At its April 20, 2023 Open Meeting, the Federal Communications
Commission ("FCC" or "Commission") adopted an
Order imposing a one-time ownership-related data request to which
all holders of Section 214 authority to provide
international telecommunications services (i.e., common
carrier services between U.S. and non-U.S. points)
("International 214 Holders") must respond ("Data
Request"). The due date is not yet known because the Order
must first be reviewed and approved by the Office of Management and
Budget ("OMB") because responses to the data request will
involve data collection by the FCC. Noncompliance will subject
International 214 Holders to potential monetary and other penalties
up to and including license revocation.
The following Frequently Asked Questions offers a practical guide
to compliance with the principal aspects of the Order. If you have
a question that we did not anticipate, please do not hesitate to
reach out to one of the attorneys of the Kelley Drye Communications
Group.
The Order was accompanied by a Notice of Proposed Rulemaking by
which the FCC is proposing to make a number of far-reaching changes
to the rules governing Section 214 authorization holders. These
changes could result in considerable additional compliance burdens
on carriers in the future. We will be posting a blog discussing the
NPRM within the next few days
- Must my company submit a response to the Data Request?
If your company held an international Section 214 authorization
issued by the Commission as of thirty (30) days prior to the
response filing date for the Data Request (the "Filing
Deadline"), it must respond to the Data Request even if no
foreign individual or entity has an interest in it. (See
below "What is the scope of the information affected
International 214 Holders must provide in response to the Data
Request?") If your company provides international
telecommunications only on a private carrier basis or even if your
company is not providing any communications services at all,
but you are an International 214 Holder, you must respond
to the data request. If your company held an International Section
214 authorization, but it has been surrendered (or revoked) prior
to the Filing Deadline, you need not respond to the Data Request.
(The FCC encourages International 214 Holders no longer needing
their authorizations to surrender them in advance of the Filing
Deadline via a surrender letter.)
- Does the Data Request involve carriers that only hold domestic (interstate) Section 214 authority?
No. The Data Request is being issued only to entities holding
international Section 214 authority (although they may provide
Section 214 domestic (i.e., interstate) services as well).
- When are responses due to the one-time Data Request imposed by the Order?
The Filing Deadline is not yet known. The FCC must obtain
Paperwork Reduction Act ("PRA") approval for the Data
Request from OMB. When that is completed, the FCC will publish
notice of the effective date of the Data Request and the date of
the filing deadline in the Federal Register. The Filing Deadline
will be at least thirty (30) days after completion of the OMB
review. The FCC will separately also issue a Public Notice,
confirming the Filing Deadline and explaining the process for
submissions. Consequently, it will likely be June or into the third
quarter of 2023 before the Data Request responses are due.
Nevertheless, because the revamping of the international Section
214 framework is being accorded a high priority throughout the FCC
and because the collected information is integral to Staff's
task of considering the rules changes proposed in the NPRM, we
anticipate that the FCC will try to move through the PRA process
and other gatekeeping processes expeditiously. See below
"What should my company (if it is an International 214 Holder)
do now to prepare for responding to the Data Request?"
- What are the consequences for International 214 Holders that fail to respond?
International 214 Holders that do not respond to the Data
Request or that submit responses after the Filing Deadline may
incur monetary penalties and other enforcement action, up to and
potentially including revocation of their authorization.
- What is the scope of the information affected International 214 Holders must provide in response to the Data Request?
International 214 Holders must identify all foreign individuals
or foreign-organized interest holders (" Foreign Interest
Holders") with a 10% or greater direct or indirect interest in
the equity or voting stock of the International 214 Holder as of
the date thirty (30) days prior to the Filing Deadline. For each
such Foreign Interest Holder, the reporting International 214
Holder must submit the information currently required by Section
63.18(h), namely the name, address, citizenship and principal
businesses of the Foreign Interest Holder, and the percentage of
equity owned or capital stock voted by each such individual or
entity (to the nearest one percent). (Under the application of this
rule, the Commission has for some time requested both equity and
voting interests.) For these purposes, Foreign Interest Holders
include individuals with dual (or more) citizenships and the
associated details for each of these citizenships must be provided.
Each reporting International 214 Holder will need to certify,
through an officer or other authorized representative, to the
accuracy of its response.
To facilitate FCC review of the collected information, each
response will be submitted in one of three categories by the Filing
Deadline (absent a change in FCC instructions issued after OMB
review):
- Reportable Foreign Ownership - Foreign Adversary - China (including Hong Kong), Cuba, Iran, North Korea, Russia, Maduro Regime. (International 214 Holders reporting in this category must also include any Foreign Interest Holder interests unrelated to the foreign adversary countries.)
- Reportable Foreign Ownership - No Foreign Adversary
- No Reportable Foreign Ownership
- What is an indirect equity or voting interest?
legally hold the ownership interests of the International 214
Holder hold a direct interest. But the concern of the FCC regarding
ownership of licensees does not stop with direct interests, instead
encompassing "indirect" ownership interests, which may be
equally or more influential and significant than the direct
interests. These are the interests held in the International 214
Holder through one or more intervening entities. Essentially, this
resembles tracing a corporate ownership tree upwards from the
International 214 Holder, starting with (i) the direct
interest-holders; then (ii) the parties that legally hold ownership
or voting interests in those direct interest-holders; followed by
(iii) the next tier of parties (if there is one) holding ownership
or voting interests in the parties identified in (ii); and so on.
Applying multiplication and the FCC's attribution rules, the
identification of reportable interests in the International 214
Holder continues until there is no "higher tier" of
individuals or entities that indirectly hold at least 10% interest
in the International 214 Holder. Depending on the ownership
structure of an International 214 Holder, identifying all
reportable 10% holders can be quite complex, and may involve
accounting for share management agreements, general partners in
limited partnerships, etc. If you have questions about what
entities that have indirect interests in your company may need to
be reported, we recommend that you seek the advice of competent
federal communications regulatory counsel.
- What will the FCC do with the collected information?
The foreign ownership information submitted in response to the
Data Request will be used by the FCC to update its records for
International 214 Holders. (And the failure of entities listed as
International 214 Holders in the FCC records to provide a response
will allow the FCC to cull defunct or non-compliant companies from
its international Section 214 authorization rosters.) The collected
information also will provide key information to FCC Staff as they
consider the rule changes proposed in the NPRM, whether for 10-year
license renewals or for more frequent review protocols, and to
implement and enforce the new rules. An example of this might be
the prioritization of ownership reviews of a subset of
International 214 Holders based upon the presence of reportable
foreign ownership from certain countries.
- Will the FCC share the responses of International 214 Holders that report foreign ownership in this information collection with the Committee for the Assessment of Foreign Participation in the U.S. Telecommunications Services Sector aka Team Telecom?
The Order does not propose such referrals, and, traditionally,
such referrals by the FCC would not be triggered by mere responses
to data requests. But it cannot be ruled out. The rule change
proposals described in the NPRM, requiring periodic renewals or
reviews of International 214 Holders, if adopted, are likely to
expand the frequency of Team Telecom reviews for international
Section 214 carriers with (or possibly even without) changes to
their reportable foreign ownership, whether in connection with a
mandated renewal or with a periodic review. (Many current Letters
of Assurances and National Security Agreements already require
affected carriers to notify Team Telecom when certain types of
less-than-controlling ownership changes occur.)
Finally, the FCC has continuing discretion to review a
carrier's qualifications for holding Section 214 authority. It
is not impossible, therefore, that in some situations, they would
act upon information received through the Data Request if an urgent
Team Telecom referral based on current ownership were deemed
justified.
- What should my company (if it is an International 214 Holder) do now to prepare for responding to the Data Request?
The scope of the Data Request is limited to submission of
foreign ownership information reportable pursuant to the
requirements of FCC Rule 63.18(h), as described above. Therefore,
International 214 Holders that have recently reported their 10% or
greater ownership to the FCC, in connection with a license
application, modification or transactional application, are more
likely to be well-positioned to respond to the Data Request by
reviewing whether any changes have occurred in their ownership
since that recent report. Those International 214 Holders that have
not had reason to report their ownership to the FCC in recent
years, particularly those with complex ownership (for
example, multi-layered investment company or partnership
shareholders in the International 214 Holder or a parent company),
may find their Data Request responses more burdensome. They would
do well to review their ownership and control at all layers in
advance of the Data Request effective date, ensuring the
availability of additional time as needed to confirm details and
conduct any necessary analysis.
- Why did the FCC adopt this Order?
The driving motivation underlying this Order is to better equip
the FCC, in collaboration with relevant Federal Executive Branch
agencies, especially the Departments of Justice, Homeland Security,
and Defense, with updated information to address the perceived
risks that foreign ownership of International 214 Holders operating
in the U.S. may pose for national security, law enforcement,
foreign policy, and trade policy consideration. Recent FCC
proceedings resulting in the revocation of international Section
214 authorizations held by entities deemed to be agents of the
Chinese government have caused such risks to come to the forefront
of policy discussions Moreover, the FCC's current international
Section 214 authorization protocol provides for ownership
information to be provided only when an initial international
authorization is sought or consent is requested either for a
modification to the authorization or where there will be a de
jure or de facto assignment or transfer of control.
Consequently, non-U.S. (and U.S.) persons or entities may obtain
significant percentages of ownership in an International 214 Holder
but not enough to trigger an application or notice obligation with
the Commission. The absence of a Section 214 license renewal
obligation or a periodic review process allows potentially
significant changes to carriers' foreign ownership to occur out
of sight from FCC or, depending on the terms of any mitigation
arrangement with the Executive Branch as the result of a Committee
review or CFIUS approval, Team Telecom review. In 2020, the U.S.
Senate Committee on Homeland Security and Government Affairs,
Permanent Subcommittee on Investigations, underscored the
importance of implementing some method to reliably monitor changes
to International Section 214 carriers' foreign ownership. The
Order is a first step in gaining current ownership information and
only applies to covered carriers as of today. The NPRM may lead to
rule changes that, in some form, require International 214 Holders
to disclose ownership information periodically. Another motivation
for the Order is to assist the Commission in determining the scale
of active International 214 Holders, which the FCC estimates is
less than a third of the number of currently issued Section 214
authorizations. The data request will help the Commission to
identify International 214 Holders listed in its database that are
no longer active companies, allowing the FCC to cancel the
associated authorizations.
Determination of reportable ownership, pursuant to the FCC's
rules, through direct equity or voting interests in the carrier as
well as indirect control up the chain to the ultimate owner can be
challenging and packaging the information that must be provided can
prove difficult, requiring correct application of the FCC's
attribution rules and appropriate characterization of the various
forms of direct and indirect interests to be included. The Kelley
Drye Communications Group has extensive experience working with
carriers to identify reportable ownership information for FCC
filings. Please reach out to us if you have any further questions
or if we can be of any assistance if your company must respond to
the Data Request.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
