FCC Proposes Mandating Telcos to Remove Chinese Networking Equipment

October 31, 2019 Updated: October 31, 2019

The Federal Communications Commission (FCC) stated it will mandate and compensate U.S. telecommunications companies for the removal of Chinese networking equipment deemed a “national security threat” and installation of hardware from “more trusted” suppliers.

FCC Chairman Ajit Pai stated: “We need to make sure our networks won’t harm our national security, threaten our economic security or undermine our values.” He added “The Chinese government has shown repeatedly that it is willing to go to extraordinary lengths to do just that.”

The U.S. Telecommunications Act of 1996 expanded the definition of the “Universal Service Fund” (USF) that subsidized the provision of affordable interstate long distance telephone service for low-income households and high-cost areas to include internet and cellular services. The new definition redistributed nationwide USF customer service assessments “to certain qualifying telephone companies that serve high cost areas,” including rural health care providers and “eligible schools and libraries.”

When President Obama signed the American Recovery and Reinvestment Act of 2009, the $831 billion economic stimulus directed the FCC to establish a “Broadband Technology Opportunities Program” and accelerate the award of $4.5 billion in subsidies to build out internet and wireless capability for rural and underserved communities.

Most of the subsidy cash flowed to 55 small carriers represented by the Rural Wireless Association (RWA) that serve up to 100,000 subscribers each, which then contracted with Huawei and ZTE as lowest-price-bidders to install the Chinese-made networking hardware that now services 25 percent of U.S. territory and 4 million Americans.

U.S. national security concerns first arose in 2012 following a U.S. House of Representatives inquiry that labeled Huawei a national security threat. But it was not until 2017 that the Trump administration moved to crack down on technology providers as potential homeland security threats. Chief among the fears are Huawei and ZTE being subject to Chinese laws requiring cooperation with its intelligence services.

The FCC’s new initiatives state that with Huawei and ZTE already administratively listed as firms that pose a security threat, the draft order would make provisions to “establish a process for designating other suppliers that pose a national security threat.”

The FCC has not disclosed the monetary costs of the dual proposals that would ban the purchase and mandate the removal of all Huawei and ZTE installed radio access network (RAN) equipment. Although an industry funded report claimed a $62 billion cost to ban Huawei and ZTE equipment in the European Union, Strand Consult issued a report estimating that net incremental cost of a ban would only be about $3.5 billion.

Strand highlighted that network security concerns will increase with the integration of software into 5G network equipment that will make surveillance backdoors increasingly more difficult to detect, because they can be shipped later through subsequent software upgrades or activated after completion of scheduled security checks.

Republican appointed Chairman Pai stated in a Wall Street Journal op-ed: “When it comes to 5G and America’s security, we can’t afford to take a risk and hope for the best. We need to make sure our networks won’t harm our national security, threaten our economic security or undermine our values.”

Democrat-appointed commissioner Jessica Rosenworcel offered bipartisan support by stating: “The FCC is moving forward after more than a year and a half with its proposal to ensure that our universal service fund, which supports deployment in rural areas, will not be used to purchase insecure network equipment. But we need cybersecurity policies that target all our network providers—not just our universal service recipients.”

After the federal agency required a period of public review, the FCC’s proposals are expected to be voted on during the next FCC monthly meeting on November 19.

Chriss Street is an expert in macroeconomics, technology, and national security. He has served as CEO of several companies and is an active writer with more than 1,500 publications. He also regularly provides strategy lectures to graduate students at top Southern California universities.

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