FCC to ban Huawei and ZTE gear from federal subsidy program

The agency is also looking to require rural carriers to replace their Huawei and ZTE gear, and for ways to fund that effort.

Marguerite Reardon Former senior reporter
Marguerite Reardon started as a CNET News reporter in 2004, covering cellphone services, broadband, citywide Wi-Fi, the Net neutrality debate and the consolidation of the phone companies.
Marguerite Reardon
6 min read

The main issue with Huawei and ZTE is their cozy relationships with the Chinese government. 

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The Federal Communications Commission plans to cut off funding to wireless carriers that use equipment the agency says may pose a national security risk. 

The FCC said Monday it'll vote next month to bar operators that receive Universal Service Fund money from purchasing gear from companies such as Chinese telecom gear makers Huawei and ZTE, which national security agencies in the US say could spy on American communications. 

The agency is also looking into whether it should require some rural carriers that receive USF funds to replace gear from these Chinese vendors and other companies that may pose a security threat. Additionally, the FCC is exploring how the government should help fund this effort. 

The main issue with Huawei and ZTE is their cozy relationships with the Chinese government. National security officials fear that equipment from these manufacturers could be used to spy on other countries and companies. In May, President Donald Trump issued an executive order effectively banning new Huawei gear from US communications networks. 

Huawei and ZTE have denied their gear can be used to spy or to compromise US security.

FCC Chairman Ajit Pai first proposed in March 2018 barring companies that posed a security risk from receiving USF dollars. At the time, he didn't specifically call out Huawei and ZTE. The USF provides subsidies to rural operators to build infrastructure in hard-to-reach areas of the country. It also provides funding to libraries and schools.

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National security agencies have warned of the dangers of using gear from China's Huawei and ZTE. Several politicians on Capitol Hill have also been sounding the alarm regarding these companies and have worked to blacklist them from US communications networks. In December 2017, a bipartisan group of 18 US senators and representatives wrote to the FCC (PDF) expressing their concern about Chinese telecommunications equipment in US networks.  

"The concern is that hostile foreign actors could use hidden 'backdoors' to our networks to spy on us, steal from us, harm us with malware and viruses, or otherwise exploit our networks," Pai said in a blog post Monday. "And there are mounting reasons to believe that the Chinese firms Huawei and ZTE pose an unacceptable risk to US national security."

If the FCC item is approved, the ban on using USF money to purchase equipment for new deployments will go into effect after it's listed in the Federal Register, an FCC official told reporters. Initially, Chinese manufacturers Huawei and ZTE have been named, but the official added that this doesn't mean that gear from other Chinese makers or from makers of equipment from other countries won't also end up on the list of banned products. 

As for replacing old Huawei and ZTE gear, the FCC is still exploring if and how it should accomplish this effort. But the official said that if the FCC has determined that gear from these companies is too risky to be placed in new network deployments, it stands to reason that the agency would also consider getting older equipment out of existing networks for fear of the risks that may be present in existing gear. 

"My plan calls first for an assessment to find out exactly how much equipment from Huawei and another Chinese company, ZTE, is in these networks, followed by financial assistance to these carriers to help them transition to more trusted vendors," Pai said in the blog post. "We'll seek public input on how big this 'rip and replace' program needs to be and how best to finance it."

FCC Commissioner Geoffrey Starks, a Democrat, has been out in front on the effort to scrub US telecommunications networks of gear from companies such as Huawei. He has led workshops at the FCC to explore ways to fund this effort and make it happen. Rural operators worry that replacing such gear will be expensive and set them back in terms of rolling out next-generation networks, such as 5G. 

The vote will take place at the FCC's open meeting on Nov. 19.

5G and Huawei

The stakes are particularly high when it comes to 5G, says Pai. In an interview last week at the WSJ Tech Live conference in Laguna Beach, California, he said the very nature of 5G technology, which is controlled by software, makes the security issues particularly problematic. He's also concerned about the fact that China has a law that requires companies in its jurisdiction to comply with requests from intelligence services and to not disclose them to any third parties. 

He said that as such it's important to have trusted vendors in US networks. 

"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," he said.  

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. 

In a joint op-ed with Sen. Tom Cotton, a Republican from Arkansas who's been sounding the alarm on Chinese telecom makers, Pai said it's time for the federal government to take action to keep this gear out of US carrier networks.

"That means making sure that our government doesn't make the problem worse by spending the American people's money on products and services from any company that poses a national security threat to our communications networks," they say in the op-ed on Fox News

The US-China trade war

Huawei and ZTE are also emblematic of a bigger issue the US is grappling with, which is the simmering trade war between the US and China.  

As China tries to transition its economy away from producing cheap goods into one that leads in advanced technologies like artificial intelligence, autonomous vehicles, robotics and 5G, the US government views it as a threat. The US accuses China of not playing fair when it comes to trade and has also accused the government of promoting intellectual property theft, forced technology transfers, cyberespionage and discriminatory treatment of foreign investment, according to the Council on Foreign Relations.

China denies these accusations.

It's these concerns over unfair trade practices that have led to Trump imposing tariffs on the import of Chinese goods and the blocking of Huawei and other Chinese tech companies from access to US markets. 

The dispute over trade comes at the same time that the FCC and others in the US government are trying to address national security concerns. Over the past several months, the Trump administration has conflated the issues, sending a mixed message in its negotiations with Beijing.  The ban on Huawei and other Chinese communications equipment has been used as a bargaining chip in the ongoing negotiation over tariffs. 

In May, the Trump administration placed Huawei and other companies on a designated entity list with the US Commerce Department, citing national security concerns. The move essentially blocked Huawei from buying components and obtaining technology updates from US tech companies, such as Google. 

The ban hasn't technically gone into effect yet, since the administration issued a temporary reprieve soon after Trump announced the executive order. This has allowed Huawei's suppliers and companies that use its products more time to find alternatives. But the designation has been a sore point in the trade negotiations between the countries, since China sees Huawei as a key piece of its 5G strategy. 

Then earlier this month, the Trump administration said it would allow some American companies to supply "nonsensitive goods" to Huawei, according to The New York Times

Experts on China say that throwing Huawei and the national security concerns into the trade negotiations sends a mixed message that damages US national security. 

"It weakens your ability to take a clear and consistent stand in defense of national security," Scott Kennedy, deputy director of the Freeman Chair in China Studies at the Center for Strategic and International Studies, said in an interview this summer. He said it shows China and US allies that the security concerns may not really be a big deal.

Adam Segal, director of the Digital and Cyberspace Policy Program at the Council on Foreign Relations, has also said that Trump's approach is misguided. 

"When the president suggests that he could make a deal with China on Huawei as part of a larger agreement on trade, it sends the wrong message to our allies," he said. "They aren't going to commit to removing Huawei from their networks and risk being left out of whatever deal he strikes with China."

Originally published Oct. 28, 11:39 a.m. PT.
Updates, 11:58 a.m. PT and 2:23 p.m.: Added more information about the FCC order, and more background.

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