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FCC bars Huawei, ZTE from billions in federal subsidies

More problems are here for the Chinese tech companies.

Angela Lang/CNET

The US Federal Communications Commission on Friday voted to bar use of its $8.5 billion a year Universal Service Fund to purchase equipment and services from Huawei and ZTE. The government fund is used by multiple programs to subsidize US broadband deployment and services. 

In a unanimous vote during its November open meeting, the FCC approved an order that blocks the use of USF funds to purchase equipment and services from companies that pose a national security threat. The order also establishes a process for barring more companies in the future. So far, just Huawei and ZTE are on the list. 

"Given the threats posed by Huawei and ZTE to America's security and our 5G future, this FCC will not sit idly by and hope for the best," said FCC Chairman Ajit Pai in a statement Friday. 

The main issue with Huawei and ZTE is their cozy relationship with the Chinese government. National security officials fear that equipment from these manufacturers could be used to spy on other countries and companies. The Commerce Department blacklisted Huawei following a May executive order from President Donald Trump that effectively banned the company from US communications networks. Huawei and ZTE have denied their gear can be used to spy or to compromise US security.

Huawei on Friday said the FCC decision to classify it a national security risk is "based on selective information, innuendo, and mistaken assumptions," and the order will have "profound negative effects on connectivity for Americans in rural and underserved areas across the United States."

ZTE didn't immediately respond to a request for comment. 

The FCC order also calls for carriers receiving USF funds to remove and replace any existing equipment from Huawei and ZTE they may be using already. Pai said the FCC is also proposing to establish a reimbursement program to help offset the cost of "transitioning to more trusted vendors."

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