the past 10 years, or that otherwise raise any national security, law enforcement, foreign policy, and/or trade policy concerns.
Group two covers all carriers with reportable foreign ownership, including from a foreign adversary country, that have an existing mitigation agreement, and that the FCC has not reviewed in the past 10 years.
Group three includes all carriers with reportable foreign ownership, including from a foreign adversary country, with no existing mitigation agreement, and that the FCC has reviewed less than 10 years ago.
Group four encompasses all carriers with reportable foreign ownership, including from a foreign adversary country, that have an existing mitigation agreement, and that the FCC has reviewed less than 10 years ago.
Group five will comprise carriers with no reportable foreign ownership and that do not otherwise raise other national security, law enforcement, foreign policy, or trade policy concerns.
The FCC will also refer applications to the Committee for the Assessment of Foreign Participation in the United States Telecommunications Services Sector and to the Executive Branch where an applicant for authorisation reveals that it uses or will use a foreign-owned managed network service provider (MNSP), has cross-border facilities, or uses equipment or services identified on the FCC’s “Covered List” of equipment and services pursuant to the Secure and Trusted Communications Networks Act.
Other criteria include “information and attestations concerning an applicant’s contact information, the specific type of authority the applicant seeks, interlocking directorates, any foreign carrier affiliations, any competition issues, and a certification that the applicant is not subject to a denial of federal benefits pursuant to Section 5301 of the Anti-Drug Abuse Act of 1988.” Any operator, carrier or telco will be permitted to hold one (and only one) 214 Authorization, and carriers will be required to begin providing telco services within a year of being awarded such authority and filing a notification with the FCC to confirm that service provision is operational. Furthermore, authorisations must be surrendered back to the FCC when, or if, service is permanently discontinued.
The regulator will further apply requirements that were adopted in the FCC’s recent Executive Branch Process Reform Order. These include various certifications, a calculation of the indirect voting and equity interests in the carrier, an ownership diagram illustrating the applicant’s vertical ownership structure, and responses to the “triage questions” to which applicants must currently respond if a foreign individual or entity holds a 10% or greater direct or indirect voting or equity interest in the carrier.
The FCC’s stresses that the rules proposed in its Order and Notice of Proposed Rulemaking are “extensive and are likely to impose significant information collection and reporting responsibilities on carriers holding or applying for 214 Authorizations” as well as “those persons and entities that financially invest in those carriers.” In other words, things are going to get bureaucratic and onerous. Things have been slack for too long: Times are changing and, for many people, it’s high time they did.
- Martyn Warwick, Editor in Chief, TelecomTV