On April 18, 2018, the FCC released a Notice of Proposed Rulemaking seeking comment on a proposal to help ensure federal funding is not used to purchase equipment and services from sources that could undermine or pose a threat to American national security (the “National Security NPRM”). (Check back for our upcoming post with more on the National Security NPRM.) Identifying and mitigating potential national security concerns related to U.S. telecommunications networks are a Team Telecom focus when reviewing licensing and transactional applications that are filed with the FCC and that involve foreign ownership or critical infrastructure. Team Telecom’s focus on national security concerns affecting U.S. communications infrastructure and services makes Team Telecom a logical resource for achieving the Commission’s objectives behind this new proceeding. In his Statement on the National Security NPRM, Commissioner O’Rielly acknowledged the need for cooperation between the FCC and Team Telecom: “The item raises a host of issues in which the Commission will need to work with those in the Executive Branch on matters involving what equipment poses national security risks, potential waivers and other critical decisions.”

However, telecommunications industry members may recall that, in the past, Commissioner O’Rielly has been vocal regarding his concerns about the current Team Telecom process of reviewing FCC applications referred to it. The Commissioner’s Statement on the National Security NPRM suggests his views have not changed and it should be no surprise that he is taking this opportunity to revive his push to reform the Team Telecom review process which he earlier called a “black hole,” reflecting concerns about the opacity and lengthiness of the process. Now, Commissioner O’Rielly underscores the “critical” need for “revising our dealings with what is known as ‘Team Telecom’” and remarks that “we are going to need to have a better process than the opaque and unnecessarily lengthy one that exists under the current Team Telecom structure.” Particularly notable was Commissioner O’Rielly’s closing comment that he was “pleased that the Chairman agrees with me on this point, and I look forward to moving a related Team Telecom order in the very near future.” This invitation to Chairman Pai to move to the front burner the Commission’s 2016 Team Telecom reform rulemaking, which had received overwhelming industry support for reform, was loud and clear. While it remains to be seen, it looks like Team Telecom review process reform may soon be back on the FCC’s agenda.

Kelley Drye is tracking this issue and will continue to update this blog with any new developments.

Most significantly, the Commission appears poised to eliminate the International Traffic Report in favor of facilities-based international service providers submitting an initial limited informational filing and, as necessary, responding to targeted data requests. The Draft Order explains that the elimination of the International Traffic Report is justified for a number of reasons, including that the costs of preparing, submitting and reviewing the data outweigh the benefits of the report’s data; changes in the international telecommunications market have rendered the International Traffic Report data less relevant; and the International Traffic Report data does not provide a comprehensive picture of the international telecommunications market. Noting that a few U.S.-international routes remain uncompetitive and the Commission would need data, previously provided by the International Traffic Report, to evaluate allegations of anticompetitive conduct on those routes, the Draft Order states the Commission would rely on other sources of data including commercially available data and targeted data requests to carriers. As a result, while the Draft Order suggests the Commission is ready to remove a significant reporting burden, service providers may be subject to some data submission requirements, although possibly much less frequently.

The Draft Order also identifies potential modifications to the annual Circuit Capacity Report. While not as dramatic as a total reporting elimination, the Commission appears willing to further streamline the Circuit Capacity Report requirements. In particular, carriers would no longer have to file circuit data for terrestrial and satellite facilities and the Draft Order contemplates eliminating the requirement that only one licensee file capacity information for consortium cables. Although some commenters argued for complete elimination of the Circuit Capacity Report, the Draft Order asserts the Commission and other government agencies, such as the Department of Homeland Security, view the Circuit Capacity Report data as critical to national security and public safety emergency concerns. Citing a lack of reliable alternative sources for the data, the Commission appears intent to retain the Circuit Capacity Report requirement. However, while the Circuit Capacity Report likely will remain in effect, the next filing – which typically would be due next March – may be delayed. The Draft Order proposes to direct the International Bureau to seek comment on changes to the Section 43.62 Filing Manual to reflect the proposed reporting modifications and delegates authority to the International Bureau to delay the next annual Circuit Capacity Report filing until after a revised Filing Manual is issued. As a result, reporting carriers likely will get a limited reprieve on the next Circuit Capacity Report filing and could have the opportunity to shape the revised Section 43.62 Filing Manual through participation in any comment process.

Kelley Drye will issue a more detailed analysis when a final Order is adopted, so check back for more information.

Current Reporting and Proposed Changes. Currently, section 43.62 of the FCC’s rules, requires International Service Providers to submit two annual reports to the FCC: (1) traffic and revenue; and (2) circuit capacity.

• Traffic and Revenue Report details International Service Providers’, including providers of interconnected voice over Internet protocol (VoIP) service, traffic and revenue for international voice services, international miscellaneous services, and international common carrier private lines.
• Circuit Capacity Report identifies submarine cable, satellite, and terrestrial available and planned capacity between the United States and foreign points.

Responsive to industry comments in the Commission’s 2016 biennial review proceedings, the FCC seeks input on ways to streamline the circuit capacity reporting requirements to minimize filer burdens and seeks comment on the matters such as:

• Any market changes that warrant reexamination of the type of information collected;
• Whether the FCC should release only regional data, without identifying individual submarine cable operators; and
• Changing the confidentiality rule for circuit capacity to clarify that requests for confidential treatment will be consistent with section 0.459 of the FCC’s rules.

The NPRM has strong Commission backing. In adopting the NPRM, the Commission cited the competitive nature of the international telecommunications sector and a belief that the reports may no longer be necessary in their current form as factors supporting reducing the reporting obligations.

In her statement, Commissioner Clyburn expressed support for the NPRM, noting the importance of regular FCC assessment of whether existing reporting requirements are still in the public interest.

Commissioner O’Rielly expressed his view that, while the NPRM was a good start, it was far from perfect in its current form. While noting his appreciation that efforts were made to quantify the cost of these reports in the NPRM, Commissioner O’Rielly stressed that the Commission tends to underestimate the costs of reporting requirements. He also expressed reservations about the validity of claims that the benefits of the Circuit Capacity reports outweigh their costs and encouraged commenters to ensure they provide detailed information on this matter.

Chairman Pai emphasized that this item would be the beginning of Commission efforts to modernize and reassess its reporting requirements to ensure requirements are actually needed and not being kept simply because of inertia.

The timing of this NPRM is somewhat unusual as these reporting obligations were just revamped in 2013. Accordingly, the adoption of this NPRM suggests comments in the Commission’s 2016 biennial review proceedings recommending the FCC take action to streamline or eliminate the Part 43 reports resonated within the Commission.

International Service Providers should be sure to consider if they want to make their views known to the Commission on these reporting issues. For additional information regarding this matter, please contact a member of Kelley Drye’s Communications Practice.

As discussed in prior posts, one outcome of the FCC’s comprehensive review and revision of the international circuit capacity and international traffic and revenue reporting requirements in 2013 was a revamp of the International Capacity Reporting requirements and filing manual. Entities holding FCC submarine cable landing licenses and common carriers holding capacity on the U.S. end of at least one international submarine cable were defined as “Capacity Holders” and were required to report available capacity they held on the U.S. end of each submarine cable between the U.S. and a foreign point. Capacity Holders can hold capacity by direct cable ownership, but also by an indefeasible right of use (“IRU”) or by an Inter-Carrier Lease (“ICL”) obtained from other Capacity Holders on the U.S. end of an international submarine cable.

The Bureau’s clarification last week to the 43.62 Manual directs filers to report data based on IRUs and ICLs obtained from “Similar Entities” in addition to the exiting requirement to report IRUs and ICLs obtained from other Capacity Holders. Similar Entities are defined as (i) foreign carriers holding capacity on the U.S. end of an international submarine cable but not having a submarine cable license or international 214 authorization and (ii) persons or entities licensed by a foreign government to operate or own capacity on the foreign end of a U.S. submarine cable or on a non-U.S. submarine cable.

Among other ministerial edits, the Bureau also revises the definition of IRU, limiting it to arrangements where an upfront payment has been made for the lease and deleting reference in the old definition to the IRU conferring the “vestiges of ownership.” While this revised definition may reflect actual real world business arrangements, filers should consider whether their IRUs or other capacity arrangement, even if not named “IRUs” are structured in a manner that falls within the definition in the revised 43.62 Manual before completing their reports.

Finally, as we noted previously, another outcome of the Commission’s modernization of the reporting process has been the establishment of an online filing portal and a mandatory online filing requirement. While the FCC’s rules, under both current rule 43.62 and prior rule 43.82, establish a March 31 filing deadline last year’s report deadline was extended to April 30, 2015 due to difficulties implementing the filing portal. We advised last year that we anticipated the filing date would return to its normal schedule this year and the FCC’s announcement confirms the reporting schedule has returned to normal.

In response to U.S. State Department guidance over the last few years, the FCC has been easing regulatory obligations on the provision of telecommunications on the U.S.-Cuba route. The FCC had long required carriers to abide by the requirements of the ISP - which was designed to prevent foreign carriers possessing market power from discriminating or using threats to obtain pricing concessions from competing U.S. providers - and its Benchmarks Settlement Policy - which governs the rates U.S. carriers can pay to foreign carriers for termination of U.S. traffic. One of three key provisions of the ISP is the requirement that all carriers must receive the same effective accounting rate and date for that rate – the “nondiscrimination” requirement. For service to Cuba this means that the terms and conditions of operating agreements, for facilities-based switched voice service, between a U.S. carrier and Cuban carrier with market power, must be identical to equivalent terms of other U.S. carriers providing similar services on the route. Most recently, in January 2016, the FCC removed Cuba from its international Section 214 exclusions list. As a result U.S. carriers are no longer required to seek separate authority from the FCC to provide facilities-based service to Cuba and carriers holding global international section 214 authority can immediately begin serving Cuba.

The FCC now seeks comment on whether removing application of the ISP’s nondiscrimination provision, and the nondiscrimination condition imposed on Benchmark Settlement Policy waivers, on the U.S.-Cuba route will serve the public interest. The public is also invited to comment on other actions the Commission can take to further open the U.S.-Cuba route and whether operating agreements between U.S. and Cuban carriers should continue to be routinely available to the public.

This latest proposed action is consistent with the FCC’s easing, earlier this year, of the process for obtaining international Section 214 authority to serve Cuba and, over the past few years, waiver grants, which permit payment of above-benchmark settlement rates. The NPRM received nearly unanimous approval at the Commission, with Chairman Wheeler and all of the Commissioners except Michael O’Rielly approving this latest proposed action. O’Rielly, in a concurring statement, expressed concern about the proposal to remove the nondiscrimination provision, noting that he did not see changed circumstances warranting relaxed regulation. We continue to see an easing of regulations on the U.S.-Cuba route but the road ahead for U.S. carriers is not completely open. The FCC is not proposing to lift the Benchmark Settlement Policy for Cuba and carriers seeking to enter into operating agreements at above-benchmark settlement rates still must obtain an FCC waiver and agree to other conditions including, for now, the nondiscrimination requirement. However, in light of the FCC’s recent actions and current proposal, it appears the trend in the Commission’s easing of regulation on the U.S.-Cuba route is likely to continue. As relations between the U.S. and Cuba continue to improve, carriers should expect to see increased opportunities on the U.S.-Cuba route. Carriers interested in positioning themselves to take advantage of any new opportunities should consider participating in this rulemaking proceeding.

Commissioner Michael O’Rielly recently put his finger on what many foreign investors and foreign corporations find most unnerving, the potentially long suspension of FCC action on applications that must go through the so-called “Team Telecom” review process which is all but automatically triggered by proposed direct and indirect foreign ownership in broadcasters, common carriers and aeronautical licensees as well as submarine cable operators. Applicants requesting approval of foreign ownership must undergo review by not only the Commission but national security and law enforcement review by the collection of federal government agencies commonly referred to as “Team Telecom:” the Department of Justice (including the Federal Bureau of Investigation), Department of Homeland Security and the Department of Defense. (Other agencies, such as the Department of Commerce and the Department of State may also be called upon to provide input to these primary reviewing agencies.) In contrast to the FCC review process, which generally has clearly defined procedures, timeframes, and a public record, the Team Telecom review process often lacks any transparency and has no deadline for completion.

Commissioner O’Rielly acknowledges the importance of Team Telecom review, which is not really open to debate. But he underscores, as has the Commission itself in liberalizing its standards applicable to foreign ownership in common carrier wireless licenses, that foreign investment “by benign private entities” provides important benefits, and should not be discouraged by how the Team Telecom review is conducted. What’s important about Commissioner O’Rielly’s criticisms is that, after identifying the problems that accompany the Team Telecom review process, he proposes improvements in an effort to limit delays to a final FCC action. But can a public rebuke by an FCC Commissioner instigate cognizable improvements to the currently unpredictably long Team Telecom reviews?

Commissioner O’Rielly identifies three areas ripe for reform:

“Inextricable Black Hole” –Team Telecom fails to provide any information or identify any areas of concern, either to Applicants, or the FCC, during the review, let alone venture a target for completion. As any business or investor that has undergone Team Telecom review knows, the uncertainty and delays may impact service rollouts and result in lost opportunities.

Lack of Precedent –Team Telecom reviews are not subject to any standard of consistency; there are no written “decisions” to guide future applicants in structuring transactions to speed the reviews. Instead, Commissioner O’Rielly asserts, applicants are essentially left to the “whims” of the Team Telecom agencies.

Political Concerns – Commissioner O’Rielly suggests that absent a “transparent and balanced process”, there are no guarantees that Team Telecom’s decisions do not unduly reflect political influences. He raises legitimate concerns that, absent the ability to show this is not the case, the FCC’s standing among its foreign peers is subject to being undermined, frustrating the agency’s long-time goal of an “independent international telecommunications regulatory structure.”

While the FCC certainly has no authority to dictate changes to Team Telecom, let alone one Commissioner, it is refreshing to see a senior public official calling for improvements of the sort which the business community would embrace. Perhaps the challenge will provoke a review by those agencies of their practices to reduce the key uncertainty of time faced by almost every common carrier, submarine cable, broadcasting, and aeronautical applicant with proposed new or additional foreign ownership.

"(1) any facilities based common carrier with active satellite or terrestrial circuits between the United States and a foreign point; (2) any non-common carrier satellite licensee with active circuits between the United States and a foreign point; (3) any licensee of a submarine cable between the United States and a foreign point; or (4) any common carrier with capacity on a submarine cable between the United States and a foreign point."

Filers, thus, are now required to submit the Annual International Reports in accordance with the processes and specifications of rule 43.62 and the 43.62 filing manual. The reporting changes include creation of an online filing portal. However, it is not certain that the online filing system will be ready in time for the March 31, 2015 annual circuit capacity report filing. Indeed, the Public Notice suggests that the filing date has been suspended for now. The FCC will issue another Public Notice announcing the implementation of the online filing system and the due date for the annual circuit capacity report.

International providers of telecommunications, including interconnected VoIP providers, should review the new filing manual and take time to become familiar with the new reporting obligations in advance of the announcement of the Circuit Capacity report filing deadline for 2015. We have every reason to believe that the annual Traffic and Revenue Report deadline will remain the same, July 31. But the January 2013 Order modified the requirements for this second report as well. So, again, we recommend that providers ascertain whether, under the revised 43.62 and the new filing manual, they must file. If so, then the new requirements concerning Traffic and Revenue Report should be reviewed as well.

The FCC’s announcement represents the latest step in its headlong march into privacy and data security matters. This past June, the FCC launched a brand new cybersecurity initiative, “The New Paradigm,” which will include a private-sector-driven effort to improve cyber-readiness in the communications industry. In September, the FCC reached a $7.4 million settlement with Verizon over alleged violations of the Customer Proprietary Network Information (“CPNI”) rules. And just two weeks ago, the FCC released a Notice of Apparent Liability (“NAL”) proposing multi-million dollar fines against two wireless providers, YourTel and TerraCom, based on a novel and expansive reading of Sections 222(a) and 201(b) of the Communications Act of 1934, as amended.

These recent actions demonstrate that Chairman Tom Wheeler and Enforcement Bureau Chief Travis LeBlanc are serious about expanding the FCC’s role as a privacy and security cop. As a result, communications companies – particularly those that fall within the Federal Trade Commission’s “common carrier exemption” – should take this opportunity to review all of their privacy and data security practices to ensure compliance with an evolving set of FCC privacy and security requirements.

The FCC is inviting providers that will have to file international traffic and revenue reports or circuit capacity reports under the rule changes to volunteer for testing and to provide feedback on its test online filing system. Interested parties must notify the FCC by Friday, October 31 of a desire to participate in the online filing system trials. Testing will commence in November. The trials create an opportunity for filers to familiarize themselves with the new reporting requirements and help shape the filing system through feedback and comments.

Actions necessary before the new electronic report filing system and the revised rules take effect remain pending, but the FCC on October 24, 2014, released its latest draft of the Section 43.62 filing manual detailing the new filing requirements and procedures. The FCC announced simultaneously that it anticipates the new reporting rules and procedures will take effect, and the online filing system will be finalized, in time for the 2015 filings – annual circuit capacity reports for 2014 will be due no later March 31, 2015, and the annual traffic and revenue reports for 2014 will be due no later than July 31, 2015.

The new section 43.62 of the rules will consolidate the circuit status and international traffic and revenue reporting obligations currently found in sections 43.61 and 43.82, respectively, of the Commission’s rules, as modified by the 2011 and 2013 orders, and the filing manual expands and revises the details of the reports.

Among other changes, the filing manual requires submission of a registration form providing general contact information and data regarding the filer’s international section 214 service authorization, a services checklist identifying the services provided by the filer, and data schedules specific to the services provided. Moreover, interconnected VoIP providers and certain non-common carriers – including certain satellite operators and submarine cable landing licensees that heretofore have not been required to file reports – will also be subject to certain reporting requirements. Accordingly, entities providing international telecommunications or capacity – even those not previously subject to the 43.61 and 43.82 reporting requirements – should carefully review the section 43.62 rules and the draft filing manual to determine potential applicability of the reporting obligations.

We anticipate providing a more detailed advisory on the recently released Section 43.62 manual in the near future.

PTT commenced providing prepaid calling services – reselling international telephone service – in January 2010. PTT did not obtain authorization to do so under Section 214 of the Communications Act of 1934, did not register as a provider of telecommunications by filing a FCC Form 499A, and failed, at least for several years to make other filings required by international telecommunications carriers and prepaid calling card providers. The NAL does not say how the FCC Enforcement Bureau became aware of PTT’s operations in January 2013, but the NAL notes that PTT sold its cards through grocery stores and Internet distributors and resellers, which outlets may have led to the Bureau’s discovery. A Bureau investigation commenced almost immediately, and, in April 2013, the Bureau sent a Letter of Inquiry to PTT. PTT apparently cooperated with the investigation, promptly sought Section 214 authority (although not special temporary authority while its application was pending), which the Commission granted in May 2013. Over time, extending almost to the time of the NAL, PTT sought to rectify its past failures to register and make other compliance filings. Notably, although the Commission faulted PTT in many instances for its apparent slowness in bringing itself into compliance after the Letter of Inquiry was sent, that alleged fact did not result in the aggravation of the proposed forfeitures.

While the Bureau and PTT entered into a tolling agreement – which explains why the NAL was issued more than one year after the investigation began and PTT began to make its belated compliance filings – the Commission’s proposed penalties confirms the FCC’s historic approach to treating carrier reporting and filing failures as continuing violations until they are cured. In addition, the proposed penalties reflect the Commission standard penalties for many carrier compliance breakdowns and illustrate how the failure to obtain Section 214 international authority, when required, can lead to a cascade of penalties. In particular, the Commission proposed penalties of:

• $100,000 for failure to obtain Section 214 authorization prior to providing international telecommunications services, an amount "[c]onsistent with Commission precedent," for which the FCC cited several recent forfeiture orders against prepaid calling companies;
• $150,000 for failure to file Form 499A (the annual Telecommunications Reporting Worksheet) for 2011, 2012, and 2013 in a timely fashion – $50,000 for each annual filing missed – again citing precedent where carriers had similar lapses;
• $30,000, or $10,000 per year (the base forfeiture amount), for failure to make timely required contributions to the Telecommunications Relay Service ("TRS") Fund for three consecutive annual contribution periods, beginning with 2011-2012, which contributions are based on the Form 499A reports;
• a $23,327 upward adjustment of the penalty for failure to make timely contributions into the TRS fund, 50% (the standard adjustment) of the unpaid contribution amount at the time PTT entered into a payment agreement with the Treasury Department;
• $30,000, or $10,000 per year (the base forfeiture amount), for failure to make timely required contributions to the Local Number Portability ("LNP") cost recovery mechanism for three consecutive annual contribution periods, beginning with 2011-2012, which contributions are based on the Form 499A reports;
• $20,000, or $10,000 per year (the base forfeiture amount), for late payments of regulatory fees – specifically the Interstate Telecommunications Service Provider ("ITSP") which international carriers must pay based on their international end user revenues as reported on their Form 499A reports -- for fiscal years 2011 and 2012;
• $48,000, or $3,000 per filing (the base forfeiture amount), for failure to timely file 16 quarterly certifications required of prepaid calling card companies from the first quarter of 2010 through the first quarter of 2014 (with the exception of the third quarter of 2013 which was timely filed);
• $12,000, or $3,00 per filing (the base forfeiture amount), for failure to timely file its 2011, 2012, 2013, and 2014 annual international telecommunications traffic reports international common carriers must file; and
• $80,000, or $20,000 per year (consistent with prior conditions), for failure to timely file its annual 2011, 2012, 2013, and 2014 customer proprietary network information ("CPNI") certifications that telecommunications carriers must make.

The Team Telecom letter seeking revocation of ACT’s authorization cited specific instances of noncompliance as the basis for the request. The letter highlighted the company’s failure to file its 2012 and 2013 annual certifications or to notify Team Telecom of changes in the Company’s POC. The letter noted that ACT’s former legal counsel and POC filed a notification in September 2013 explaining that he no longer represented ACT and had been unable to reach anyone at the company. In addition, Team Telecom alleged that ACT failed to respond to Team Telecom outreach efforts – which included telephone calls and e-mails – and had not yet filed a new POC designation.

Team Telecom’s basis for requesting the revocation of Wypoint’s authorization also rested upon noncompliance with an LOA, but the Wypoint case differs from ACT’s as there is evidence that the company has ceased its international operations. In particular, Team Telecom stated that Wypoint’s legal counsel had been unable to locate the company in September 2012 and that Team Telecom efforts to contact the company by telephone and e-mail in September 2103 and March 2014 were equally unsuccessful. The letter also noted that Team Telecom searched for but could not locate certain filings Wypoint was required to make with the FCC, such as International Traffic and Revenue Reports. Team Telecom’s internet searches returned results identifying the company as dissolved.

The Team Telecom letters highlight the level of monitoring Team Telecom conducts of carrier compliance. Both letters identify the thoroughness of Team Telecom compliance review including reaching out to carrier counsel, sending e-mail correspondence, and calling contacts listed on carrier applications as well as those obtained from “open-source searches for information” about the companies. If a carrier fails to comply with its Section 214 authorization conditions, there is a good chance Team Telecom will actively look for the carrier and demand compliance. Moreover, if a carrier’s international Section 214 authority is revoked for failure to comply with commitments to Team Telecom, it is highly likely that a subsequent application for authority would be subject to additional Team Telecom scrutiny and require, as a condition to not objecting to an application to the FCC for authority, agreement to significantly more stringent conditions than before. The revocation requests also illustrate the critical nature of full compliance with letters of assurance or national security agreements entered into as part of the international Section 214 authority process. These documents can no longer be viewed as routine agreements, necessary to complete the Team Telecom review of FCC applications, that can be filed away and reviewed only occasionally. Instead carriers must ensure that they are aware of and comply in a timely fashion with all commitments identified in letters of assurance or security agreements.

Specifically, since 1995, an Affected Provider that sought international Section 214 authority to provide service to a foreign point where the Affected Provider or its affiliate has market power, has been subject to the ECO Test and required to demonstrate that there are no legal or practical restrictions on U.S. carriers’ entry into such foreign market. Affected Providers have also been subject to the ECO Test when seeking cable landing licenses to serve a non-WTO Member country the Affected Provider or its affiliate has market power, in which case the Affected Provider must demonstrate that U.S. providers in that country have the legal ability to hold ownership interests in the foreign end of international cables. The Order also addresses the timing and level of review applicable to foreign carrier affiliation notifications filed by U.S.-international carriers authorized under Section 214 and submarine cable landing licensees when submitted by Affected Providers. The FCC eliminated the ECO Test for Affected Providers because of the small numbers of non-WTO countries (relative to global GDP), the limited number of applications and notifications that have been filed by Affected Providers and absence of comment on such applications and notifications by U.S. carriers, and the availability of other public and government agency input regarding applications and notifications submitted by Affected Providers.

Although the Commission has eliminated the ECO Test for Affected Providers, it has not extended to Affected Providers the rebuttable presumption that section 214 and cable landing license applications filed by foreign providers or their foreign carrier affiliates from WTO Member countries “do not pose concerns that would justify denial of the application on competition grounds.” Rather, Affected Providers will maintain the burden of demonstrating that any non-WTO country in question supports open entry. The Order explains that the FCC “will closely analyze only those applications where competitive issues are raised concerning U.S. carriers experiencing competitive problems in that market, and will determine whether the public interest would be served by authorizing a foreign carrier with market power to enter the U.S. market.”

Under the new approach, where a Section 214 applicant is itself, or is affiliated with, a foreign carrier with market power in a proposed non-WTO Member destination country, then the application will not be eligible for streamlined processing but will be placed by the FCC on a 28-day public notice period. In addition, where an authorized U.S.-international carrier intends to assume an affiliation with a foreign carrier with market power in a non-WTO Member country for which the U.S. carrier is authorized to provide U.S.-international service under Section 214, a foreign carrier affiliation notification must be filed by the Affected Provider 45 days in advance (rather than within thirty days after the transaction, which is the rule for certain other affiliations such as those with carriers that do not have market power or do not own facilities in the destination market).

The FCC will now take a similar approach to cable landing license applications and notifications of foreign carrier affiliation by submarine cable licensees. An applicant or notification filer from a non-WTO Member country must still demonstrate whether or not it has market power in the non-WTO Member country where the cable lands. As under current rules, if an applicant for a cable landing license is itself, or is affiliated with, a foreign carrier with market power in the proposed cable's non-WTO Member destination country, then the application will not be eligible for streamlined processing. Concerning foreign carrier affiliation notifications by submarine cable licensees, the disclosure of market power in the non-WTO Member country will trigger the existing 45-day waiting period after the foreign carrier notification is filed before the transaction can be consummated.

The implementing rule changes adopted in the Order, as a whole, are subject to approval by the Office of Management and Budget review prior to taking effect. The FCC’s Order appears to reflect a trend of simplifying international service regulations and eliminating infrequently used regulations, although applications and notifications filed by Affected Providers will still be subject to a greater level of review than those involving only WTO member countries. However, the FCC emphasized in the Order that questions regarding national security, law enforcement, foreign policy and trade policy raised by an application or an affiliate notification would be resolved in the same manner regardless of the WTO status of the provider’s home country.

The FCC ruled that TCC’s termination rates satisfied each of three established (and non-exhaustive) indicia of anticompetitive behavior by foreign carriers: (i) settlement rates above the FCC’s benchmark rates; (ii) establishment of a rate floor above previously negotiated rates; or (iii) a threatening or carrying out of disruptions to the other carrier’s circuits as a means of forcing rate increases or changes in service terms. Specifically, the $0.30 per minute rate far exceeded the FCC’s existing $0.19 per minute benchmark for the U.S.-Tonga route. In addition, there had been an increase in the rate from the previously (with AT&T) negotiated $0.09 per minute to a minimum of $0.30 per minute without the opportunity for meaningful negotiations. Finally, TCC terminated AT&T’s and Verizon’s circuits to Tonga when they refused to accept the $0.30 rate. TCC essentially admitted all three indicia were satisfied but still argued that satisfaction of the three criteria does not warrant a conclusion that TCC’s behavior was anticompetitive.

Rejecting TCC’s argument that TCC was merely following Tongan law when implementing the rate increases, the FCC stated that its policies addressing anticompetitive conduct apply regardless of whether the carrier acts on its own or at the direction of a foreign government. The FCC emphasized that its primary consideration was the impact of those rates on the U.S. public and that it was not penalizing TCC for following Tongan law. Rather, the Commission explained that it was not asserting jurisdiction over TCC at all, but the interests of U.S. consumers prompted the FCC to prohibit U.S. carriers from settling traffic at rates set by an entity controlling the foreign end of a route where anticompetitive behavior was indicated. After acknowledging the principal of international comity, the FCC observed that the principle does not relieve the FCC of its duty to protect the U.S. public interest and emphasized that international comity does not permit a foreign government, by enacting legal, regulatory or procedural measures, to force the United States to implement those measures, as a matter of international law. Moreover, the purpose of a stop payment order such as the instant one, the Commission explained, is to prevent foreign carriers that have established a rate floor from being able to play U.S. carriers against each other in rate negotiations and to enable U.S. carriers to provide a unified position in those negotiations. The Commission said the basis for the order was the ability to "whipsaw," not necessarily a present intention by the foreign carrier to do so. Finally, the FCC explained that its authority over international settlement rates between U.S. and foreign carriers constitutes direct regulation of the US. Carrier alone, not extraterritorial regulation of the foreign carriers; thus, any stop payment orders apply only to the U.S. carriers. As such, the Commission rejected the TCC argument that the Stop Payment Order created a conflict with the Tongan government’s requirements which applied only to TCC.

TCC had also argued that the Commission should focus its attention on the alleged unreasonably high end user rates of U.S. carriers AT&T and Verizon for calls on the U.S.-Tonga route. The Commission declined to consider the issue in the order, effectively ruling that whether a foreign carrier was acting anticompetitively, triggering Commission action against U.S. carriers in response was not excused depending upon the rates the U.S. carriers charged on the route.

The FCC’s decision to uphold the Bureau’s Stop Payment Order and continue the payment suspension is not surprising, especially given the recent order affirming the U.S. settlements policy on which we blogged. This latest decision is, in some ways, the mirror-image of that March 7 decision to enforce the benchmark rate on the U.S.-to-Fiji route. Despite the Tongan government’s intervening "rescission" of the minimum termination rate in 2010, the current termination rates are still above benchmark and include a $0.051 per minute tax. Moreover, TCC continues to block AT&T’s and Verizon’s circuits to Tonga. We expect that the FCC will continue, as the major U.S. carriers bring concerns to the agency's attention,to emphasize the impact of international settlement rates on U.S. consumers and the public interest where foreign carriers seek to, or are required to, impose rates above benchmarks or rate floors above previously negotiated rates and so exert foreign carrier market power.

The Second Streamlining Order does impose requirements on some new classes of providers. It extends the requirement to file the Traffic and Revenue Report to providers of both international interconnected Voice over Internet Protocol (“VoIP”) service and international “one-way” VoIP services. One-way VoIP services are those VoIP providers that permit users either to receive calls from or place calls to the public switched telephone network, but not both. The Second Streamlining Order also requires for the first time a Circuit Status report from all submarine cable licensees, not just licensees that are common carriers, as well as for international common carrier terrestrial and satellite circuits of facilities-based common carriers and the non-common carrier circuits of satellite operators.

The Annual International Reports will retain their current separate filing deadlines -- March 31 for the Circuit Status Report and July 31 of the Traffic and Revenue Report. The effective date of the rule changes is currently unknown; it is at present unclear if the requirements will go into effect in time for the filing of either of the International Reports this year. The Office of Management and Budget must first approve the reporting and filing changes. The FCC expressly directed parties in the Second Streamlining Order to continue filing the Annual International Reports pursuant to its existing rules until it announces the new reporting requirements have become effective.

A host of other changes were made to the Traffic and Revenue reporting requirements, including, among others, use of specific Commission-created filing schedules; a requirement to disaggregate world-total international calling services (“ICS”) traffic and revenue data for specific customer categories and routing arrangements (for example, residential and mass market, reoriginated foreign traffic, and U.S. resellers); a requirement to report circuit and revenue data for private line service provided over resold circuits only on a world-total basis; a requirement to report on international private line services only in terms of total 64 kbps-equivalents; and a requirement to disaggregate data, for minutes and settlement payments, between calls terminated on fixed line networks and those terminated on mobile networks when the termination rates are different. Under the new rules, filers will be required to file any revisions or corrections to their Traffic and Revenue reports by October 31 in the filing year for any values with errors exceeding one percent (1%). Those U.S. International Service Providers that do not provide facilities-based ICS and have less than $5 million in revenues from ICS resale will not be required to include resale-ICS on their annual Traffic and Revenue Report.

The Second Streamlining Order extended the Circuit Status reporting requirements beyond common carriers. Under the new rules, the international common carrier terrestrial and satellite circuits of facilities-based common carriers and the non-common carrier circuits of satellite operators must be reported. At the same time, the Commission also streamlined the Circuit Status reporting obligations for affected parties by eliminating the requirements to report on the destination of circuits or the number of idle circuits. International terrestrial and satellite circuit providers that must file will now need to report only world totals of aggregate active 64 kbps terrestrial and satellite circuits.

The Second Streamlining Order made changes that will require Circuit Status reports to be filed for all submarine cable capacity, not just capacity used for common carrier services. Consequently, all cable landing licensees (both common carrier and non-common carrier licensees) and those common carriers with capacity on international submarine cables will be required to report on both available and planned capacity on all such circuits.

The NAL is novel in a few ways worthy of mention on this blog. First, it marks the first time that the FCC has proposed fines for failing to file international traffic reports. Second, the Enforcement Bureau continues its aggressive interpretation of violations, this time proposing a fine for a violation that lasted a mere three weeks. Finally, the NAL raises once again the tricky issue of self-disclosure of violations. Carriers that learn of violations that have occurred should contact experienced FCC counsel promptly to come into compliance and mitigate their forfeiture exposure.

Continue reading below for a more detailed discussion of the Unipoint NAL.

The facts in the Unipoint NAL are fairly common. Unipoint is a prepaid calling card provider based in Massachusetts. It applied for international 214 authority in April 2009, which was granted by the FCC in May 2009. In August, however, Unipoint self-disclosed that it had been operating without a 214 prior to 2009. (Unipoint apparently sought confidential treatment of the information it provided to the Enforcement Bureau, so the NAL does not specify precisely when Unipoint began providing service.) An investigation ensued, which revealed several violations of the Act and FCC rules.

Significantly,

• the NAL proposes fines for failing to file Unipoint's Form 499-A in 2007 and for failing to pay TRS in 2007 and 2008. Although the NAL makes no mention of a tolling agreement, it appears that Unipoint agreed to an extension of the statute of limitations to reach back at least to 2009. However, the Commission appears to once again rely upon its "continuing violation" theory for failures to file relevant forms to bring the violation within the one year statute of limitations.
• the NAL also, for the first time, proposes fines for failing to file international traffic reports required by section 43.61 of the FCC's rules. Unlike proposed fines for failing to file CPNI certifications, USF revenue reports, carrier outage reports or most other "failure to file" actions recently, the FCC sticks with its Forfeiture Guidelines for these reports, proposing (only) a $3,000 fine per failure to file. Comparatively, failing to file an international traffic report is treated as a minor violation.
• One of the failures to file, however, exposes a particularly rigid interpretation by the FCC. The Commission asserts that Unipoint failed to file its 2011 international traffic report when due. Instead, it filed it three weeks after the due date. This is the first time we've seen a proposed fine for such a short-lived violation. Typically, an informal grace period applies to such routine reports. In this case, however, we believe the fine was proposed because the violation occurred during the Enforcement Bureau's investigation, and that it repeated a type of violation the Bureau was actively investigating. Presumably, with Unipoint on notice, the FCC's tolerance was at its lowest point.

Finally, it bears noting that Unipoint self-disclosed the violation that triggered the Enforcement Bureau investigation. Despite this self-disclosure, the NAL does not appear to take Unipoint's actions in account in determining the proposed forfeiture amounts. We see no evidence that Unipoint received credit for having come to the FCC first, or that the FCC lowered the proposed fines in recognition of this self-disclosure. This action again underscores the difficult decision facing carriers that discover otherwise undetected violations of FCC rules. Carriers that find themselves in a similar position should contact experienced FCC counsel as soon as possible in order to come into compliance and to mitigate their forfeiture exposure for the violations. If self-disclosure is made, the carrier should do everything possible to ensure that the FCC takes this action into account in evaluating whether to take enforcement action.

The latest consent decree involves Tricom USA, Inc., a carrier that provided long distance international telecommunications primarily to resellers and other carriers. Tricom held a domestic 214, an international 214 and submarine cable landing licenses in order to provide these services. As explained in the consent decree, Tricom filed for Chapter 11 bankruptcy in 2008, leading to a reorganization of the carrier. The carrier properly filed for approval to transfer its authorizations during the bankruptcy and following its expected transition from bankruptcy.

However, upon emergence from bankruptcy, its largest shareholder received substantially more shares than initially anticipated, resulting in the shareholder holding a majority stake in the carrier, rather than a minority stake. Further, this shareholder than transferred ownership in Tricom to a subsidiary of the shareholder, without seeking the FCC's approval to do so. None of the violations appeared to be intentional, and all involved pro forma transfers of control of Tricom.

The Enforcement Bureau settled these proposed violations for a total payment of $20,000. The adopting order and consent decree are provided in the attached links.

This item has been moving forward under the radar of most VoIP and broadband providers. As we told you back in July, the Public Safety Bureau sought comment on how to apply its outage reporting obligations to interconnected VoIP services and broadband Internet access services. The Public Notice produced only a handful of comments and replies. Even in the few days before the FCC announced its meeting agenda -- typically a very busy time for those with an interest in an order -- only three ex parte notices were filed on the proposal. The minimal level of interest won't last long, however. Once the NPRM is released this week, a much larger universe of interested parties is likely to appear.

Note: Also on the May 12th agenda are proposed revisions to two international service compliance obligations -- the FCC's settlements policy and its Part 43 reporting requirements for international traffic. International carriers should pay close attention to both items.