Much of the nation’s infrastructure, from energy to transportation, depends upon telecommunications for safe and efficient operation. The facilities that provide such communications services generally are proprietary operations that are subject to licensing and regulation by the Federal Communications Commission (FCC) or, in the case of facilities operated overseas, by foreign regulatory counterparts. When infrastructure assets, or the companies holding them, are sold or are the recipient of major investment, those deals usually include the telecommunications facilities and the licenses pursuant to which they are operated. Failure of the parties to such transactions to obtain advance FCC approval of the assignment, or transfer of control, of the licenses can delay closing, expose the companies to stiff FCC penalties, result in license conditions or denial, and give rise to disputes among the parties that may even lead to litigation.

According to PricewaterhouseCoopers, there were 64 major infrastructure deals completed in 2014; other sources peg the number substantially higher. A significant proportion of these transactions were in the energy, power and utilities sectors (think renewables, oil and gas drilling facilities, pipelines, and generation, transmission and storage facilities) and transportation (including toll roads, tunnels, bridges and railroads).

Operation of most of these facilities depends in one way or another on telecommunications. Wireline or wireless communications links between field facilities and local, regional or HQ control centers are essential for operational and safety management. Electronic toll collection systems used in highway, tunnel and bridge toll booths rely on licensed telecommunications between vehicles and tollbooths, and among safety and maintenance vehicles and offices. Railroads’ movement of freight and passengers, and traffic and safety management, are dependent on telecommunications. Pipelines utilize telecom services for flow management, facility monitoring, and security. In some cases, such services are provided by third parties, but more often they are implemented over proprietary communications networks.

The overwhelming majority of the private telecom facilities and services utilized in U.S. infrastructure operations are licensed by the Federal Communications Commission. Depending on the type of facility or communication, the licenses may fall into one or another of a number of different classes of licenses that are issued by the FCC, each of which has its own set of criteria governing not only issuance and compliance but also assignment and transfer of control. Without such licenses, operation of the telecom facilities would be unauthorized, and the infrastructure businesses that depend on them could grind to a halt. Yet, as essential as these telecom facilities and services are, too often they do not receive adequate attention in the preparation of infrastructure deals.

Fundamental to the issue is the fact that it is illegal to assign, or to transfer control of a company that holds, FCC licenses without obtainingprior consent from the Commission. Applications for consent to assignment or transfer of control are governed by detailed, often complex, and sometimes obscure FCC regulations and companion regulatory decisions interpreting those rules. Standards governing the persons and entities to whom FCC licenses may be assigned, or by whom they may be controlled, vary depending not only on the type of facility and service but also on the nature of the proposed assignee or transferee, e.g., whether the putative assignee or transferee is a U.S. or foreign citizen or is a private or public entity. In some cases, applications for permission to assign, or transfer control of, licenses must be filed within specified advance windows, making early focus on the licenses even more important. And it is not only the sale of a company or its assets that can trigger the need for FCC approval; significant investments that result in a transfer of de jure or de facto control may do so as well. Similar considerations will bear on licenses issued by other countries’ regulatory authorities for facilities operated abroad.

In the best case, parties to an infrastructure transaction will have considered the need to seek FCC approval for assignment, or transfer of control, of telecommunications licenses as part of their due diligence, and will have applied to the FCC for permission sufficiently in advance to ensure that consent will be secured in time for the scheduled closing. In some instances, however, parties overlook this element of their transaction until late in the game, at which point it is difficult or impossible to secure timely FCC action, resulting in delayed consummation, holdbacks, and other complications. In the worst case, closing will have occurred without securing FCC consent, resulting in unauthorized assignment or transfer of control, which may lead to agency sanctions including penalties, imposition of conditions on assignment or transfer, and in the most egregious cases, even withholding of FCC consent. The fallout from overlooking this essential element of infrastructure deals can be at best inconvenient, and at worst very costly.

The take-away is that parties to infrastructure deals need to remember to (1) identify all FCC-regulated telecommunications facilities utilized in operation of the business, (2) assess whether the transaction will result in an assignment or de jure or de facto transfer of control, (3) determine what type of FCC consent is necessary to effect assignment or transfer of control of the telecom licenses, and (4) allocate adequate time to secure FCC consent in advance of the scheduled closing.