FCC bans use of federal funds in purchases of Chinese telecom

The Federal Communications Commission's approved a new rule preventing U.S. telecommunications service providers from using a key federal subsidy to by Huawei and ZTE network gear, including 5G technology.

5G tower with Huawei logo

The Federal Communications Commission blocked U.S. telecommunications providers from using an $8.5 billion subsidy fund to buy Chinese-made telecommunications gear deemed a national security threat to critical infrastructure.

The commission on Nov. 22 voted to adopt a new rule that bans the use of its Universal Service Fund (USF) to buy Huawei and ZTE telecommunications gear, particularly wireless 5G equipment.

The new rules also would require telecommunications carriers that use the fund to certify their equipment is made by vendors other than ZTE and Huawei. It also sets up a process to audit carriers’ equipment to enforce the new rule.

Typically, the USF is tapped by small and rural telecommunications companies that provide service in underserved and low-income areas across the U.S. Small telephone companies that service those areas have found the low prices of Huawei and ZTE gear attractive and have already installed a good deal of it.

In adopting the new rules, the FCC said it was also pursuing additional regulations that would require providers that tap the USF and already have Huawei and ZTE equipment installed on their networks to rip it out and replace it with gear from acceptable companies. The new rules proposal also asks for ideas on how to pay for those removals and replacements.

Federal regulators, intelligence and law enforcement officials have said that given Huawei and ZTE’s close relationship and legal obligations to the Chinese government, their gear poses a threat to telecommunications critical infrastructure, as well as to national security. They say the equipment may have backdoors that could allow the Chinese government to meddle with U.S. critical network infrastructure or open the door to massive, crippling data theft.

In a Nov. 22 statement on the new rule, FCC Chairman Ajit Pai said Huawei and ZTE “pose a national security threat to the integrity of communications networks or the communications supply chain.”

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

“Today, we not only ensure that the federal funds in the USF are not spent on equipment or services from these suppliers, but we also propose a process to remove such equipment already deployed in USF-funded networks,” he said.

U.S. telecommunication service provider and equipment industry representatives applauded the new rules.

“With 5G technology ushering in unprecedented connectivity, ensuring global networks are safe and reliable is more important than ever before,” said David Stehlin, CEO at the Telecommunications Industry Association. “We believe this is a necessary step to safeguard the U.S. national telecommunications network and establish a system of diverse, competitive and trusted suppliers.”

“Securing the nation’s communications supply chain and infrastructure against the growing global cyber threat is a top priority for USTelecom and our members,” said Jonathan Spalter, president and CEO of USTelecom, in a Nov. 22 statement.

“Let’s be clear," he said. “A cohesive national policy on supply chain requires a ‘whole of government’ approach, which the FCC has appropriately embraced.”