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KELLEY DRYE CANTO’S 21 st Annual Telecommunications Conference & Trade Exhibition U.S. Regulatory Issues – Entry Into The U.S. Market By Foreign Carriers.

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Presentation on theme: "KELLEY DRYE CANTO’S 21 st Annual Telecommunications Conference & Trade Exhibition U.S. Regulatory Issues – Entry Into The U.S. Market By Foreign Carriers."— Presentation transcript:

1 KELLEY DRYE CANTO’S 21 st Annual Telecommunications Conference & Trade Exhibition U.S. Regulatory Issues – Entry Into The U.S. Market By Foreign Carriers and Mobile Termination Rates Robert J. Aamoth, Partner Chairman, Telecommunications Practice Group Kelley Drye & Warren LLP th Street, N.W., Suite 500 Washington, D.C Office: Fax: June 21, 2005

2 KELLEY DRYE © Kelley Drye & Warren LLP 2 2 I. US TELECOMS MARKET ENTRY REMAINS VIABLE TODAY A.Many examples of new entry by non-US entities B.Wide range of business plans and technologies C.Ongoing FCC deregulation D.Declining equipment, transport and termination costs

3 KELLEY DRYE © Kelley Drye & Warren LLP 3 3 II. FCC ENTRY BARRIERS LOWERED OVER LAST 10 YEARS A.FCC policies impeded entry prior to WTO Agreement B.New FCC policies create strong presumption in favor of foreign entry i.Applies primarily to WTO countries ii.Opposition less common but still occurs iii.Purpose often to achieve commercial advantage through delay

4 KELLEY DRYE © Kelley Drye & Warren LLP 4 4 C.FCC normally applies fast-track streamlined processing i.International 214 license (or transfer) granted within 14 days ii.No application required for domestic 214 license iii.Submarine cable license (or transfer) granted within 45 days iv.Transfer of domestic 214 license within 30 days v.No license required for unregulated services vi.Caution: If applicable, state license subject to day process

5 KELLEY DRYE © Kelley Drye & Warren LLP 5 5 III. THE CFIUS PROCESS IS NORMALLY NOT A MATERIAL ENTRY BARRIER A.CFIUS = Committee on Foreign Investment in the United States B.Multi-agency US Government group (led by Treasury) first established in 1975 C.CFIUS given formal status by Exon-Florio statute in 1988

6 KELLEY DRYE © Kelley Drye & Warren LLP 6 6 D.CFIUS reviews acquisitions of US businesses by foreign persons i.Inapplicable to passive or greenfield investments ii.Inapplicable to purchase of mere assets E.Focus of CFIUS review is US national security i.Trade or political issues can have indirect influence ii.National security review more intense post 9/11

7 KELLEY DRYE © Kelley Drye & Warren LLP 7 7 F.Ultimate authority by President to block or undo a transaction G.Statutory process for obtaining CFIUS clearance i.Vast majority of transactions cleared within 30 days ii.Maximum 90-day process iii.“Voluntary” filings iv.Rejection rare, but restructuring can be forced

8 KELLEY DRYE © Kelley Drye & Warren LLP 8 8 H.CFIUS process under review in Congress i.Some desire to expand scope of inquiry ii.Channels of communication can be slow iii.Should national security agency lead CFIUS?

9 KELLEY DRYE © Kelley Drye & Warren LLP 9 9 IV. THE EMERGENCE OF “TEAM TELECOM” WITHIN USG A.“Team Telecom” is ad hoc group of USG national security agencies i.Primary players are DOJ, FBI, DHS and DOD ii.No formal status under US laws and regulations iii.Focused on telecommunications market sector

10 KELLEY DRYE © Kelley Drye & Warren LLP 10 B.TT requires certain carriers to sign “security agreement” i.Exerts leverage through CFIUS and FCC process ii.TT can increase likelihood of CFIUS investigation iii.FCC will delay processing at TT’s request iv.FCC delays can be months or longer v.Refusal to sign effectively prevents entry

11 KELLEY DRYE © Kelley Drye & Warren LLP 11 C.Who does TT ask to sign security agreements? i.US carriers usually not required to sign ii.Requests directed at foreign entities entering US telecoms market iii.Initially very selective – only the largest incumbent foreign carriers iv.TT casts the net much wider today v.All incumbent foreign carriers should expect to sign vi.All other foreign carriers should expect to be contacted

12 KELLEY DRYE © Kelley Drye & Warren LLP 12 D.What are the primary purposes of a security agreement? i.Facilitate lawful USG surveillance activities in US ii.Prevent foreign government surveillance activities in US iii.Prevent improper foreign access to US telecoms networks

13 KELLEY DRYE © Kelley Drye & Warren LLP 13 E.What does a security agreement normally require? i.Infrastructure for US calls must be located in US ii.Cannot route US calls outside of the US iii.Must store customer and call-related data in US iv.Must comply with lawful US surveillance requests v.No foreign surveillance via US infrastructure vi.Compliance is condition of FCC authorization

14 KELLEY DRYE © Kelley Drye & Warren LLP 14 vii.Administrative requirements – a)US citizen as primary contact point b)US citizen as security officer c)Rigorous visitation policy d)Rigorous employee screening policies e)Annual compliance audit f)Annual/period reporting requirements

15 KELLEY DRYE © Kelley Drye & Warren LLP 15 F.Some TT sensitivity to applying a sliding scale of requirements i.Some foreign carriers subject to less burdensome requirements ii.Some foreign entities avoid all requirements G.Advance planning is critical to minimize delays i.May wish to contact TT prior to FCC/CFIUS filings ii.May seek to negotiate less burdensome agreement

16 KELLEY DRYE © Kelley Drye & Warren LLP 16 V. BRIEF UPDATE ON THE FCC’S PROCEEDING ON MOBILE TERMINATION RATES A.FCC released Notice of Inquiry in IB Docket No in October, 2004 i.Important that it was not a Notice of Proposed Rulemaking ii.FCC staff believes many foreign MTRs are excessive iii.Solicited comments on its MTR policy and enforcement options

17 KELLEY DRYE © Kelley Drye & Warren LLP 17 B.CANTO filed comments with FCC in January, 2005 i.Urged FCC not to intervene unilaterally to reduce foreign MTRs ii.Urged FCC to rely upon foreign regulators and multilateral bodies iii.Current downward MTR trend removes need for FCC intervention iv.Questioned FCC’s legal authority to implement MTR benchmarks.

18 KELLEY DRYE © Kelley Drye & Warren LLP 18 v.Questioned whether US carriers have passed through settlement rate reductions to U.S. consumer through lower calling rates. vi.MTRs are different from settlement rates vii.Unilateral FCC intervention could be ineffective and cause service disruptions viii.Strongly opposed AT&T-proposed methodology for calculating MTR benchmarks.

19 KELLEY DRYE © Kelley Drye & Warren LLP 19 C.Current status of FCC proceeding is unchanged i.FCC staff not now focused on this proceeding as a priority agenda item ii.Unknown impact of new FCC Chairman iii.Unknown impact of new FCC Commissioners


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