The FCC plans to bar a Chinese telecommunications provider from offering international telecommunications service between the United States and foreign points based on national security concerns at its next open meeting scheduled for May 9, 2019. Under a draft Order released last week, the agency would conclude that China Mobile International USA (“China Mobile USA” or the “Company”) is ultimately controlled by the Chinese government and subject to Chinese government exploitation, influence, and control that could undermine the security and reliability of U.S. networks. The denial of China Mobile USA’s application would mark the first time the FCC has rejected an application to access the U.S. market based on national security concerns raised by the group of federal Executive Branch agencies commonly known as “Team Telecom.” The denial also would represent another salvo in the FCC’s recent efforts to combat network security and corporate espionage issues involving foreign-owned carriers. While the proposed action against China Mobile USA likely will not affect foreign carrier investment or access to the U.S. telecommunications market overall, it serves as a reminder of the barriers foreign-owned telecommunications providers (and particularly those with ties to China) may face when dealing with the FCC.
The FCC’s draft Order stems from a nearly eight-year-old application from China Mobile USA requesting Section 214 authority to provide international telecommunications services between the United States and foreign points. Under Section 214, the Commission must determine whether grant of such authority is in the public interest and the FCC considers the national security, law enforcement, and foreign policy implications of an application. Where an application involves threshold levels of foreign ownership, the Commission routinely solicits the expertise of Team Telecom, which includes the Department of Justice, Department of Defense, Department of Homeland Security, and other government components, to assess any national security concerns arising from an application or transaction. Here, Team Telecom determined after years of review that, although China Mobile USA is a Delaware corporation, it ultimately is owned by a Chinese government-backed enterprise subject to the supervision and control of Chinese authorities. Team Telecom further found that the Chinese government could use its stake in China Mobile USA to force the Company to covertly monitor, degrade, and disrupt U.S. communications, including U.S. government communications. Consequently, and representing a first in Team Telecom’s two decades of reviewing telecommunications applications, Team Telecom recommended the FCC deny China Mobile USA’s application. The petition recommending denial of the application provides a rare glimpse into Team Telecom’s national security analysis considerations, insight that cannot be as easily or fully gleaned from Team Telecom’s mitigation agreements. Based on Team Telecom’s assessment and the FCC’s own review, the FCC plans to deny China Mobile USA’s application due to substantial national security concerns and law enforcement risks that cannot be mitigated. Consistent with its solicitation of, and policy of deferring to, Team Telecom’s expertise on national security issues, the Commission’s proposed decision reflects Team Telecom’s national security assessment of China Mobile USA as well as the FCC’s own review.
China Mobile USA raised a number of arguments against Team Telecom’s findings, none of which the FCC accepted. First, the Company asserted that, despite its connections to Chinese authorities, it would not be subject to foreign influence or control because it is a U.S. corporation. In response, the FCC would note that Chinese law requires state-owned enterprises like China Mobile USA’s parent to cooperate with government intelligence efforts and allow Chinese intelligence agencies to take control of their facilities – including communications equipment – to conduct covert operations. The FCC would place particular emphasis on concerns that, due to the use of least-cost routing in the telecommunications market, China Mobile USA could gain access to the communications of U.S. government agencies even if the agencies are not the Company’s direct customers. Similarly, if granted the requested international Section 214 authority, China Mobile USA would be able to access U.S. communications networks, including fiber optic cables, cellular networks, and communication satellites, and would be able to alter or otherwise disrupt traffic. Thus, while foreign government ownership of a carrier would not (by itself) warrant rejection of an application, the FCC’s proposed order would conclude that China Mobile USA is particularly vulnerable to Chinese government control and exploitation that could undermine national security. Second, China Mobile USA contended that China’s membership in the World Trade Organization (“WTO”) meant that the Company was entitled to a presumption that its application was in the public interest. But while the FCC would agree that China Mobile USA is entitled to a presumption that its application was not contrary to the public interest on competition grounds, the Commission also would find that WTO membership has no bearing on whether grant of the Company’s application was contrary to the public interest based on national security grounds. Third, the Company pointed out that the FCC granted international Section 214 authorizations to foreign-owned carriers in the past (including Chinese-owned carriers) and that denial of China Mobile USA’s application would be unfair. However, the FCC would highlight reported Chinese government involvement in recent network intrusions and corporate espionage as demonstrating “different and heightened” national security risks that require denial of the application. Finally, China Mobile USA argued that a mitigation plan would address the national security concerns raised by Team Telecom. Citing Team Telecom’s experience with monitoring and enforcing mitigation agreements, the FCC’s draft order would conclude that it was appropriate to defer to Team Telecom’s assessment that mitigation would be inadequate to allay national security concerns. In particular, the pervasiveness of Chinese government control over China Mobile USA as well as the legal and procedural barriers to investigating Chinese-owned companies could undercut enforcement efforts.
Nothing in the FCC’s draft Order suggests that the agency is shifting its overall position on foreign-owned carrier access to the U.S. market or its assessment of national security risks. Instead, the proposed denial reflects increasing concerns regarding foreign corporate espionage and the security of U.S. government communications. These concerns arise when carriers are insufficiently independent of foreign governments in general and with Chinese government-owned telecommunications carriers in particular. As a result, the FCC likely will continue to take a hard look at the corporate structure of Chinese-owned telecommunications providers in future Section 214 applications.