FCC votes to bar use of its funds to purchase Huawei, ZTE equipment

The Federal Communications Commission (FCC) on Friday voted unanimously to bar U.S. telecommunications companies from using FCC funds to purchase equipment from companies posing national security threats, including Chinese telecom groups Huawei and ZTE.

The proposals approved by the agency bar companies from using money from the FCC’s $8.5 billion Universal Service Fund (USF) to purchase technology from companies that pose a threat, and formally designated Huawei and ZTE as threats.

The proposals also suggest that U.S. companies that receive funding from the USF be required to rip out and replace all equipment from these companies, and seeks comment from the public on how to pay for this process.

FCC Chairman Ajit Pai, who put forward the proposals in October, said that the FCC was taking these actions “based on evidence in the record, as well as long-standing concerns from the executive and legislative branches, about the national security threats posed by certain foreign communications equipment manufacturers, most particularly Huawei and ZTE.”

“Given the threats posed by both Huawei and ZTE to America’s security, and our 5G future, this FCC will not sit idly by and hope for the best,” Pai said.

While the vote was unanimous, FCC Commissioner Jessica Rosenworcel, who was appointed by former President Obama, noted that the commission “has more work to do when it comes to network security,” and pushed for the creation of a “national strategy” to manage threats to the grid. 

Rosenworcel also criticized the possibility that Huawei and ZTE could be used as part of ongoing trade negotiations between the U.S. and China, saying that if the U.S. backs down on taking action against Huawei and ZTE, “it will have serious consequences for our credibility.”

Huawei pushed back strongly against the FCC’s decision on Friday, with the company writing in a statement that its designation as a national security threat was “based on selective information, innuendo, and mistaken assumptions,” and added that it believes the order is “unlawful” as the FCC “provides no evidence that Huawei poses a security risk.”

The company underlined the negative effects the decision could have on rural carriers, which rely on Huawei equipment.

“Many carriers rely on Huawei for its high-quality, market-leading, and cost-effective equipment and services,” the company said. “Without access to those solutions, these carriers will lose their ability to provide reliable and high-speed telecommunications and internet services. Rural schools, hospitals, and libraries will feel the effects.” 

Concerns around both Huawei and ZTE stem from the 2017 Chinese intelligence law, which requires any Chinese-based company to “support, assist and cooperate with the state intelligence work.”

The FCC’s decision comes after a week during which the federal government has zeroed in on Huawei.

On Monday, the Commerce Department issued a 90-day extension of the temporary license that allows U.S. companies to do business with Huawei. The license was originally issued in May after the agency added Huawei to its “entity list,” with U.S. companies banned from doing business with groups on this list.

The extension of the license earlier this week was the third time the Commerce Department has taken this step. Commerce Secretary Wilbur Ross said in a statement that the extension “will allow carriers to continue to service customers in some of the most remote areas of the United States who would otherwise be left in the dark.”

The Commerce Department also began issuing separate licenses this week to individual companies that will allow them to continue doing business with Huawei even once it is fully added to the entity list. Ross said during a Fox Business Network interview this week that 290 companies applied for a license.

The agency’s decision to start issuing these licenses drew strong pushback from Capitol Hill, with a group of 15 bipartisan senators led by Senate Minority Leader Charles Schumer (D-N.Y.) and Sen. Tom Cotton (R-Ark.) sending a letter to President Trump on Thursday urging him to stop issuing the licenses.

“Given the security risks posed by Huawei’s operations in the U.S., we request that you take immediate action to suspend the approval of such licenses and ensure Congress is appropriately informed about the license approval process and related national security implications going forward,” the senators wrote.

The House Energy and Commerce Committee addressed Huawei threats as well this week, approving a bill during a markup on Wednesday that would ban the government from purchasing equipment from Huawei and ZTE as well as from any other foreign companies designated as national security threats.

This legislation would also require the FCC to establish a $1 billion fund to help small and rural telecom companies rip out and replace equipment from these companies.

Rep. Greg Walden (Ore.), the top Republican on the Energy and Commerce Committee, tweeted a statement in support of the FCC’s decision on Friday.

“We have a duty to protect American networks and national security,” Walden wrote, adding that the FCC and Pai are “leading in this effort by putting a stop to American consumers funding foreign state actors who do not have our best interests at heart.”

Committee Chairman Frank Pallone Jr. (D-N.J.) said in a statement after the committee vote on the bill earlier this week that “we simply cannot allow China, and other bad actors, to infiltrate our telecommunications systems, and that’s why we must help smaller carriers remove this suspect equipment from their networks.”

Sen. Ben Sasse (R-Neb.), a member of the Senate Intelligence Committee, described Huawei on Friday as “essentially an arm of China’s Ministry of State Security.”

“American taxpayers didn’t fund the KGB during the Cold War and we’re not going to be shoveling cash to Chinese commies today,” Sasse said in a statement. “This was the right call from Chairman Pai and the Administration.”

Jonathan Spalter, the president and CEO of USTelecom, whose members include telecom groups such as AT&T and Verizon, applauded the FCC’s decision.

“Let’s be clear: a cohesive national policy on supply chain requires a ‘whole of government’ approach, which the FCC has appropriately embraced,” Spalter said in a statement. “Today’s action to bar prospective use of USF funds for equipment from companies that pose an undue risk to our nation’s security is smart policy and will make us safer.”