Con tinu ing Cha llenges w ith National Security Reviews, Licens ing, an d Environmental Regulation

Kent Bressie

18 January 2011 Section Title Overview

• National security regulation: developments in the United States, echoes in India • Licensing by the U.S. Federal CitiCiiCommunications Commission • U.S. environmental regulation

2 1. Developments and Trends in National Security Regulation

• Evolvinggp Team Telecom process in the United States • New telecom infrastructure security requirements in India

3 National Security Refresher Course re Team Telecom

•Depp(),()artment of Justice (“DoJ”), Defense (“DoD”) and Homeland Security (“DHS”) and Federal Bureau of Investigation (together, “Team Telecom”) scrutinize applications for licenses and transaction-consent requests filed with the Federal Communications Commission (“FCC”). • Team Telecom seeks to protect critical infrastructure, protect government communications, preserve government surveillance capabilities, prevent terrorist acts, and deter money laundering and drug trafficking. • Team Telecom does not act pursuant to any particular law, has adopted no formal regulations, and retains substantial power and discretion.

4 National Security Refresher Course (()cont’d)

• Team Telecom reviews national security implications of an infrastructure owner or service provider seeking:

– AFCCliAn FCC license for new faciliti es or serv ices, or

– Consent to transfer or assign a license in a merger or acquisition

• For applicants with notable foreign ownership or international infrastructure, Team Telecom typically requires a security agreement with:

– Information security restrictions (confidentiality of surveillance, traffic routing, storage of data and records, requirements for any foreign surveillance)

– Infrastructure security restrictions (sourcing of equipment and services for installation and maintenance)

• Team Telecom petitions FCC to condition any license or transaction approval on compliance with a security agreement.

5 National In 2011, Scope of Activities Subject Security to Team Telecom Review Remains Largely Unchanged • U.S.-owned systems connecting U.S. points only are still exempt from Team Telecom commitments (whether security agreements or assurances letters). • One system backed by the Department of Defense (i.e., HANTRU1) was not required to execute a security agreement with Team Telecom or submit an assurances letter. This is a special case. Although HANTRU1 lands in a foreign country, the exact landing—the Reagan Test Site on Kwajalein Atoll—is under long-term lease to the U.S. Government.

6 National Team Telecom Process Has Become Security More Complex but also More Flexible • DoJ plays more prominent role in reviewing new license applications and transaction consents. • Team Telecom agggencies have shown increasing flexibility to permit cable owners to contract with third parties re security-agreement obligations (and to keep those arrangements confidential), whether outsourcing of surveillance or even NOC operations to a trusted U.S. party. • Occasionallyy( (e.g.,,q NTT’s acquisition of PC-1), the Team Telecom agencies accept a unilateral “assurances letter” rather than a bilateral security agreement.

7 National Some Changes in Security Security AtTAgreement Terms

• Team Telecom agencies continue to place great emphihasis on ifinfrastructure secur ity (j(not just information security), seeking great detail about equipment, equipment manufacturers, service providers, and access by suppliers and maintenance and security providers thereto—both during and after installation. • The reqqgguirements regarding outsourcing continue to expand, though this also reflects Team Telecom willingness to accommodate outsourcing arrangements. • While Team Telecom agencies had dropped the expensive annual-audit requirement with respect to some recent systems, that requirement has recently resurfaced.

8 National Negotiation of Security Agreements Security Still Drives Timing for Licensing and Transaction Consents • Cable landing licenses and consents for M&A transactions typically follow quickly after execution of security agreements or assurances letters. • Team Telecom reviews of transaction consents appear to take less time than reviews of licenses for new systems. This may be due to: – Prior vetting at time of initial licensing, and/or – Timing pressure in cases with a foreign purchaser and a review by the Committee on Foreign Investment in the United States (“CFIUS”)—a process that does not apply to “greenfields” investments.

9 FCC Cable Landing License Processing National Security Times for Recent Pacific-Ocean Systems

Date FCC Date Security Date FCC Total System Application Agreement License Granted Licensing Filed Signed Time

HANTRU1 Feb. 25, 2009 none June 10, 2009 105 days

Honotua Sept. 26, 2008 Dec. 3, 2010 Dec. 6, 2010 803 days

American Samoa Aug. 13 , 2008 Jan. 9, 2009 Jan. 15, 2009 155 days Hawaii

Unity May 16, 2008 Sept. 21, 2009 Oct. 5, 2009 508 days

PPC 1 Feb. 11, 2008 Sept. 4, 2008 Sept. 10, 2008 212 days

AAG Aug. 23, 2007 June 10, 2008 July 2, 2008 304 days

Telstra Endeavour June 19, 2007 Apr. 16, 2008 May 6, 2008 322 days

TPE Feb. 22, 2007 Dec. 20, 2007 Jan. 10, 2008 322 days

UUI TERRA-SW Sept. 14, 2010 none Oct. 28, 2010 44 days

GCI SEAFAST Oct. 23, 2007 none Dec. 6, 2008 44 days

ACS AKORN Oct . 23 , 2007 none Dec. 4, 2008 42 days

10 National Approval Timelines for Selected Security Undersea Cable M&A Transactions

Date Security System Date FCC Agreement or Date FCC Total Review CtConsent Assurances Letter CtConsent Time Sought Signed Granted Amper - eLandia Oct. 25, 2010 none to date pending pending (American Samoa- Hawaii Cable) TPG Telecom – Dec. 30, Jan. 28, 2010, Feb. 17, 2010 49 days PIPE Networks 2009 assurances (PPC-1) letter (with continuing security agreement)

NTT - PC Landing July 15, 2009 Sept. 11, 2009, Oct. 7, 2009 84 days Corp. (PC-1) with assurances letter only ACS - WCI Apr. 22, 2008 none June 10, 49 days (Northstar) 2008 SK Telecom – Feb. 15, 2008 none Apr. 9, 2008 54 days Pacific LightNet (()HIFN)

11 National Is the U.S. Approach Proliferating? Security The Case of India • Since December 2009, India’s Department of Telecommunications ((DoT)“DoT”) has issued a series of requirements it asserts are necessary to secure its telecommunications network infrastructure from malware, spyyyware, and other national security threats. • DoT has amended licenses of telecom services providers (“TSPs”) and Internet service providers (“ISPs”) to establish a “security clearance” process which the licensee and supplier must complete prior to importing telecommunications equipment into India. • In parallel, India’s Ministry of Home Affairs has initiated chiIdi’hanges in India’s encryption and surveillance polic ies. • DoT appears to have singled out Chinese equipment suppliers and Research in Motion, though its requirements apply more broadly.

12 National Indian DoT’s March 2010 Security License Amendments

• Permit TSP or ISP to “self-certify” equipment to be imported. • Require that TSPs and ISPs include in their purchase orders for “critical equipment and software” procured from foreign suppliers (whether or not they are the original equipment manufacturers) clauses requiring the transfer of technology to Indian manufacturers within a period of three (3) years from the date of the purchase order. • Impose substantial monetary and criminal penalties for non-compliance.

13 National Security Indian DoT ’s July 2010 License Amendments

• Require licensee and supplier to execute Template Agreement, which mandates: – Escrow of all information and documentation (including programmer’s notes) regarding proprietary source code, design documents, hardware, and software. – Hiring by supplier of Indian nationals by with Indian security clearances as “security contact” personnel.

14 National Reasons for Concern about India’s Security Telecom Infrastructure Security Policy • Requirements are vague and unclear – “Active” equipment not clearly defined – DoThas in di cat ed inf orm all y th at the t echn ol ogy transfer requirement is desirable but not mandatory; DoT has yet to confirm this interpretation in writing. • Technology transfer and indigenous innovation arguably have nothing to do with national security. • Technology transfer provisions are doubly troubling as they apply not just where the supplier is the original eqqpuipment manufacturer , but also where su pplier offers third-party equipment and software. • The Indian Government views the Template Agreement and related practices as a model that could be exported to other countries .

15 National Similarities and Differences in Security U.S. and Indian Approaches

• Both United States and India have reacted to terrorist attacks—9/11 and 26/11—and neither government wants to be blamed for allowing another such event in its own territory. • Both U .S . and Indian processes create significant delays in network build-out. • U.S. approach is focused solely on security, whereas Indian approach embraces broader economic objectives. • U.S. approach recognizes that sharing of source code and product designs—even in escrow—with one government makes it impossible to assure other governments and customers. • Indian DoT has required a one-size-fits-all Template Agreement, whereas Team Telecom allows individualized agreements to address particular circumstances.

16 2. Developments and Trends iFCCLiin FCC Licensi ng

• Special temporary authority as a work-around • The special case of Honotua

17 FCC Undersea Cable Operators Licensing Increasingly Seek STAs While Negotiating with Team Telecom

• Special temporary authority (“STA”) allows an applicant to engage in specifically- authorized activities for a limited time period at its own risk pending issuance of license. • Typically granted for a maximum of 6 months. • Historically, STAs for undersea cable operators allowed only construction and testing. • Recently, FCC has allowed commercial operations under an STA.

18 FCC STAs for Recent Pacific-Ocean Licensing Systems

STA for Multiple STAs System Construction / STA for Operation Granted Testing HANTRU1 Honotua XXX

American Samoa Hawaii

Unity XX PPC 1

AAG XX Telstra Endeavour TPE X UUI TERRA-SW

GCI SEAFAST

ACS AKORN

19 FCC The Special Case of Honotua Licensing • Honotua posed unique issues for the FCC and Team Telecom, as OPT French Polynesia is: – Wholly owned by a foreign government, raising level of scrutiny by Team Telecom. – Holds de facto domestic monopolies in certain market segments, raising competition concerns. • OPT pioneered the first-ever waiver of an FCC rule requiiiring a separatUSte U.S. su bidibsidiary tthUSto own the U.S.- territory portion of Honotua. OPT sought this waiver due to legal restrictions on French Polynesia and offered alternative safeguards to assure FCC. • OPT al so obt ai ned an FCC STA tilto commence commercial operation of Honotua before signing Team Telecom security agreement and before issuance of FCC cable landing license. • HtHonotua dttththillittldemonstrates that while clear, written rules promote transparency, it’s critical for regulators to maintain flexibility to address the particular legal or commercial situation of a particular cable owner or cable system.

20 3. Developments in U.S. Environmental Regulation

• FCC coastal zone management rules • NOAA habitat designation for leatherback sea turtles

21 Environmental Revision of FCC’s Coastal Regulation Zone Management Rules • In 2007, the FCC revised its rules to require certain showings by a license applicant under the Coastal Zone Management Act (“CZMA”). • The CZMA is a U.S. federal statute allowing U.S. stttates or t errit itiories t o est tblihablish and di imp lemen t coastal management regulations. • CZMA allows a state or territory to require that federal permitting and licensing actions affecting a state/territorial coastal zone be “consistent” with state/territorial coastal management program. • States and territories may list federal activities subject to consistency reviews, and also review “unlisted activities.”

22 Environmental Regulation NASCA Challenge to FCC’ s CZMA Rules

• In 2007, the North American Submarine Cable Association (“NASCA”) challenged the FCC’s CZMA rules as inconsistent with the CZMA itself, unworkable, and extremely detrimental to the undersea cable industry without any corresponding environmental benefit. • In December 2010, the FCC granted in part and denied in part the petition of NASCA to rescind or at least revise its rules purporting to implement the CZMA. The FCC revised its rules to address many of NASCA’s concerns but refused to rescind them.

23 Environmental Regulation New CZMA Rules

• In response to NASCA’s petition, the FCC significantly modified the certification requirement in the Note to Sec tion 1. 767(a )(10). The FCC conced ed th e i mpossibilit y of making the requested certification where a cable landing license is an “unlisted activity” and therefore modifi ed th e r equir em ent t o appl y onl y wh er e th e li cen se i s a "listed activity.“ • Second, the FCC significantly modified Section 1.767(k)(4), ensuring that most applications will still qualify for streamlined processing. The new rule provides that the applicant need only certify that the proposed undersea cable system will not be located in or impact any state that requires review of FCC cable landing applications as a ‘listed’ activity in its coastal management plan. If a state or territory does not object within 30 days of issuance of the FCC’s public notice, it waives its right to object.

24 Environmental NOAA Habitat Designation for Regulation LthbkSTtlLeatherback Sea Turtles

• In early 2010, the National Oceanic and Atmospheric Administration (“NOAA”) proposed to designate additional areas as criti cal habitat for the leatherback sea turtle. • At present , th e d esi gnat ed habitat includes only a single beach in the U.S. Virgin Islands. The extension would embrace much of the Pacific Coast of the United States.

Source: NOAA

25 Activities in Critical Habitats Environmental Regulation Subject to Greater Regulation, Permitting Delays

• Under joint regulations issued by NOAA and the U.S. Fish and Wildlife Service, federal agencies must initiate a consultation under Section 7 of the Endangered Species Act before taking any action—including issuance of a permit—that “may affect” an endangered species or its critical habitat. • If NOAA were to designate additional critical habitat for the leatherback turtle, some agencies might interpret this regulation—erroneously—to require a Section 7 consultation before issuing a permit for any undersea-cable repair or installation within the critical habitat.

26 Environmental Regulation NASCA Has Challenged the Proposed Habitat Designation

• NASCA has argued that such an outcome would impose costly delays on undersea- cable installation and repair without any corresponding environmental benefit, as undersea cable installation and maintenance do not adversely impact turtle habitats or result in “takings” of sea turtles. • NASCA has asked NOAA to clarify that federal agencies may issue permits for that activity without first initiating a Section 7 consultation. • NASCA’s challenggpge remains pending.

27 Kent Bressie

WILTSHIRE & GRANNIS LLP 1200 18th Street,,, N.W., Suite 1200 Washington, D.C. 20036-2516 U.S.A. +1 202 730 1337 office +1 202 460 1337 mobile +1 202 730 1301 fax [email protected] www.wiltshiregrannis.com

© 2011 Kent Bressie

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