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Zhone Says 'Buy American'

Expanding broadband services will help the U.S. with its economic recovery, but what if those services are delivered using telecom gear from -- gasp! -- the French or Chinese? How does that create jobs in the U.S.?

That's what some are asking the National Telecommunications and Information Administration (NTIA) and the Rural Utilities Service (RUS) -- the agencies responsible for overseeing the more than $7 billion in loans and grants made available for telecom and broadband expansion projects as part of the American Recovery and Reinvestment Act. (See FCC Boots Up National Broadband Plan .)

Zhone Technologies Inc. (Nasdaq: ZHNE) is among the most vocal of the telecom gear companies urging the government to buy American with its Recovery Act funds and loans.

In a filing with the NTIA on April 2, Zhone CEO Mory Ejabat writes that Recovery Act "funding priority should be given to those proposals that show the highest expected American labor content in implementation — and that this metric should have at least equal if not higher weighting than metrics regarding expansion of broadband availability, increasing adoption, and increasing speed, in keeping with the priorities of the overall Act."

Several of Zhone's employees have followed their chief's lead and filed public comments asking the agencies in charge to consider enacting the "Buy American" provision.

"Stimulate America, not Asia!" pleaded the subject line of comments filed by Zhone employee Donna Scott.

"Since many manufacturers have off shored their manufacturing to Asia, failure to apply the Buy America provision could easily result in as much as $4 billion out of the total $7.2 billion in broadband stimulus funds going directly to sustain and create jobs in Asia," writes Charles Bauer, Zhone's director of operations, who failed to explain his figures.

Zhone sees itself as being positioned to create and sustain more American jobs if it is a supplier to carriers or municipalities using Recovery Act funds. The chart below, reproduced from Ejabat's letter, takes a whack at Zhone's competitors for having foreign headquarters and using offshore R&D and engineering facilities:

Table 1: Are They Located in the U.S.?
Vendors Headquarters Engineering Manufacturing
CommScope Yes Yes Yes
Corning Yes Yes Yes
Huber+Suhner No No No
Adtran Yes Yes Partial
Alcatel-Lucent No Minimal No
Calix Yes Partial No
Motorola Yes Partial No
Occam Yes Yes No
Tellabs Yes Yes No
Zhone Yes Yes Yes
ZyXEL No No No
Source: Zhone Technologies




The Telecommunications Industry Association (TIA) , which represents hundreds of manufacturers of communications equipment, disagrees with Zhone's assertion that the government should only source from American firms to boost its broadband penetration.

"In order to ensure that every possible technological solution be available to fulfill President Obama’s broadband goals, TIA urges the Office of Management and Budget (OMB), NTIA and RUS to implement the ARRA in a manner that will enable the widest possible access to available technologies, irrespective of their country of manufacture and the type of entity receiving BTOP [Broadband Technology Opportunities Program] or RUS funds," the pressure group writes in its public comment, filed on April 10.

Both Zhone and the TIA at times invoke section 1605 of the American Reinvestment and Recovery Act, which specifically states that the funds provided by the Act should be used for the "construction, alteration, maintenance, or repair of a public building or public work" only if all the "iron, steel, and manufactured goods used" were produced in the U.S. Many think other federal agencies will apply this language broadly to all aspects of the Recovery Act.

The NTIA itself couldn't be reached for comment for this story.

It's worth noting that the 1605 "Buy American" clause had some exceptions, including if the use of U.S. goods was found to be "inconsistent with the public interest," or if the use of U.S. goods caused the project's total cost to jump by "more than 25 percent."

The TIA asked federal agencies to apply the public interest waiver to the broadband procurement process, but failed to explain how buying solely from Zhone, CommScope Inc. , Corning Inc. (NYSE: GLW), or others, would harm the public interest. Steven Glapa, Zhone's VP of product management and marketing, drove that point home in his letter, dated April 14.

Glapa, noting that the TIA's board was made up of foreigners such as Ericsson AB (Nasdaq: ERIC), Nortel Networks Ltd. , and BlackBerry , writes that "the alignment of the TIA's interests with the interests of the United States and its taxpayers on this source-of-supply matter is certainly open to some question..."

Zhone, of course, doesn't limit its business to the U.S. The vendor gets more than half its revenues from carriers outside the U.S. and procures its components from "a variety of qualified suppliers in the U.S., Far East, Mexico, and other countries," according to its annual report.

— Phil Harvey, Editor-in-Chief, Light Reading

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stuartb 12/5/2012 | 4:06:28 PM
re: Zhone Says 'Buy American' It's both things Phil (increase broadband penetration and spur growth w/equipment manufacturers). The most important thing is to create jobs.
DCITDave 12/5/2012 | 4:06:28 PM
re: Zhone Says 'Buy American'

But does it really matter where the parts come from? Isn't the important thing here to get broadband penetration -- and to realize all the economic benefits that come with having more people online?

bollocks187 12/5/2012 | 4:06:28 PM
re: Zhone Says 'Buy American' I guess, there are many vendors that are not 'Buy America" and in fact claim they are on the RUS list to get access to the funding.

So Zhone is on the right track here by challenging folks.
SonjaM 12/5/2012 | 4:06:24 PM
re: Zhone Says 'Buy American' Both goals can be achieved (broadband penetration and creating US manufacturing jobs) and the NTIA should not let companies off the hook by "eliminating" the purpose of the stimulus bill -- creating jobs here. U.S.taxpayer funds should stimulate the US -- not Asia or Europe. Let them stimulate themselves.
paolo.franzoi 12/5/2012 | 4:06:24 PM
re: Zhone Says 'Buy American'

Being outside Buy American is not a barrier to RUS certification.  It simply presents a cost penalty to the bid. Normally, it is so much chaper to build in China that the penalty is meaningless.


By thw way, the chart is wrong - for example both Tellabs and Adtran have engineering that happens outside the US.


Unfortunately, this is not going to create a lot of jobs anytime soon and in the short term has lowered small carrier spending - so actually threatens jobs.


seven


 

DCITDave 12/5/2012 | 4:06:23 PM
re: Zhone Says 'Buy American'

That's a great point. I wonder how many carriers aren't spending now in hopes of being approved for Recovery Act welfa... I mean, funding.


re: "Unfortunately, this is not going to create a lot of jobs anytime soon and in the short term has lowered small carrier spending - so actually threatens jobs."

russoccam 12/5/2012 | 4:06:22 PM
re: Zhone Says 'Buy American'

The Chart provided by Z is incorrect.  Occam Network maintains manufacturing facilities in the US and outside the US.

DCITDave 12/5/2012 | 4:06:22 PM
re: Zhone Says 'Buy American' Thanks Russ. We'll correct Zhone's chart in an upcoming post.
DCITDave 12/5/2012 | 4:06:22 PM
re: Zhone Says 'Buy American' Sonja,

What suppliers would you use to build an access network, from CO to CPE, without "stimulating" Asia or Europe?
KTMRider 12/5/2012 | 4:06:21 PM
re: Zhone Says 'Buy American'

What makes this funny is the fact the their CEO (Mory) is Iranian.......

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