Proposal would put other agencies on 90-day clock to complete review of possible national security issues.

fcc building with statue of liberty-1In an effort to facilitate foreign investment in U.S. common carrier and broadcast licensees, the FCC has proposed changes in the way it processes proposals involving reportable levels of foreign ownership. Historically, a major source of delay in the processing of such proposals has been the need for various Executive Branch agencies to review them with an eye toward national security concerns, review which has tended to drag on. Now, however, the FCC is suggesting that the review process can be abbreviated by: (a) requiring proponents to provide national security-related information in their applications and (b) giving Executive Branch agencies a 90-day deadline for giving a thumbs up or thumbs down as to each proposal.

It all sounds great at first blush. But a number of pesky details could prove problematic, particularly for broadcasters and applicants that don’t propose foreign ownership.

Concern about foreign ownership of U.S. communications companies is the focus of Section 310(b) of the Communications Act. That section requires special FCC approval for ownership by non-U.S. citizens of more than 20% of the licensees of common carrier, broadcast, and certain aeronautical radio stations or more than 25% of the parent of a licensee entity. For decades FCC approval of more than 25% foreign control was difficult, if not impossible, to obtain. Recently, however, the FCC has been more receptive to foreign investment, at least in the common carrier context, where significant levels of foreign ownership of undersea cables, telephone companies, satellite earth stations, and wireless carriers are now commonplace. Broadcasters have not requested approval of foreign ownership to the extent that common carriers have, but the FCC has invited applications to break the ice and is waiting to receive them.

The Commission, of course, has the final say as to whether to grant any proposal to exceed the foreign ownership levels specified in Section 310(b). But the FCC has long acknowledged that other governmental agencies have particular expertise in certain areas of concern inherent in such proposals, including national security, law enforcement, foreign policy, and trade policy. Accordingly, a procedure for giving those agencies an opportunity to review the proposals before FCC action on them was developed.

Under that procedure, certain applications or proposals involving foreign ownership are referred to a number of federal agencies for their consideration. Those agencies include (take a deep breath): the Departments of Homeland Security, Justice (including the Federal Bureau of Investigation), Defense, State, and Commerce; the National Telecommunications and Information Administration (NTIA); the U.S. Trade Representative; and the White House’s Office of Science and Technology Policy. Which proposals will be referred out? Proposals where one party who is not a U.S. citizen owns a 10% or greater direct or indirect voting or equity interest, including:

[a]pplication[s] for: (1) international section 214 authority; (2) assignment or transfer of control of domestic or international section 214 authority; (3) a submarine cable landing license; and (4) assignment or transfer of control of a submarine cable landing license. [Additionally,] petitions seeking authority to exceed the [20-25%] section 310(b) foreign ownership limits for broadcast and common carrier wireless licensees, including common carrier satellite earth stations.

The various Executive Branch agencies then negotiate individual agreements with applicants to ensure accessibility to communications records in accordance with U.S. laws (including the ability to intercept communications for enforcement where permitted by law). In connection with those negotiations, at least some of those agencies also tend to insist that the proponent agree to keep their records in the U.S., where they are subject to subpoena in U.S. courts, and to maintain the physical presence of some responsible personnel in the U.S.

Completion of this review and negotiation process can take months or even years. As a result, the process discourages seeking foreign investment, because it might cause your deal to be held up for an unacceptable length of time.

Last month the NTIA suggested an alternate approach. It proposed that the FCC require that the information ordinarily sought by the Executive Branch agencies during their review and negotiation be submitted to the FCC as part of the initial application, and possibly to the Executive Branch agencies as well at the same time, perhaps in the form of answers to standardized questions. The FCC invited comments on NTIA’s suggestion, which received widespread support. The Commission has now taken the next step by advancing the NTIA’s suggestion (along with some of its own) in a Notice of Proposed Rulemaking (NPRM).

Under the FCC’s new proposals, national security information would have to be filed along with each covered application, with a secure Internet portal available to receive confidential material. The various other agencies would have 90 days to say yea or nay. If they failed to do either by the 90th day, the FCC would deem there to be no national security issues standing in the way of a grant. If the agencies were to think they needed more time to decide, they would have to speak up by the 90th day, explaining to the FCC why more time is needed. If the FCC were satisfied, and if the agencies commit to providing status reports on their review every 30 days, they would get an additional 90 days. Ideally, the end result would put the FCC in a position to grant many applications without the need for an applicant to negotiate its own individual agreement with the Executive Branch (particularly because the FCC application would require the applicant to commit to various terms that such negotiations would ordinarily entail).

In its NPRM the FCC asks what new information it should solicit in its applications. It notes that, if “standard” questions are adopted, they will likely vary for different types of applications. In general, applicants would have to provide:

  • corporate structure with all 10% or greater voting and equity owners;
  • a list of both voting and equity owners;
  • any relationship with foreign entities;
  • their financial condition; certification of compliance with U.S. laws and regulations; and
  • information about their business operations, services, and network infrastructure.

Additionally, the NTIA suggested that proponents should be required to certify that they will:

  • comply with applicable provisions of the Communications Assistance for Law Enforcement Act (CALEA);
  • make communications to, from, or within the United States, as well as records thereof, available in a form and location that permits them to be subject to lawful request or valid legal process under U.S. law, for services covered under the requested Commission license or authorization;
  • agree to designate a point of contact located in the United States who is a U.S. citizen or lawful permanent resident for the execution of lawful requests and/or legal process;
  • agree to keep the information in the application up to date; and
  • acknowledge that failure to comply with FCC conditions or supplying false information can lead to civil or criminal penalties.

(We omitted a few footnotes.) The Commission is looking for input as to whether all that is a good idea. We might observe that the list of the FCC’s contemplated “standard” questions by themselves – leaving aside the answers – occupies three full pages in the NPRM, which says something about what the agency thinks qualifies as “streamlined.”

It all sounds pretty good at first blush. But some commenters have already noted that the proposal would expand the amount of FCC-required information beyond what has historically been collected, and that the FCC might not need or make any use of the additional information. For example, many of the law enforcement concerns underlying the proposed mandatory commitment concerning availability of records of communications and the ability to intercept don’t apply to the broadcast services. So broadcasters beware – requiring a broadcast proponent to commit to the various certifications proposed by NTIA would be unnecessary overkill.

Some commenters have questioned whether the FCC needs detailed information in applications for pro forma license assignments and transfers (i.e., applications in which a change in corporate structure but not in the ultimate human owners, is proposed) or from communications resellers that don’t own any of their own facilities. And what about applicants that don’t propose more than 25% aggregate foreign ownership – would they get sucked into the new regime? While an effort to streamline governmental red tape and thereby open up an alternate source of capital is obviously desirable, the fine print of the FCC’s (and NTIA’s) proposal will have to be scrutinized carefully to avoid any unintended consequences.

As the Obama Administration comes to a close – we’re now less than five months from the election and seven months from installation of the next administration – we can expect the FCC to put some proceedings on a fast track in an effort to get them done in the remaining time. That’s the case here: comments are due only 30 days after the NPRM appears in the Federal Register and reply comments only 15 days later. Watch to find out when the comment periods are set.