Relevant Documents:Executive OrderDOJ Press ReleaseTakeaways
- The executive order establishing the Committee for the Assessment of Foreign Participation in the U.S. Telecommunications Services Sector will serve to formalize national security reviews in the telecommunications sector.
- Prior to the establishment of the committee, national security reviews were handled at the FCC by an informal working group known as Team Telecom. The new committee will formalize the review process by creating timelines similar to those of CFIUS, including a 120-day shot clock with the possibility of 90-day extension.
- Previously there had been no mandated time frame for national security reviews in the telecommunications sector, which increased timing risk for deals involving foreign buyers. The executive order is likely to be positive for dealmakers in that timing will be more transparent.
- Further details regarding implementation of the new process are expected to be published in a memorandum of understanding, or MOU, within the next three months. Josh Gruenspecht, a partner at Wilson Sonsini, told Reorg that the MOU will hopefully provide further details on how the review process will work and how Team Telecom will interrelate with CFIUS.
The Trump administration’s establishment of a regime for the federal assessment of foreign telecom transactions could provide clarity in deal reviews, which was considered absent from analyses made under the informal working group known as Team Telecom.
On April 4, President Donald Trump signed an executive order establishing the Committee for the Assessment of Foreign Participation in the U.S. Telecommunications Services Sector. The new committee will review applications for telecommunications, submarine cable landing, and other FCC licenses that the FCC refers for review of national security and law enforcement concerns.
The FCC has been looking to reform Team Telecom for years, with Commissioner Michael O’Rielly frequently criticizing the opacity and lengthiness of the panel’s reviews. Team Telecom was not guided by federal statute and had no set timing mandates, creating significant timing risk for any deals facing an assessment by the panel. Recent transactions that have been reviewed by Team Telecom include T-Mobile’s purchase of Sprint and the take-private acquisition of Zayo Group Holdings Inc. by affiliates of Digital Colony Partners and EQT Infrastructure IV fund.
The executive order provides for clearer timing as well as standards by which deals will be reviewed, including foreign ownership and other potential national security concerns. Under the executive order, once an application is deemed complete, the committee must conduct an initial review of an application within 120 days. If the committee believes there may be potential risks, it then must complete a secondary assessment within 90 days. “Even complex applications would be reviewed within about a year, substantially faster than Team Telecom has functioned historically,” the DOJ said in a press release yesterday, Tuesday, April 7.
While the executive order is expected to provide some structure to the Team Telecom process, further details regarding implementation are expected to be published in a memorandum of understanding, or MOU, within the next three months. The order mandates that by July 3, the committee members - which include the Secretary of Defense, the U.S. Attorney General and the Secretary of Homeland Security - enter into an MOU among themselves and with the Director of National Intelligence, or the director’s designee, describing their plan to implement and execute the order.
“Team Telecom is a highly unstructured process,” said Josh Gruenspecht, a partner at Wilson Sonsini. “Any added structure would be welcome.” But he said he would prefer to wait for the MOU “before suggesting to clients that this is going to be a game-changer” for reviews of foreign telecoms deals.
Gruenspecht added that the MOU will hopefully provide further details on how the review process will work and how Team Telecom will interrelate with CFIUS. He said there are currently good arguments for how the two panels’ processes are redundant and how they are not. “The MOU could help in disambiguating the two processes when it comes to telecom deals,” Gruenspecht said.
Meanwhile, Brian Weimer, a partner at Sheppard Mullin, said he does not expect the executive order and forthcoming memorandum to significantly change the advice he gives to clients expecting to undergo a Team Telecom review. He said the shot clocks published in the executive order are in line with the timing estimates he has proposed to clients in recent years.
However, the executive order could affect the time when companies file with both CFIUS and Team Telecom. Weimer said his firm previously advised clients to first file with CFIUS to get Team Telecom to start a review so that the two panels would begin working together under CFIUS’ timetable. “We won’t need to do that [any longer] because Team Telecom will have its own timetable,” Weimer said.
Megan Brown, a partner at Wiley Rein, said there is still a lot to be determined on how the executive order will affect future transaction reviews. There are still “some opportunities for delays and uncertainty” in assessments by the committee, she said. She added that she is optimistic that the MOU will provide further clarity on the committee’s review process for transactions.
Along with establishing shot clocks for reviews, the executive order also formalizes the power of the committee to share information with CFIUS at the discretion of the attorney general, who will serve as the committee chair. Brown said the formalization of a committee for reviewing foreign telecoms investments is unlikely to disrupt the working relationships between CFIUS and those who reviewed transactions under Team Telecom. “They work well together,” she said.
Overall, the executive order should have a positive impact on companies whose transactions are under review. The order not only speeds up the review process but provides transparency on how long reviews will take.
--Alex Wilts and Nils Tracy