FCC estimates it'll cost $1.8B to remove Huawei, ZTE equipment from US networks

The two Chinese tech giants have been designated national security threats.

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The Federal Communications Commission on Friday said it could cost an estimated $1.8 billion to remove and replace Huawei and ZTE equipment that's in US telecommunications networks receiving federal funds.

In June, the FCC officially classified Huawei and ZTE as national security threats, though since 2019, the agency has barred carriers from using its $8.3 billion a year Universal Service Fund to purchase equipment from the two Chinese tech giants. 

US President Donald Trump also signed legislation in March that stops carriers from using government funds to buy network equipment from Huawei and ZTE

"By identifying the presence of insecure equipment and services in our networks, we can now work to ensure that these networks -- especially those of small and rural carriers -- rely on infrastructure from trusted vendors," said FCC Chairman Ajit Pa in a release, adding that he would "once again strongly urge" Congress to appropriate funding to reimburse carriers.

Earlier this year, the FCC began collecting data from US carriers that use network gear from Huawei and ZTE, to help it reimburse smaller and rural carriers for those costs. 

The US, UK and Australia have all banned Huawei from providing 5G technology for their respective wireless networks over security concerns that Huawei has close ties with the Chinese government. Huawei has repeatedly denied that charge. India is also expected to lock Huawei and ZTE out of its 5G rollout. 

Security concerns

The main issue with Huawei is its cozy relationship with the Chinese government. National security officials fear that its equipment could be used to spy on other countries and companies.  

One concern is over a Chinese law requiring companies in its jurisdiction to comply with requests from intelligence services and to not disclose them to any third parties could put communications networks around the world in jeopardy. 

Huawei has long denied its gear can be used to spy or to compromise US security. 

Lawmakers on Capitol Hill, both Republican and Democrat, have also sounded the alarm regarding these Huawei and ZTE and have worked to blacklist them from US communications networks. 

Earlier this year, Congress passed and Trump signed into law the Secure and Trusted Communications Act. This legislation bans the use of federal funds to buy equipment from companies that pose a national security threat, such as Huawei or ZTE. The law also creates a fund to help telecom providers, most of whom are in rural areas, rip out gear from these Chinese firms and replace it with equipment from "trusted providers."

Rep. Frank Pallone, Jr., a New Jersey Democrat who chairs the House Energy and Commerce committee, said Friday that it's now up to Congress to make good on its promise to fund the replacement of this gear in communications networks. 

"The FCC's estimate of the costs of replacing suspect equipment in US networks shows just how prevalent suspect equipment is -- particularly among smaller carriers who cannot afford to replace it on their own," he said in a statement. "That's why it's critical Congress fund the Secure and Trusted Communications Networks Act's rip and replace program to secure our communications supply chain."

Secure networks and 5G

The stakes are especially high when it comes to 5G, the next generation of wireless technology rolling out across the world. This new technology promises to deliver much faster wireless service and a more responsive network. It's ability to connect more devices and offer real-time feedback is expected to spark a sea change in how we live and work, ushering in new advances like self-driving cars to advanced augmented reality experiences.

Carriers around the globe are racing to deploy networks. In the US, AT&T, Verizon and T-Mobile are well on their way to building out 5G. 

The country that leads in the deployment of 5G could gain an edge in rolling out these future technologies. And just as the US benefited from the crop of services and businesses that emerged from 4G -- think everything from livestreaming on Facebook to ride-sharing services like Uber -- many believe 5G will spark a similar renaissance of new businesses.

Huawei is a dominant supplier in the 5G market, which again heightens the stakes when it comes to 5G. National security experts say Huawei gear could be used for espionage or to shut down critical communications networks during some future conflict. 

"As we embark on this 5G development and deployment phase, let's make sure that the equipment going into these networks, and the standards that are being developed ... don't raise undue risk," Pai said in an interview last October at the WSJ Tech Live conference.

Huawei gear in the US

None of the major US telecom operators, including AT&T, Verizon or T-Mobile, which now includes Sprint's assets, say they have deployed Huawei or ZTE 5G gear in the US. The FCC has not published which carriers in the US have used Huawei or ZTE gear. But the big three wireless carriers in the US -- AT&T, Verizon and T-Mobile -- have each said they don't have any this equipment in their 4G LTE networks either. 

"Let me be clear -- we do not use Huawei or ZTE network equipment in any area of our network. Period. And we will never use it in our 5G network," said former T-Mobile CEO John Legere in written testimony in February 2019 before a House communications subcommittee on the company's merger with Sprint.

The carriers in the US that have been using Huawei gear are generally smaller rural operators. These operators have previously taken advantage of financing options that have made the Chinese equipment more affordable than alternatives from companies like Ericsson and Nokia, both based in Europe. 

Steven Berry, president and CEO of the Competitive Carriers Association, an industry group representing rural carriers, has testified before Congress about the difficulty of mounting such an extensive project to replace Huawei and ZTE equipment. In March, he told the Senate Commerce committee that ripping out and replacing equipment in rural networks would be like "attempting to rebuild the airplane in mid-flight."

He said the biggest difficulty for smaller carriers would be ensuring that they would still be able to keep service going. 

"While those inside the beltway often refer to the process as 'rip and replace,'" Berry said in his testimony, "in practice carriers will typically need to 'replace, then rip' to ensure that the consumers served by rural carriers do not lose service."

On Friday, after the FCC released its report, he issued a statement stating that his organization "strongly supports efforts to protect and secure our nation's communications networks."

But he added that Congress needs to make sure it funds the project to replace the gear. 

"Today's release further underscores the need for Congress to fully fund the Secure and Trusted Communications Networks Reimbursement program to ensure that carriers, especially those serving rural areas, have the resources needed to remove covered equipment and services while keeping Americans connected," he said.