Chinese Govt.-Controlled Telecoms Operated in the U.S. with Little or No U.S. Government Oversight

“This bipartisan report demonstrates that federal agencies have done little to protect the integrity of U.S. telecommunications networks and counter national security threats from China,” said Senator Portman.  “The Chinese Communist Party uses its state-owned enterprises to further its cyber and economic espionage efforts against the United States, and they’ve been exploiting our telecommunications networks for nearly two decades while the federal government historically put in little effort to stop it.  In recent months, and in response to this investigation, the federal government has begun to do more, including an important Executive Order by the President to ensure foreign-owned carriers are properly monitored and reviewed.  I am encouraged by these efforts, and I look forward to working with Senator Carper on legislation to ensure federal agencies have the oversight and enforcement tools necessary to protect our telecommunications networks going forward.” 

“Our bipartisan report reveals how little oversight has been done of Chinese telecommunications carriers that operate here in the United States,” said Senator Carper. “Work Senator Portman and I have done at PSI over the years has revealed how the Chinese government has launched cyber-attacks against our businesses and government agencies and worked to get ahead militarily and economically with stolen American research and intellectual property. Today’s report highlights how we’ve allowed Chinese government-owned companies gain a foothold in our telecommunications industry while their American competitors face significant barriers to entry in China. It makes clear that more has to be done to protect our national security against foreign spies and hackers, and I look forward to working with Senator Portman to do just that.” 

The report’s key findings include:

·  The Chinese government exercises control over China’s telecommunications industry and carriers.  The Chinese telecommunications market is the largest in the world, in terms of number of subscribers.  The Chinese government views the telecommunications industry as critical and has set goals for the industry to “enter the ranks of powerful countries.”  To achieve this goal, the Chinese government exerts control over the domestic telecommunications market, including restraining foreign investment. 

·  China does not provide U.S. telecommunications companies reciprocal access to the Chinese market and requires foreign carriers seeking to operate in China to enter into joint ventures with Chinese companies.  

·  The Chinese government encourages Chinese companies to take advantage of more open international markets.

·  The Chinese government engages in cyber and economic espionage efforts against the United States and may use telecommunications carriers operating in the United States to further these efforts.  The U.S. National Counterintelligence and Security Center and the Director of National Intelligence have warned that the Chinese government is likely to use its state-owned carriers to assist in its espionage efforts because the carriers “provide valuable services that often require access to the physical and logical control points of the computers and networks they support.”  In fact, public reports allege that at least one Chinese carrier—China Telecom— and its affiliates have hijacked and rerouted data through China on a number of occasions since 2010.  China Telecom and its affiliates, including its U.S. affiliate, China Telecom Americas, denies the public reports. 

·  The FCC regulates foreign carriers seeking to provide international telecommunications services between the United States and foreign points, but historically relied on Team Telecom to assess the national security and law enforcement risks associated with a foreign carrier’s proposed services.  

·  The FCC is not required to review a foreign carrier’s authorization after it has been granted.  Authorizations effectively exist in perpetuity despite evolving national security implications. 

·  Team Telecom was an informal group, with no statutory authority.  As a result, its review of foreign carriers’ applications was ad hoc, leading to delays and uncertainty.  Throughout its existence, Team Telecom operated under no formal legislative or regulatory authority.  Instead, it reviewed foreign carriers’ applications at the request of and under the powers of the FCC.  The lack of statutory authority resulted in a disorganized, haphazard, and lengthy review process that has been heavily criticized and referred to as an “inextricable black hole.”  Team Telecom had no deadlines by which it needed to make recommendations to the FCC, meaning the review of an application could—and often did—last years.

·  Team Telecom had insufficient resources.  DOJ and DHS dedicated fewer than five employees to monitoring compliance with the more than 100 security agreements currently in effect.

·  The lack of statutory authority also prohibited Team Telecom from conducting meaningful oversight of foreign carriers authorized by the FCC.

·  The FCC has authorized three Chinese state-owned carriers to provide international telecommunications services between the United States and foreign points.  These three Chinese state-owned carriers have operated in the United States for decades: China Unicom Americas and China Telecom Americas obtained authorization in 2002; ComNet first obtained authorization in 1999.

·  Team Telecom has had no interaction with China Unicom Americas since the FCC’s authorization.

·  Team Telecom entered into security agreements with China Telecom Americas and ComNet, but conducted just two site visits in more than 10 years.  

·  The FCC and Team Telecom have recognized the national security risks posed by Chinese state-owned carriers operating in the United States.  In particular, in connection with China Mobile USA’s application, the FCC, Team Telecom, and other Executive Branch agencies cited three areas of concerns: (1) China Mobile USA could be exploited, influenced, and controlled by the Chinese government; (2) China Mobile USA could gain access to U.S. networks through interconnection arrangements with U.S. carriers; and (3) due to its Chinese government control and access to U.S. critical infrastructure, China Mobile USA could help the Chinese government in its cyber and economic espionage or other malicious activities.  Team Telecom argued that, if authorized to provide international telecommunication services, China Mobile USA would have been able to monitor, degrade, and disrupt U.S. government communications.  And, as a Chinese state-owned company, it must legally comply with requests made by the Chinese government and could not be expected to act against the interests of the Chinese government.

·  The national security concerns outlined with respect to China Mobile USA apply to the other Chinese state-owned carriers operating within the United States.  The carriers are ultimately owned by the Chinese government, and therefore subject to exploitation, influence, and control by the Chinese government.  They may be forced to assist in cyber and economic espionage activities targeted at the United States, as they are similarly bound by Chinese national security laws.  Further, the carriers have established relationships with major U.S. carriers, including AT&T, Verizon, and Centurylink—all of which serve government entities, as well as private customers. 

The report makes the following recommendations:

·  The FCC should complete its review of China Telecom Americas, China Unicom Americas, and ComNet in a timely manner.  Team Telecom has recommended that China Telecom Americas’ authorizations be revoked because of “serious and substantial” national security concerns.  The FCC should expeditiously review the authorizations of China Telecom Americas and the other Chinese state-owned carriers to ensure our national security and communications networks are not unnecessarily put at risk.  As part of its review of China Unicom Americas’ and ComNet’s authorizations, the FCC should seek the recommendation of the newly established EO Telecom Committee as to national security and law enforcement concerns associated with the carriers’ authorizations.  The analysis should also include a decision as to whether risks can be mitigated—through the existing security agreements or new agreements.

·  The FCC should establish a clear standard and process for revoking a foreign carrier’s existing authorizations.  Currently, there is no clear standard or process for revoking a foreign carrier’s existing authorizations.  Telecommunications companies must understand the circumstances under which authorizations could be revoked and be afforded due process to challenge potential revocation.  Team Telecom officials indicated that they do not know what the FCC considers a “sufficient” basis for a revocation.  Thus, while government officials may believe revocation is warranted, they may not recommend revocation without additional guidance.  A formal standard and revocation process would provide clear guidance to both the government and industry as to when revocation of an existing authorization is warranted.

·  Congress should require the periodic review and renewal of foreign carriers’ authorizations to provide international telecommunications services.  Currently, these authorizations can exist in perpetuity.  Although the recent Executive Order allows the EO Telecom Committee to review existing authorizations, it does not mandate periodic review or renewal.  Considering the limited resources DOJ and DHS dedicated to Team Telecom’s review of foreign carriers’ applications, it is unlikely that they will review many existing authorizations.  National security and law enforcement concerns, as well as trade, and foreign policy concerns, however, are ever evolving, meaning that an authorization granted in one year may not continue to serve the public interest years later.  Requiring a periodic review and renewal of authorizations would ensure that the FCC and the Executive Branch continually account for evolving national security, law enforcement, policy, and trade risks.  

·  Congress should statutorily authorize the EO Telecom Committee.  The Administration established the EO Telecom Committee, which formalizes Team Telecom, but the EO Telecom Committee still has no governing statutory authority.  Team Telecom’s historical lack of statutory authority led to a review process criticized by many as “opaque” and “broken.”  The recent Executive Order is a positive step, but formal legislative authority will provide for greater oversight over the telecommunications industry.

·  Congress should preserve the role of other relevant Executive Branch agencies.  Team Telecom was comprised of DOJ, DHS, and DOD officials.  These agencies are also the primary components of the newly established EO Telecom Committee.  Historically, the FCC has sought input on a foreign carrier’s application from other Executive Branch agencies, including the Department of State, Department of Commerce, and the U.S. Trade Representative.  The recent Executive Order makes these agencies, and others, advisors to the EO Telecom Committee.  These agencies provide invaluable input and their role in the review process must be accounted for in any formal legislation.  

·  Congress should set deadlines by which decisions on FCC-related application reviews must be made.  Team Telecom had no set deadlines by which it needed to complete its review of a foreign carrier’s application pursuant to FCC’s request.  Further, Team Telecom’s already limited resources were often focused on actions related to the Committee on Foreign Investment in the United States (“CFIUS”).  This resulted in protracted reviews and business uncertainty.  Setting deadlines will imbue trust back into the review process.  The recent Executive Order imposed certain timelines, but it allows for the EO Telecom Committee to seek extensions, which could draw out the review process, especially if resources remain limited.   

·  Congress should provide sustained resources necessary for the EO Telecom Committee to effectively assess foreign carriers’ applications and to monitor foreign carriers operating in the United States.  The Foreign Investment Risk Review Modernization Act of 2018 provided CFIUS agencies specialized authority to hire staff to ensure agencies can manage CFIUS filings.  EO Telecom Committee agencies should be provided a similar authority to ensure it is able to effectively and efficiently review foreign carriers’ applications and monitor foreign carriers’ operations.

·  Congress should require the EO Telecom Committee to formally coordinate reviews of foreign carrier applications with CFIUS.  The EO Telecom Committee’s component agencies are members of CFIUS.  CFIUS’s and the EO Telecom Committee’s processes overlap when a foreign investor seeks to acquire control of a U.S. telecommunications operator or infrastructure owner.  These applications already undergo extensive review by CFIUS.  Requiring formal coordination between CFIUS and the EO Telecom Committee will streamline the regulatory clearance process while meeting national security, law enforcement, trade policy, and foreign policy objectives.

·  Congress should provide the EO Telecom Committee with authority to recommend revocation of a carrier’s authorization, even where no security agreement exists between it and the carrier.  Where no security agreement existed, Team Telecom did not interact with the foreign carrier.  Although certain government officials believed that Team Telecom could review an existing authorization, even where no agreement existed, there is no formal, legal basis for such review.  Combined with a requirement to periodically renew authorizations, affording the EO Telecom Committee the authority to review and recommend revocation of existing authorizations, even without a security agreement in place, allows the EO Telecom Committee to better respond to the evolving nature of national security risks.

·  Congress should require the periodic review and renewal of security agreements between the EO Telecom Committee and foreign carriers.  Team Telecom officials told the Subcommittee that, even if it believed that a security agreement is not comprehensive to address all risks associated with a foreign carrier’s operations, it had little leverage to update the agreement.  This means that certain risks, which could otherwise be mitigated, may go unaddressed.  Requiring a periodic review and renewal of security agreements provides the EO Telecom Committee yet another tool to ensure that national security and other risks are regularly assessed and addressed. 

·  The EO Telecom Committee should establish formal, written policies and procedures governing its monitoring of compliance with security agreements.  Team Telecom had no formal, written processes governing its monitoring of a foreign carrier’s compliance with a security agreement.  It relied on written correspondence and site visits, but there was no clear method as to when these mechanisms were used or why.  The EO Telecom Committee should document and formalize Team Telecom’s processes, which will provide for more streamlined and consistent review of foreign carriers’ operations in the United States.

·  Congress and the Administration should take steps to ensure reciprocal access to the Chinese telecommunications market for U.S. companies.  In those aspects of telecommunications in which China officially permits foreign participation, China requires forced technology transfers and imposes discriminatory regulatory processes and burdensome licensing and operating requirements.  This results in a highly asymmetric playing field in which U.S. companies face immensely restrictive policies in China, while Chinese companies are not equally restricted in the United States. 

Note: On 9 April 2020, the Executive Branch, led by Team Telecom, recommended that the FCC revoke China Telecom Americas’ authorizations to provide international telecom services because of “substantial and serious national security concerns.”  Senators Portman and Carper applauded the agencies’ exercise of their oversight responsibilities and encouraged the FCC to use its enforcement authority to protect U.S. communications networks.  On 24 April 2020, the FCC ordered the Chinese carriers to demonstrate why the FCC should not initiate proceedings to revoke the existing authorizations.  The FCC is currently considering the carriers’ responses and whether to proceed with revocation.