Senate Subcommittee Faults US Government On PRC Telecom

“It is this constant evolution that highlights a major flaw with the FCC’s Section 214 authorizations: once authorized, a company can operate indefinitely without any oversight. Without proper oversight, foreign carriers operating in the United States can expose the United States to potential economic, national security, and law enforcement risks. The federal government has highlighted the potential risks associated with Chinese telecommunications carriers operating in the United States.”  

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On June 9, the chair and ranking member of the Senate Homeland Security & Governmental Affairs Committee’s Permanent Investigations Subcommittee released a “bipartisan” report alleging that the United States’ (US) government was lax in allowing telecommunications companies from the People’s Republic of China (PRC) to enter the US market. Specifically, Chair Rob Portman (R-OH) and Ranking Member Tom Carper (D-DE) took issue with how well the Federal Communications Commission (FCC) and “Team Telecom,” an inter-agency review process, oversaw the entrance and operation of three PRC telecommunications in the US, especially from the perspective of national security: China Mobile, China Telecom, and China Unicom. The Subcommittee launched its inquiry after the FCC rejected China Mobile International (USA) Inc.’s application to operate in the US. In May 2019. Since that time, the FCC has undertaken a review of the three aforementioned PRC entities, and the Trump Administration issued an executive order (EO) to revamp and formalize the Team Telecom review process (See here for more detail.) The Subcommittee found a number of ongoing problems with the review and oversight process and recommended a number of changes.

Portman and Carper called for legislation to codify and reform the Team Telecom review process along the same lines as the recent reform of the Committee on Foreign Investment in the United States. Given that these authorities and the thrust of the legislation are focused on the PRC, there is likely significant support on Capitol Hill for a measure that would lead to further scrutiny of PRC telecommunications carriers. Should such legislation be paired with other measures aimed at PRC technology entities, it may face resistance from some stakeholders, including the White House, that may bar enactment this year. Another possibility is that legislation such as this is developed this Congress and support is built for passage in a future year, possibly via inclusion in the National Defense Authorization Act.

The Subcommittee claimed the report “details how the U.S. federal government—particularly the FCC, Department of Justice (DOJ), and Department of Homeland Security (DHS)— historically exercised minimal oversight to safeguard U.S. telecommunications networks against risks posed by Chinese state-owned carriers.” The Subcommittee noted “[t]hree Chinese state-owned carriers have been operating in the United States since the early 2000s, but only in recent years have the FCC, DOJ, and DHS focused on potential risks associated with these carriers. DOJ and DHS did enter into security agreements with two of the Chinese state-owned carriers prior to 2010, but they conducted only two site visits to each carrier since that time (or four total).” The Subcommittee claimed “[t]hree of those visits occurred between 2017 and 2018” and concluded “[t]his lack of oversight undermined the safety of American communications and endangered our national security.”

The Subcommittee stated

Since the Subcommittee launched its investigation, the agencies have increased their oversight of the Chinese state-owned carriers. The administration also recently issued an executive order establishing a formal committee to review the national security and law enforcement risks posed by foreign carriers operating in the United States. Still, the new committee’s authorities remain limited, and as a result, our country, our privacy, and our information remain at risk.

The Subcommittee concluded

It is well understood that the national security environment evolves over time. It is this constant evolution that highlights a major flaw with the FCC’s Section 214 authorizations: once authorized, a company can operate indefinitely without any oversight. Without proper oversight, foreign carriers operating in the United States can expose the United States to potential economic, national security, and law enforcement risks. The federal government has highlighted the potential risks associated with Chinese telecommunications carriers operating in the United States. Three particular carriers have been operating in the United States for approximately 20 years, without sufficient oversight from the FCC and the Executive Branch. Especially when dealing with state-owned telecommunications carriers, greater controls are needed, and the Administration and Congress must work together to ensure sufficient safeguards and oversight mechanisms are in place.

The Subcommittee made the following recommendations:

  • (1)  The FCC should complete its review of China Telecom Americas, China Unicom Americas, and ComNet in a timely manner. Team Telecom has recommended that China Telecom Americas’ authorizations be revoked because of “substantial and unacceptable” national security concerns. The FCC should expeditiously review the authorizations of China Telecom Americas and the other Chinese state-owned carriers to ensure our national security and communications networks are not unnecessarily put at risk. As part of its review of China Unicom Americas’ and ComNet’s authorizations, the FCC should seek the recommendation of the newly established EO Telecom Committee as to national security and law enforcement concerns associated with the carriers’ authorizations. The analysis should also include a decision as to whether risks can be mitigated—through the existing security agreements or new agreements.
  • (2)  The FCC should establish a clear standard and process for revoking a foreign carrier’s existing authorizations. Currently, there is no clear standard or process for revoking a foreign carrier’s existing authorizations. Telecommunications companies must understand the circumstances under which authorizations could be revoked and be afforded due process to challenge potential revocation. Team Telecom officials indicated that they do not know what the FCC considers a “sufficient” basis for a revocation. Thus, while government officials may believe revocation is warranted, they may not recommend revocation without additional guidance. A formal standard and revocation process would provide clear guidance to both the government and industry as to when revocation of an existing authorization is warranted.
  • (3)  Congress should require the periodic review and renewal of foreign carriers’ authorizations to provide international telecommunications services. Currently, these authorizations can exist in perpetuity. Although the recent Executive Order allows the EO Telecom Committee to review existing authorizations, it does not mandate periodic review or renewal. Considering the limited resources DOJ and DHS dedicated to Team Telecom’s review of foreign carriers’ applications, it is unlikely that they will review many existing authorizations. National security and law enforcement concerns, as well as trade, and foreign policy concerns, however, are ever evolving, meaning that an authorization granted in one year may not continue to serve the public interest years later. Requiring a periodic review and renewal of authorizations would ensure that the FCC and the Executive Branch continually account for evolving national security, law enforcement, policy, and trade risks.
  • (4)  Congress should statutorily authorize the EO Telecom Committee. The Administration established the EO Telecom Committee, which formalizes Team Telecom, but the EO Telecom Committee still has no governing statutory authority. Team Telecom’s historical lack of statutory authority led to a review process criticized by many as “opaque” and “broken.” The recent Executive Order is a positive step, but formal legislative authority will provide for greater oversight over foreign carriers.
  • (5)  Congress should preserve the role of other relevant Executive Branch agencies. Team Telecom was comprised of DOJ, DHS, and DOD officials. These agencies are also the primary components of the newly established EO Telecom Committee. Historically, the FCC has sought input on a foreign carrier’s application from other Executive Branch agencies, including the Department of State, Department of Commerce, and the U.S. Trade Representative. The recent Executive Order makes these agencies, and others, advisors to the EO Telecom Committee. These agencies provide invaluable input and their role in the review process must be accounted for in any formal legislation.
  • (6)  Congress should set deadlines by which decisions on FCC- related application reviews must be made. Team Telecom had no set deadlines by which it needed to complete its review of a foreign carrier’s application pursuant to the FCC’s request. Further, Team Telecom’s already limited resources were often focused on actions related to the Committee on Foreign Investment in the United States (“CFIUS”). This resulted in protracted reviews and business uncertainty. Setting deadlines will imbue trust back into the review process. The recent Executive Order imposed certain timelines, but it allows for the EO Telecom Committee to seek extensions, which could draw out the review process, especially if resources remain limited.
  • (7)  Congress should provide sustained resources necessary for the EO Telecom Committee to effectively assess foreign carriers’ applications and to monitor foreign carriers operating in the United States. The Foreign Investment Risk Review Modernization Act of 2018 provided CFIUS agencies specialized authority to hire staff to ensure agencies can manage CFIUS filings. EO Telecom Committee agencies should be provided a similar authority to ensure it is able to effectively and efficiently review foreign carriers’ applications and monitor foreign carriers’ operations.
  • (8)  Congress should require the EO Telecom Committee to formally coordinate reviews of foreign carrier applications with CFIUS. The EO Telecom Committee’s component agencies are members of CFIUS. CFIUS’s and the EO Telecom Committee’s processes overlap when a foreign investor seeks to acquire control of a U.S. telecommunications operator or infrastructure owner. These applications already undergo extensive review by CFIUS. Requiring formal coordination between CFIUS and the EO Telecom Committee will streamline the regulatory clearance process while meeting national security, law enforcement, trade policy, and foreign policy objectives.
  • (9)  Congress should provide the EO Telecom Committee with authority to recommend revocation of a carrier’s authorization, even where no security agreement exists between it and the carrier. Where no security agreement existed, Team Telecom did not interact with the foreign carrier. Although certain government officials believed that Team Telecom could review an existing authorization, even where no agreement existed, there is no formal, legal basis for such review. Combined with a requirement to periodically renew authorizations, affording the EO Telecom Committee the authority to review and recommend revocation of existing authorizations, even without a security agreement in place, allows the EO Telecom Committee to better respond to the evolving nature of national security risks.
  • (10)  Congress should require the periodic review and renewal of security agreements between the EO Telecom Committee and foreign carriers. Team Telecom officials told the Subcommittee that, even if it believed that a security agreement was not comprehensive to address all risks associated with a foreign carrier’s operations, it had little leverage to update the agreement. This means that certain risks, which could otherwise be mitigated, may go unaddressed. Requiring a periodic review and renewal of security agreements provides the EO Telecom Committee yet another tool to ensure that national security and other risks are regularly assessed and addressed.
  • (11)  The EO Telecom Committee should establish formal, written policies and procedures governing its monitoring of compliance with security agreements. Team Telecom had no formal, written processes governing its monitoring of a foreign carrier’s compliance with a security agreement. It relied on written correspondence and site visits, but there was no clear method as to when these mechanisms were used or why. The EO Telecom Committee should document and formalize Team Telecom’s processes, which will provide for more streamlined and consistent review of foreign carriers’ operations in the United States.
  • (12) Congress and the Administration should take steps to ensure reciprocal access to the Chinese telecommunications market for U.S. companies. In those aspects of telecommunications in which China officially permits foreign participation, China requires forced technology transfers and imposes discriminatory regulatory processes and burdensome licensing and operating requirements. This results in a highly asymmetric playing field in which U.S. companies face immensely restrictive policies in China, while Chinese companies are not equally restricted in the United States.

© Michael Kans, Michael Kans Blog and michaelkans.blog, 2019-2020. Unauthorized use and/or duplication of this material without express and written permission from this site’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Michael Kans, Michael Kans Blog, and michaelkans.blog with appropriate and specific direction to the original content.

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