FCC Set to Vote on Huawei, ZTE Subsidies Ban

The Federal Communications Commission (FCC) is set to vote November on a measure that will bar Chinese telecommunications networking equipment manufacturers Huawei and ZTE from benefitting from the Universal Service Fund, and require existing telecommunications carriers to replace equipment manufactured by those companies.  The proposed rules come amidst concern from FCC Chairman Ajit Pai that technology provided by these companies, which are closely tied to the government of the People’s Republic of China, could leave US telecommunications networks vulnerable.

While Pai’s statement specifically mentions Huawei and ZTE, the order will designate them “as companies that pose a national security risk” and would provide for the possibility of designating other companies similarly. 

The Universal Service Fund subsidizes the development of telecommunications networks, especially in low-income areas, and areas with high cost of construction.  In his statement, Chairman Pai said “The FCC has a part to play in combatting this risk by ensuring that its $8.5 billion Universal Service Fund does not underwrite national security threats.”

The ban would come amidst a global race to implement 5G networks worldwide.  The deployment of next-generation wireless networks is occurring alongside increasing geopolitical tension between the United States and China, including a months-long trade war. 

Chinese mobile phone providers have faced widespread, escalating scrutiny as the so-called “race to 5G” has drawn closer.  These allegations largely stem from a belief that the Chinese government could compel companies to use their equipment to support Chinese intelligence operations.  Huawei and ZTE have denied these claims. 

Despite being extremely popular worldwide, the Chinese companies have struggled to find a foothold in the United States.  ZTE has been subject to severe US sanctions which have seriously hindered its business.  US companies were prohibited from working with ZTE after an investigation uncovered covert efforts to transfer US technology to North Korea and Iran. Huawei has had difficulty securing sales agreements with AT&T and Verizon, despite being the third-largest smartphone manufacturer behind Apple and Samsung.

The Commission is set to vote on the issue at its monthly meeting on November 19.