New 214 Rules
The
Federal Communications Commission (“FCC” or “Commission”) announced revisions to its rules applicable
to Section 214 authorizations (required before telecommunications providers can offer international, outbound U.S. service).
These changes, summarized below, primarily affect a) service discontinuances; b) whether affiliated companies can “share”
Section 214 authorizations; c) asset sale and control change obligations; and d) Section 214 obligations related to CMRS providers
and MVNOs.
Discontinuance of International Service
FCC
rules require telecommunications providers to provide notice to both customers and the FCC prior to discontinuing international
toll service. This notice must be given 60 days before the discontinuance. Under the new, revised rules, the FCC shortened the customer notification period for
a competitive provider’s discontinuance of international service from 60 days to 30 days. As competition for international telecommunications services has increased, the Commission reasoned, customers
no longer need the full 60 days to find a replacement carrier. In addition, the
FCC now requires competitive providers to file the discontinuation notice sent to customers with the Commission at the same
time as it is sent to customers.
Commonly-Controlled Subsidiaries
Under
current FCC rules, a wholly-owned subsidiary of a Section 214 licensee (a provider which is 100% owned by a Section 214 licensee)
can provide telecommunications service under its parent company’s license. This
is the only permitted instance of Section 214 “sharing.” Under existing
rules, a commonly-controlled subsidiary (subsidiaries that are controlled, but not wholly owned, by a Section 214 licensee)
must obtain its own authorization. The FCC considered but declined to amend its
rules to allow a commonly-controlled subsidiary to provide service under the Section 214 authorization of the controlling
(but not 100% controlling) entity. The FCC’s decision was influenced by
Executive Branch concerns over its ability to screen Section 214 applications for national security and law enforcement concerns. Generally, the Department of Homeland Security will investigate any application in
which any individual foreign owner has a greater than 10% share. This inquiry
could be circumvented, according to the FCC, if commonly-controlled subsidiaries were not required to apply for their own
Section 214 authorization. Thus, a company controlled by a Section 214 licensee
seeking to provide telecommunications service must apply for its own authority unless it is 100% owned by that licensee.
Transfer of Ownership
Existing
FCC regulations require prior Commission consent to a change in controlling ownership in a Section 214 licensee. For example, when an individual who has less than 50% interest in a licensee obtains more than 50%, he
must first file a transfer of control application with the FCC. The FCC amended
its rules to require filing of a transfer of control application when there is a “reverse” change of ownership
of a licensee from over 50% to less than 50%. In these instances, even if the
entity which held de jure control (i.e.,
a greater share the 50%) maintains de facto control (i.e., still is operationally in charge of the company), a transfer of control application must be submitted. For example, under the amended rule, if a company owns 55% of a Section 214 licensee
and sells 6% of those shares to another entity, it would be required to obtain prior Commission approval of the sale by filing
a transfer of control application.
Asset Acquisition
The
FCC requires providers to file an application and seek approval when assets, including the provider’s customer base,
are assigned from one provider to another. However, some providers have been
confused as to whether a transfer of a provider’s customer base should be treated as an assignment or a discontinuance
of service. In amending its rules, the FCC added a note clarifying that asset
acquisitions that do not result in a loss of service to customers should be treated as an assignment rather than a discontinuance
of service. Thus, even though customers will no longer be served by the same
provider, the FCC requires the provider selling its base to file an application for assignment, and gain prior Commission
approval, rather than simply treating the transaction as a discontinuance of service.
International 214 Authorizations for CMRS Resellers and MVNOs
Existing
FCC rules require CMRS providers that offer service through pure resale (i.e.,
MVNOs) to file for international Section 214 authority prior to commencing service, just like any other telecommunications
carrier. Because the CMRS resale market is highly competitive, the FCC considered
exempting these CMRS providers from the Section 214 obligation prior to providing service and instead creating a post-service
notification procedure. However, the FCC declined to adopt such an approach because
the record on this issue was not fully developed. Despite this, the FCC has left
open the possibility of implementing such a notification process in the future.
International Roaming
Existing
FCC rules are silent as to whether a Section 214 licensee has authority to resell U.S.-inbound service from foreign carriers,
leaving an open question as to a CMRS provider’s or MVNO’s ability to negotiate international roaming arrangements. This complicated such providers’ ability to provide international roaming services. The FCC amended its rules to explicitly allow U.S. Section 214-authorized carriers
to resell U.S.-inbound service from foreign carriers, whether or not the foreign carrier has U.S. authorization. The amendment explicitly authorizes all U.S.-authorized resale carriers (including
CMRS providers and authorized MVNOs) to enter into roaming agreements with foreign carriers to allow U.S. customers to call
home from foreign countries without obtaining further FCC approval. Although
the rule applies to all carriers generally, this modification will enable CMRS providers and MVNOs to enter into international
roaming agreements with foreign carriers without the need for additional FCC authorization.
The
FCC’s Section 214 rule changes represent yet another step by the agency to streamline its international licensing and
compliance obligations.
Please
feel free to contact us if you have any questions or we can be of any assistance to you.
July 2007
