FCC votes to edge Huawei, ZTE out of U.S. networks

The Federal Communications Commission on Friday unanimously voted to help push Huawei and ZTE out of American telecommunications networks by blocking broadband subsidies from going to companies that don't rip out gear made by the two controversial Chinese telecom giants.

The commission's vote marks the latest bid by the federal government to curb the influence of these companies, which many U.S. policymakers say threatens national security and American dominance in the global race to roll out 5G networks. The FCC’s move comes with the explicit backing of Attorney General William Barr, who said Huawei and ZTE’s record of alleged bank fraud, obstruction of justice and intellectual property theft is proof they are “a threat to our collective security.”

“Both companies have close ties to China’s communist government and military apparatus,” FCC Chairman Ajit Pai said ahead of the vote. “Both companies are subject to Chinese laws broadly obligating them to cooperate with any request from the country’s intelligence services and to keep those requests secret. Both companies have engaged in conduct like intellectual property theft, bribery and corruption.”

“These concerns are by no means hypothetical,” Pai added, citing recent evidence of potential hidden backdoors built into Huawei equipment. “This FCC will not sit idly by and hope for the best.”

The FCC also set up a process for designating other companies as threats.

The vote represents a firm stance against China having any place in U.S. telecom networks, despite some otherwise mixed messages from the Trump administration on the issue. The administration this spring announced plans to blacklist Huawei from doing business in the U.S., but a crucial step in doing so has been stuck in limbo, and Commerce Secretary Wilbur Ross noted earlier this week that his department is in the process of granting some export licenses to U.S. companies looking to continue to do business with Huawei.

President Donald Trump has also repeatedly suggested easing up on the companies could be a bargaining chip in broader trade talks with Beijing, though U.S. Trade Representative Robert Lighthizer said last month that any such arrangement won't be part of a so-called phase one trade deal the U.S. and China are working to finalize in the coming weeks. For its part, the State Department didn’t hold back on stressing the importance of securing American 5G networks against Chinese influence —nor dramatic music — in a new video released this month.

Going into Friday's vote, Democratic Commissioner Jessica Rosenworcel suggested there's cognitive dissonance permeating the Trump administration and said federal policy on China and 5G should be motivated by security alone, not a potential trade deal.

"In Washington right now, I fear these issues can easily get swept up into broader trade matters," she said. "Despite our actions today, we have to grapple with the fact that at any moment the administration could trade away our security objectives for some momentary advantage in bilateral trade negotiations. I hope that does not occur, but let’s be honest, it has happened before, when this administration reversed course on banning ZTE from doing business in the United States."

In addition to the vote to bar subsidies from going to companies that use Huawei or ZTE gear, the FCC also voted to open for public input a proposal to reimburse small companies that already have the gear in their networks. Small and rural telecom providers disproportionately rely on the Chinese equipment because it's inexpensive.

The agency also approved an order to gather information on just how much Huawei and ZTE equipment exists in U.S. networks and estimate the cost of ripping and replacing it. These rural firms have warned for months that the Trump administration’s move to put Huawei and ZTE on the trade blacklist could upend their operations.

Multiple FCC officials at the meeting cautioned that failing to remove Chinese equipment could pose a direct risk to U.S. military operations. GOP Commissioner Brendan Carr warned “there are cell towers all around the Montana missile fields running on Huawei equipment.”

And Democratic Commissioner Geoffrey Starks recommended the FCC create a national security task force to look more broadly at the intersection of telecom and security concerns.

“We must be more intentional than ever to ensure that the whole of the FCC is more coordinated, more deliberative, and more collaborative,” said Starks, who has held a workshop and released a report on the supply chain concerns.

Huawei has strongly disputed the FCC’s conclusions in a series of filings at the commission. The companies will have a 30-day window to dispute their initial designation as a threat.

A spokesperson for the company urged Pai to reconsider designating Huawei as a threat in a statement Friday.

“Huawei believes this order is unlawful as the FCC has singled out Huawei based on national security, but it provides no evidence that Huawei poses a security risk,” the spokesperson said, complaining of a “mistaken view of Chinese law.”

The spokesperson said that America’s rural schools, hospitals and libraries “will feel the effects” and that “due to reduced competition in the market for telecommunications equipment, particularly in cutting-edge 5G networks, all Americans will pay higher prices for these critical services.”

Congress has largely supported FCC actions against Chinese telecom companies and has been working in parallel to advance legislation to not only to curb their influence, but also to help defray costs for the small and rural telecom companies tasked with replacing existing gear.

This week, the House Energy and Commerce Committee unanimously voted to send legislation to the House floor that would codify the FCC’s action Friday by prohibiting the use of federal funds for telecommunications equipment or services deemed a danger to U.S. national security. The measure would also authorize a $1 billion fund to help telecom carriers with fewer than 2 million customers rip and replace the equipment.

The Senate Commerce Committee this summer unanimously advanced its own bipartisan 5G security legislation slating $700 million to help these companies.

Starks suggested at the meeting that the cost to replace untrustworthy equipment could ultimately run to $2 billion or more.

“I’m especially proud of my bipartisan legislation that will ensure small and rural telecommunications companies have the support they need to root out suspect equipment from their networks made by companies like Huawei and Z.T.E.,” Energy and Commerce Chairman Frank Pallone (D-N.J.) said in a statement Wednesday following his panel's vote. “We simply cannot allow China, and other bad actors, to infiltrate our telecommunications networks.”