FCC Fortifies International Section 214 Holder Obligations to Promote National Security

On April 25, 2023, the FCC released an Order and Notice of Proposed Rulemaking (“NPRM”) on changes to its rules on international Section 214 authorizations, the authorizations necessary for telecommunications carriers to provide international telecommunications services between the U.S. and foreign destinations. The Order adopts a one-time foreign ownership information collection from all current international Section 214 authorization holders.  The NPRM seeks comments on a number of proposals that would impose new requirements on international Section 214 authorization holders.  Among other changes, the Commission proposes lowering the threshold for reporting foreign ownership from ten to five percent, imposing a ten-year renewal requirement, and requiring that applicants provide additional information about their services and geographic markets.  The FCC also proposes a mandate that applicants make certifications regarding adherence to baseline cybersecurity standards and not using equipment on the FCC’s Covered List of prohibited communications equipment and services found to pose a national security threat. 

The Order and NPRM are part of the FCC’s ongoing efforts to address perceived national security vulnerabilities in U.S. telecommunications networks and the broader telecommunications supply chain.  The FCC’s actions in this proceeding were motivated in part by a 2020 report of the United States Senate Homeland Security Committee Permanent Subcommittee on Investigations calling for periodic review and renewal of foreign carriers’ international Section 214 authorizations.  However, the FCC’s heightened focus on national security goes at least back to 2019, when the FCC denied a Chinese carrier’s application for international 214 authority.  Other recent actions have included: revocation and termination of international 214 authorizations; prohibiting the use of Universal Service Fund resources for equipment or services posed by certain companies deemed to pose a national security threat; creating the Covered List to identify equipment that poses a national security risk; and revising equipment authorization program rules to prohibit authorization of equipment on the Covered List.  The instant Order and NPRM come at these issues from a different angle, amplifying the FCC’s existing Section 214 authorization processes to learn more about investors in the telecom carriers operating in the U.S. and potentially bind authorization holders to new obligations.

The Order

Under current FCC rules, international Section 214 authorization holders are not required to periodically update their foreign ownership after the authorization is granted.  To promote its objectives and inform its next steps in this proceeding, the FCC is with this Order now requiring a one-time information collection applicable to all current authorization holders.  Specifically, the Order mandates that authorization holders identify their 10% or greater direct or indirect foreign interest holders that possess equity and/or voting interests.  The authorization holder must disclose whether any such interest holders are a government organization or citizen of a “foreign adversary” country – namely, China (including Hong Kong), Cuba, Iran, North Korea, Russia, and the Maduro Regime. 

The FCC tasks the Office of International Affairs with conducting this information collection, which includes creating the necessary forms, submitting the collection for Office of Management and Budget (OMB) approval, and publishing in the Federal Register a notice of the effective date of this requirement. Entities that surrender their international Section 214 authorizations before the filing deadline do not need to respond to the one-time information collection. 

The NPRM

With the NPRM, the FCC contemplates taking a more active – and ongoing – role in evaluating the foreign ties of international Section 214 authorization holders.  The FCC states that these proposals will help achieve its goal of ensuring a continual accounting of evolving public interest considerations associated with these authorizations and advance the agency’s national security agenda.  Comments on the NPRM will be due 30 days after the item is published in the Federal Register, with reply comments due 60 days after publication. 

The NPRM proposes and seeks comment on topics including:

• Renewal framework or formalized periodic review
  • The FCC seeks comment on implementing a 10-year renewal timeline or, in the alternative, a 3-year periodic review process for international Section 214 authorizations.
  • The renewal would be based on a finding that the public interest, convenience, and necessity would be served by the renewal, in consideration of factors including national security, law enforcement, foreign policy, and/or trade policy concerns.  The FCC would also consider the applicant’s character qualifications.
  • The periodic review alternative would involve the FCC reviewing all authorization holders at regular intervals to reassess whether retention of the authorization would continue to serve the public interest.  The FCC could then determine whether to initiate a revocation proceeding.
  • The FCC would establish a system of priorities for renewal applications based on whether the carrier currently has reportable foreign ownership, the length of time since the Commission’s most recent review of the authorization, whether the authorization is subject to a mitigation agreement, or the likelihood of raising other national security, law enforcement, foreign policy, and/or trade policy concerns.
  • The FCC seeks comment on if it should adopt streamlined procedures for renewal applications with no foreign ownership or national security concerns.
  • The FCC would continue to coordinate with the Executive Branch agencies (known informally as Team Telecom) for assessment of national security, law enforcement, foreign policy, and/or trade policy concerns. 
• Changes to all applications for international section 214 authority, modification, assignment, transfer of control, and renewal
  • The FCC seeks comment on reducing the reportable foreign ownership threshold from ten percent to five percent.
    • The FCC asks whether the five-percent foreign ownership disclosure requirement should only apply to persons, entities, or government organizations from foreign adversary countries and whether the requirement should not apply to passive or insulated holdings.
  • The FCC asks about requiring disclosures on:
    • The applicant’s current and/or expected future services and the geographic markets where the authorization holder offers service in the United States under its international Section 214 authority;
    • Whether they use or will use foreign-owned managed network service providers (MNSPs); and
    • Cross-border facilities, including location, ownership, and type of facilities.
  • The FCC would impose an ongoing reporting requirement, obligating authorization holders to provide updated ownership and other information every three years following grant of a renewal application until the next grant of a renewal application.
    • As part of the three-year ongoing reporting requirement, authorization holders would be required to report with respect to services provided pursuant to their international Section 214 authority: the current location(s) of their data storage facilities; the foreign countries where they currently store U.S. records; the foreign countries from which their infrastructure in the United States is currently and/or can be accessed, controlled, and/or owned; and the countries in which their employees, subsidiaries, and/or offices are currently located.
• New certifications
  • The FCC proposes requiring applicants for all international Section 214-related applications to certify that they will undertake to implement and adhere to baseline cybersecurity standards based on universally recognized standards such as those provided by the Cybersecurity and Infrastructure Security Agency (CISA) or the Department of Commerce’s National Institute of Standards and Technology (NIST).
  • The FCC seeks comment on requiring applicants to certify as to whether or not they use equipment or services identified on the Commission’s “Covered List” of equipment and services.
  • The FCC proposes to require applicants to certify that they will not purchase and/or use equipment on the “Covered List” as a condition of grant of the application.
• Referral to Executive Branch agencies
  • The FCC would refer renewal applications with reportable foreign ownership to the Executive Branch agencies for their review.
  • The FCC also proposes to refer applications without reportable foreign ownership but for which other aspects of the application may raise national security or law enforcement concerns.  For example, the FCC could refer applications reporting that the applicant will use foreign-owned MNSPs, utilizes cross-border facilities that raise national security concerns, or uses Covered List equipment or services.
• Other changes to FCC rules
  • The FCC proposes limiting a holder to only one international Section 214 authorization except in limited circumstances.  A carrier holding more than one authorization would need to surrender its excess authorizations.
  • An entity would be required to commence service under its international Section 214 authorization within one year.

Significance and Impacts

This proceeding is a striking initiative by the Commission to add vigor to a longstanding licensing regime to accomplish far-reaching goals, from monitoring foreign investment in telecom companies to protecting against insecure equipment to requiring cybersecurity measures.

New Significant Compliance Burdens

The Order’s new requirements will apply to any entity holding one of the approximately 7,000 international Section 214 authorizations.  As an initial matter, companies will need to make strategic decisions about whether to retain their authorizations and how to comply with the mandatory one-time information collection, including preparing to provide the name, address, citizenship, and principal businesses of any person or entity that directly or indirectly owns at least 10% of the equity of the applicant, and the percentage of equity owned by each of those entities (to the nearest 1%).  Identifying such interest holders can be challenging for publicly traded companies.  In addition, if adopted, the NPRM could lead to a much more onerous regulatory regime for current and future international Section 214 authorization holders.  Authorization holders would be subject to more frequent and fulsome review of their ownership and networks, and application grants may include conditions.    

Continued and Enhanced Scrutiny of Foreign Investment

The Order and the NPRM reflect the Commission’s ongoing concerns about foreign adversaries’ influence in the U.S. communications industry.  The proposed new disclosures will give the FCC a more granular – and periodic – view of carrier ownership beyond just the parent company level.  In addition, the NPRM would lower the foreign ownership threshold to five percent instead of ten. On top of the burden of compliance, these new requirements could chill investment from foreign entities and individuals. 

Maintaining Focus on National Security Concerns

The NPRM’s proposals would give the FCC far greater insight into the ties between Section 214 authorization holders and foreign entities, with particular focus on foreign adversaries.  Throughout the document, the FCC identifies instances in which it will refer certain international Section 214 applications to Executive Branch review.  This course of action likely means greater scrutiny, longer timeframes for approval, and potentially conditions on grants related to national security. 

The NPRM also ties the international 214 proceeding to the FCC’s ongoing equipment initiatives.  The FCC proposes adding a Covered List equipment component to its Section 214 regime and requiring applicants to notify the FCC within 30 days prior to implementing any plan to add new vendors to provide equipment or services that are on the Covered List or plan to add/remove such services for existing or new customers.  These proposals will result in greater compliance burdens and require more touchpoints between industry and the FCC where new obligations can be imposed. 

Cybersecurity

The NPRM is also significant for adding a cybersecurity component to the international Section 214 regime, which has not previously been present.  The FCC has been actively claiming its role in cybersecurity regulation through its jurisdiction over the nations’ communications, and this proceeding is an indication that this trend will continue.

Next Steps

Present and future telecom carriers and their investors will want to carefully watch this proceeding to understand how the FCC is planning on amending its international Section 214 processes to review ownership and investment and further other priorities such as national security and cybersecurity.  Interested parties may wish to comment on the NPRM’s proposals to inform the agency on the impact on their businesses, practices, and the investment community and suggest changes that could lessen any undue burdens. 

Please contact us if you need support analyzing this rulemaking, formulating advocacy strategies, assessing your company’s compliance obligations, or managing your international Section 214 authorizations.¹

Authored by Katy Milner and Andrew McCardle.