The FCC plans to vote next month on a proposal that would not only prevent some US telecom companies from using equipment from Chinese vendors Huawei and ZTE in the future, but would also pay some US companies to replace their existing network equipment provided by Huawei and ZTE with equipment from other, trusted vendors.
"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. The Chinese government has shown repeatedly that it is willing to go to extraordinary lengths to do just that. And Chinese law requires all companies subject to its jurisdiction to secretly comply with demands from Chinese intelligence services," FCC Chairman Ajit Pai said in a statement announcing the move. "As the United States upgrades its networks to the next generation of wireless technologies -- 5G -- we cannot ignore the risk that the Chinese government will seek to exploit network vulnerabilities in order to engage in espionage, insert malware and viruses, and otherwise compromise our critical communications networks."
To be clear, this is one more step in an ongoing process -- and is part of a much wider move among US regulators against China and Chinese companies -- and it's unclear how the FCC proceeding will ultimately play out. However, it is a clear indication that there is a growing appetite among regulators for not only a formal ban on Chinese suppliers but also in footing a potentially expensive bill to remove existing Chinese equipment from US networks.
Further, it's a safe bet that established 5G equipment suppliers like Ericsson, Nokia and Samsung would ultimately benefit from any process geared toward removing Chinese equipment from the US market.
Nuts and bolts, and questions
The FCC's Pai said the agency would vote on the proceeding during its Nov. 19 meeting. Based on commentary on the topic from the other five commissioners at the FCC, it's very likely that the agency will approve the proceeding.
But that wouldn't necessarily mark the official start of the process. Instead, it would formally ban US telecommunications companies that get money from the FCC's Universal Service Fund (USF) from spending that money on equipment from vendors deemed a security risk by the agency. Banned vendors -- the FCC named Huawei and ZTE but indicated other vendors could be added to the list in the future -- would be able to appeal that situation. That whole process would take a few months.
Further, the ruling would not cover operators spending money outside the USF program. However, FCC officials said they expect the Trump administration to issue further orders on the topic in the months months. Already the US Congress has passed legislation banning US government agencies from purchasing equipment from Huawei and ZTE, and Trump's Commerce Department has banned US companies from doing business with Huawei specifically.
As for ripping out existing equipment from Huawei and ZTE, that process will likely take much longer. First, the FCC will seek details from companies that have used USF money to purchase equipment from Huawei and ZTE -- already United TelCom, SI Wireless, Viaero, James Valley Telecommunications (JVT), NE Colorado Cellular, United Telephone Association, Nemont Telephone Cooperative and Union Telephone Company have admitted to doing so. Indeed, the Rural Wireless Association estimated late last year that fully 25% of its members use equipment from a Chinese vendor. FCC officials said some wireline operators also had used USF money on Chinese equipment.
While seeking information on the size of the problem, the FCC also will look at how much money it will cost those companies to replace that Chinese equipment.
FCC officials said funding for the rip-and-replace program could come from Congress -- already there is legislation setting aside up to $1 billion for that kind of effort -- or it could divert existing USF money into the initiative.
FCC officials also clarified that the agency wouldn't create a list of "approved" vendors for US companies, only a list of vendors that are banned.
Of course, the wider US-China trade war continues to hover over the FCC's actions against Chinese suppliers, although FCC officials said that Pai's proposal is not related to the trade war and instead stems from the security risk posed by Chinese suppliers. FCC officials promised that the agency's full proposal on the topic would include a detailed argument on the threat posed by Chinese suppliers like Huawei and ZTE.
"Independent experts confirm the risk," Pai wrote in a Wall Street Journal opinion column in conjunction with his announcement today. "A report issued this year by the cybersecurity firm Finite State found a majority of the Huawei firmware images it analyzed had at least one potential back door and that each Huawei device had an average of 102 known vulnerabilities."
Nonetheless, a bipartisan pair of senators warned the Trump administration this summer against using Huawei and national security as a "bargaining chip" in US-China trade talks.