Threats to U.S. Networks/Section 4A

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Section IV
Threats to U.S. Networks: Oversight of Chinese Government-Owned Carriers
by the Permanent Subcommittee on Investigations
Section IV, B
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​A. The FCC Regulates the Operations of Foreign Telecommunications Carriers in the United States

The FCC is an independent[1] U.S. government agency responsible for regulating "interstate and international communications by radio, television, wire, satellite, and cable in all 50 states, the District of Columbia, and U.S. territories."[2] Congress created the FCC to evaluate and regulate competition within the communications industry and avoid economic waste, by assessing and preventing large monopolies and protecting existing carriers through regulation of market entry.[3] With a focus on ensuring economic opportunities, the FCC seeks to ​promote "competition, innovation, and investment" in communications services and facilities.[4] The FCC's International Bureau administers "international telecommunications and satellite programs and policies, including licensing and regulatory functions,"[5] as well as monitors compliance "with the terms and conditions of authorizations and licenses granted by the Bureau . . . [,]" including authorizations to foreign carriers to operate telecommunications lines to, from, or within the United States.[6]

1. The FCC Authorizes Carriers to Provide Telecommunications Services in the United States Pursuant to Section 214 of the Communications Act of 1934

The FCC authorizes carriers to operate in the United States under Section 214 of the Communications Act of 1934.[7] Specifically, Section 214(a) provides that no telecommunications carrier may construct, extend, acquire, or operate a wire or cable line or engage in transmission over a line unless and until the FCC certifies that such action serves the public interest, convenience, and necessity.[8] Section 214 similarly regulates the transfer of control and assignment of telecommunication lines.[9]

The development of telecommunications technology in the early- and mid-1900s spurred the desire for greater government regulation of the industry.[10] Previously, oversight was effected through the Interstate Commerce Commission ("ICC"), although many viewed the ICC as only supervising routine matters and lacking an effective "legislative mandate to implement its mission."[11] A Department of Commerce interdepartmental committee ultimately recommended that the FCC be established to "centralize the jurisdiction of [the ICC] over wire and radio common carriers . . . and . . . over telegraph companies and telegraph lines."[12] ​Section 214 served to codify this consolidation.[13] In presenting the proposed legislation, Representative Sam Rayburn, chairman of the sponsoring committee, summarized the purpose of Section 214 as follows:

Section 214, relating to extensions of lines, is based upon section 1(18) - (22) of the Interstate Commerce Act, which relates only to transportation. It requires a certificate of public convenience and necessity from the Commission for the construction of a new interstate line . . . . The section is designed to prevent useless duplication of facilities, with consequent higher charges upon the users of the service.[14]

Today, Section 214 authorization covers a carrier's provision of "telecommunications services," defined as the "offering of telecommunications for a fee directly to the public, or to such classes of users as to be effectively available directly to the public, regardless of the facilities used."[15] The FCC's rules divide telecommunications services into (1) facilities-based services—where a carrier provides services across its own infrastructure and facilities,[16] and (2) resale services where a carrier sells services provided through another carrier's network.[17]

2. The FCC Must Determine that International Section 214 Authorization Serves the Public Interest, but It Relies on the Executive Branch to Evaluate National Security, Law Enforcement, Foreign Policy, and Trade Concerns

The FCC's assessment of international Section 214 applications includes consideration of the applicant's foreign ownership, given that the FCC seeks to balance its desire for an open market against potential discrimination by foreign carriers against domestic carriers.[18] Prior to the mid-1990s, however, the FCC ​evaluated foreign ownership on an ad hoc basis.[19] Over time, the FCC formalized its international Section 214 application review process, including documenting the criteria it considers in evaluating applications.[20] The FCC has also taken a number of steps to streamline the process for reviewing and approving applications.[21]

When evaluating Section 214 applications, the FCC must determine that a carrier's proposed operations serve the public interest.[22] In 1995, the FCC explained that it considers a variety of factors when evaluating the public interest. Included among the factors are "national security, law enforcement issues, foreign policy, and trade concerns brought to [the FCC's] attention by the Executive Branch."[23] The FCC recognized that federal agencies have "specific expertise" in these matters, such that the FCC's analysis would benefit from those agencies' input.[24] It "accord[s] deference to the expertise of the Executive Branch in identifying and interpreting issues of concern related to national security, law enforcement, and foreign policy"[25] and "considers any such legitimate concerns as [it] undertake[s] [its] own independent analyses of whether grant of a particular authorization is in the public interest."[26] The carrier applicant has the burden to show that its proposed services would serve the public interest despite any national security, law enforcement, or other risks identified by the Executive Branch.[27]

Upon "accepting" an international Section 214 application, the FCC releases a public notice summarizing the applicant's proposed services.[28] Where a carrier ​has a ten percent or greater foreign owner,[29] the FCC refers the application to the Executive Branch agencies via an "Executive Branch letter."[30] The letter explains that the FCC received an application from a carrier with foreign ownership interest and briefly describes the applicant and its proposed services.[31] The FCC requests that the agencies opine on whether the application raises national security, law enforcement, foreign policy, or trade policy concerns.[32] If the Executive Branch agencies do not raise national security, law enforcement, foreign policy, or trade policy concerns, the FCC conducts no further review of the issues.[33] In fact, in its Executive Branch letter, the FCC typically requests that agencies provide comments by a certain date, because the FCC is otherwise "prepared to take action on [the] application[]."[34] The FCC "streamlines" the application and deems it approved 14 days after the FCC issues a public notice of the application.[35] Thereafter, the carrier is allowed to begin providing the authorized services.

3. The FCC Does Not Periodically Review Section 214 Authorizations Once Granted

Once the FCC authorizes a carrier to provide services, nothing in the FCC's regulations require it to periodically renew that authorization or to reevaluate whether the carrier's services continue to serve the public interest.[36] As long as the authorized carrier pays annual regulatory fees, files regular reports, and otherwise complies with the FCC's rules, the authorization to operate and provide services ​effectively extends indefinitely.[37] A carrier can install, replace, or make other changes to its operations and equipment, so long as it does not impair the adequacy or quality of service provided.[38] A carrier can also use its international Section 214 authorization to demonstrate legitimacy of its operations in seeking interconnections with U.S. or other foreign carriers.[39] This means that a foreign carrier can operate for years, if not decades, at a time, without regard to the evolving global environment.

The FCC can revoke authorizations,[40] but the FCC has never done so under a national security standard.[41] The Subcommittee reviewed some FCC revocation decisions, which were based on the carrier discontinuing operations, ceasing to pay annual fees, or failing to file required reports, either with the FCC or Team Telecom.[42] One Team Telecom official suggested to the Subcommittee that, especially where a foreign carrier is servicing a large number of customers, the FCC may be hesitant to revoke an authorization because of the potential customer harm.[43]

  1. ↑ The FCC is "an independent U.S. government agency overseen by Congress." It is "directed by five commissioners who are appointed by the President of the United States and confirmed by the U.S. Senate." See What We Do, Fed. Commc'ns Comm'n, https://www.fcc.gov/about-fcc/what-we-do.
  2. ↑ 47 U.S.C. § 151 et seq. (as amended) (2018); Mission, Fed. Commc'ns Comm'n, https://www.fcc.gov/about/overview.
  3. ↑ See generally H. Comm. on Interstate & Foreign Commerce, Comms. Act of 1934, Section 214 Legislative Background, H. Doc. No. 44-667, 1–2 (1979) [hereinafter Section 214 Legislative Background].
  4. ↑ What We Do, Fed. Commc'ns Comm'n, https://www.fcc.gov/about-fcc/what-we-do.
  5. ↑ International, Fed. Commc'ns Comm'n, https://www.fcc.gov/international. See 47 C.F.R. §§ 0.51, 0.261.
  6. ↑ Functions of the International Bureau, Fed. Commc'ns Comm'n, https://www.fcc.gov/general/international-bureau-functions. See 47 C.F.R. § 0.51.
  7. ↑ See 47 U.S.C. § 214(a).
  8. ↑ See id. FCC authorization is not required for "(1) a line within a single State unless such line constitutes part of an interstate line, (2) local, branch, or terminal lines not exceeding ten miles in length, or (3) any line acquired under section 221 [concerning consolidations and mergers of telephone companies]." Id. See also John Sallet, FCC General Counsel, FCC Transaction Review: Competition and the Public Interest, FCC Blog (Aug. 12, 2014), https://www.fcc.gov/news-events/blog/2014/08/12/fcc-transaction-review-competition-and-public-interest.
  9. ↑ See 47 U.S.C. § 214(a).
  10. ↑ See generally Section 214 Legislative Background, supra note 128.
  11. ↑ Section 214 Legislative Background, supra note 128, at 25.
  12. ↑ Section 214 Legislative Background, supra note 128, at 25. Thus, the FCC regulates "common carriers," defined as "any person [partnership, association, joint-stock company, trust, or corporation] engaged as a common carrier for hire, in interstate or foreign communication by wire or radio or interstate or foreign radio transmission of energy. . . ." 47 U.S.C. § 153(11). Telecommunications carriers are separately defined as "any provider of telecommunications," with the exception of aggregators of telecommunications services, and are deemed to be common carriers to the extent that the carriers are providing telecommunications services. See 47 U.S.C. § 153(51).
  13. ↑ See generally Section 214 Legislative Background, supra note 128.
  14. ↑ Section 214 Legislative Background, supra note 128, at 26 (quoting 78 Cong. Rec. 10814 (1934)).
  15. ↑ See 47 U.S.C. § 153(53).
  16. ↑ See 47 C.F.R. § 63.22; Briefing with the Dep't of Justice (Apr. 3, 2020). Specifically, "facilities-based carrier" is defined as "a carrier that holds an ownership, indefeasible-right-of-user, or leasehold interest in bare capacity in the U.S. end of an international facility, regardless of whether the underlying facility is a common carrier or non-common carrier submarine cable or a satellite system." See 47 C.F.R. § 63.09(a).
  17. ↑ See 47 C.F.R. § 63.23; Briefing with the Dep't of Justice (Apr. 3, 2020).
  18. ↑ Paul W. Kenefick, A Step in the Right Direction: The FCC Provides Regulatory Relief in International Settlements and International Services Licensing, 8 Comm. Law Conspectus 45 (2000).
  19. ↑ Id.
  20. ↑ See In the Matter of Mkt. Entry & Regulation of Foreign Affiliated Entities, Rep. & Order, 11 FCC Red 3873 (1995) [hereinafter 1995 FCC Foreign Entry Order]; In the Matter of Streamlining the Int'l Section 214 Authorization Process & Tariff Requirements, Report & Order, 11 FCC Red 12884 (1996) [hereinafter 1996 FCC Streamlining Order]; 47 C.F.R. § 63.18. In 1999, the FCC granted all telecommunications carriers blanket authority under Section 214 to provide domestic interstate services and to construct or operate any domestic transmission lines. Implementation of Section 402(b)(2)(A) of the Telecommunications Act of 1996 et al., Report and Order in CC Docket No. 97-11, Second Memorandum Opinion & Order in AAD File No. 98–43, 14 FCC Red 11364, 11365–66,¶ 2 (1999); 47 C.F.R. § 63.01.
  21. ↑ See generally 1995 FCC Foreign Entry Order, supra note 145; 1996 FCC Streamlining Order, supra note 145.
  22. ↑ 47 C.F.R. § 63.18; 47 U.S.C. § 214; 1995 FCC Foreign Entry Order, supra note 145, at 223; In the Matter of Rules & Policies on Foreign Participation in the U.S. Telecomm. Mkt., Report & Order, 12 FCC Red 23891, ¶¶ 65-66 (1997) [hereinafter 1997 FCC Foreign Participation Order].
  23. ↑ 1995 FCC Foreign Entry Order, supra note 145, at 3. See also 1997 FCC Foreign Participation Order, supra note 147, at ¶¶59-61.
  24. ↑ 1997 FCC Foreign Participation Order, supra note 147, at ¶¶61-62. See also 1995 FCC Foreign Entry Order, supra note 145, at ¶¶38, 62, 216–19.
  25. ↑ 1997 FCC Foreign Participation Order, supra note 147, at ¶63.
  26. ↑ 1997 FCC Foreign Participation Order, supra note 147, at ¶62.
  27. ↑ See In the Matter of China Mobile Int'l (USA) Inc., FCC No. 19-38, 34 FCC Red 3361, 3367, 11 (May 10, 2019).
  28. ↑ See 47 C.F.R. § 63.12(a). See, e.g., Fed. Commc'ns Comm'n, Public Notice—International Applications Accepted for Filing, Rep. No. TEL-01338S (Jan. 16, 2009); Fed. Commc'ns Comm'n, Public Notice—International Applications Accepted for Filing, Rep. No. TEL-00575S (Sept. 13, 2002); Fed. Commc'ns Comm'n, Public Notice—International Applications Accepted for Filing, Rep. No. TEL-00417S (July 6, 2001); Fed. Commc'ns Comm'n, Public Notice—International Applications Accepted for Filing, Rep. No. TEL-00144S (Oct. 13, 1999).
  29. ↑ Notice of Proposed Rulemaking: Process Reform for Exec. Branch Review of Certain FCC Applications & Petitions Involving Foreign Ownership, 31 FCC Red 7456, 7458 ¶6 (2016) [hereinafter FCC Proposed Executive Branch Review Reform]. See also Executive Branch Recommendation re China Mobile USA, supra note 56, at 2; Kathleen Collins, Assistant Bureau Chief, International Bureau, Fed. Commc'ns Comm'n, Remarks for Panel Discussion at the 2d National Forum on CFIUS (July 21, 2015).
  30. ↑ See Briefing with the Dep't of Justice (Aug. 1, 2019). See, e.g., FCC-PSI-000227-28; FCC-PSI-000478-79.
  31. ↑ See Briefing with the Dep't of Justice (Aug. 1, 2019). See, e.g., FCC-PSI-000227-28; FCC-PSI-000478-79.
  32. ↑ See, e.g., FCC-PSI-000227-28; FCC-PSI-000478-79.
  33. ↑ See Email from the Fed. Commc'ns Comm'n to the Subcommittee (June 2, 2020) (on file with the Subcommittee).
  34. ↑ See, e.g., FCC-PSI-000227-28; FCC-PSI-000478-79.
  35. ↑ See 47 C.F.R. § 63.12(a)-(b). In addition to requests by Team Telecom and other Executive Branch agencies, the FCC can remove an application from streamlining if certain specified regulatory requirements are met. See id.
  36. ↑ See generally 47 U.S.C. § 214(a). The FCC told the Subcommittee, however, that if at any time it finds an international Section 214 holder is not compliant with FCC rules, the FCC can and has referred the authorization holder to the FCC's Enforcement Bureau. Email from the Fed. Commc'ns Comm'n to the Subcommittee (June 2, 2020) (on file with the Subcommittee).
  37. ↑ See 47 U.S.C. § 159(a); 47 C.F.R. § 63.20; Fees, Fed. Commc'ns Comm'n, https://www.fcc.gov/licensing-databases/fees.
  38. ↑ See 47 U.S.C. § 214(a).
  39. ↑ See In the Matter of China Mobile Int'l (USA) Inc., FCC No. 19-38, 34 FCC Red 3361, 3377, ¶33 n.98 (May 10, 2019) (finding that Section 214 authorization would allow China Mobile USA to request interconnection with the networks of other Section 214-authorized U.S. common carriers).
  40. ↑ While there is no provision of the U.S. Code or the FCC's regulations that specifically provides for the revocation of international Section 214 authorizations, the FCC's prior revocation decisions generally cite to authority under 47 U.S.C. § 154(i) ("The Commission may perform any and all acts, make such rules and regulations, and issue such orders, not inconsistent with this chapter, as may be necessary in the execution of its functions."). See, e.g., In the Matter of IP To Go, LLC, 81 Fed. Reg. 91933 (Dec. 2016); In the Matter of Redes Modernas de la Frontera SA de CV, 81 Fed. Reg. 91932 (Dec. 2016); In the Matter of JuBe Communications LLC, 81 Fed. Reg. 55199 (Aug. 2016).
  41. ↑ See Briefing with the Dep't of Homeland Sec. (Feb. 7, 2020). Although no decision has been reached, as described further below, the FCC recently ordered Chinese government-controlled carriers with international Section 214 authorizations to show cause why their authorizations should not be revoked. In the orders, the FCC highlighted national security concerns as a reason revocation may be warranted. See Press Release, Fed. Commc'ns Comm'n, FCC Scrutinizes Four Chinese Government-Controlled Entities Providing Telecommunications Services in the U.S. (Apr. 24, 2020), https://www.fcc.gov/document/fcc-scrutinizes-four-chinese-government-controlled-telecom-entities.
  42. ↑ Typically, Team Telecom alerts the FCC that the authorized carrier is failing to comply with the commitments outlined in the security agreement. Most instances reviewed by the Subcommittee involved a carrier that was no longer doing business in the United States and therefore was not filing the requisite information. Team Telecom recommended that the FCC terminate the authorization. The FCC first conducted its own lengthy review process, which included providing notice, allowing the applicant to respond to the allegations, and comply with the mitigation agreement. See, e.g., In the Matter of IP To Go, LLC, 81 Fed. Reg. 91933 (Dec. 2016); In the Matter of Redes Modernas de la Frontera SA de CV, 81 Fed. Reg. 91932 (Dec. 2016); In the Matter of JuBe Communications LLC, 81 Fed. Reg. 55199 (Aug. 2016).
  43. ↑ Briefing with the Dep't of Justice (Aug. 1, 2019).
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