FCC bans Huawei and ZTE from government subsidies

FCC bans Huawei and ZTE from government subsidies

The Federal Communications Commission designated Chinese telecom giants Huawei and ZTE as “national security threats” on Tuesday, banning the two Chinese Communist Party-linked companies from accessing U.S. government subsidies to build communication infrastructure.

The FCC dubbed this “a major step in its ongoing efforts to protect U.S. communications networks from security risks” and noted that the FCC’s Public Safety and Homeland Security Bureau said Huawei and ZTE, along with their affiliates and subsidiaries, would now fall under the FCC’s November 2019 rule which bans the “purchase of equipment or services from companies posing a national security threat.” The FCC said that government subsidies from the FCC’s $8.3 billion annual Universal Service Fund “may no longer be used to purchase, obtain, maintain, improve, modify, or otherwise support any equipment or services produced or provided by” Huawei or ZTE.

“With today’s Orders, and based on the overwhelming weight of evidence, the Bureau has designated Huawei and ZTE as national security risks to America’s communications networks — and to our 5G future,” FCC Chairman Ajit Pai said. “Both companies have close ties to the Chinese Communist Party and China’s military apparatus, and both companies are broadly subject to Chinese law obligating them to cooperate with the country’s intelligence services. … We cannot and will not allow the Chinese Communist Party to exploit network vulnerabilities and compromise our critical communications infrastructure.”

The Justice Department and U.S. intelligence agencies believe Huawei, ZTE, and other Chinese companies are working hand-in-hand with the ruling Chinese Communist Party, potentially giving China's surveillance state access to hardware and networks around the world. Last week, the Pentagon named Huawei as one of twenty Chinese companies operating in the United States with direct ties to the Chinese government’s People’s Liberation Army.

Pai said that “today’s action will also protect the FCC’s Universal Service Fund — money that comes from fees paid by American consumers and businesses on their phone bills — from being used to underwrite these suppliers, which threaten our national security.” The fund subsidizes building infrastructure to increase internet access across the U.S., where 65% of residents in rural areas and 60% on tribal lands have access to high-speed service, compared with 97% in urban areas.

Last October, the FCC released a 96-page report focused on challenges facing the U.S. as it seeks to improve internet access nationwide and as it prepares for wider use of the fifth generation of wireless networks, known as “5G.” Huawei was mentioned 295 times in the report, and ZTE was mentioned 132 times, repeatedly pointing to the security challenges posed by both.

In justifying Tuesday’s move, Pai cited the FCC’s own determination about Huawei and ZTE’s coziness with China’s government, and noted that the FCC “also took into account the findings and actions of Congress, the Executive Branch, the intelligence community, our allies, and communications service providers in other countries.”

Attorney General William Barr has backed Pai and the FCC as pressure has been ratcheted up on Huawei and ZTE, saying ahead of the FCC’s successful November vote that “at this critical moment, while the world decides where to place its trust, we should not signal that Huawei and ZTE are anything other than a threat to our collective security.” The attorney general said that “their own track record, as well as the practices of the Chinese government, demonstrate that Huawei and ZTE cannot be trusted.”

The move by the FCC is just the latest effort by the U.S. government to push back against the alleged security risk posed by Huawei, ZTE, and other Chinese government-linked companies. In April, Barr was picked to lead a revamped national security group dubbed “Team Telecom” as part of the Trump administration’s effort to combat foreign influence in the U.S. telecommunications sector amid concerns about China and other foreign parties. The FCC had complained for years that Team Telecom needed more structure to be effective, warning in 2015 of “inextricable black holes” due to a lack of communication during the review process and “no clarity for the future” from the group.

The U.S. has engaged in an all-out effort to limit Huawei’s global reach, especially in the area of 5G, pushing its “Five Eyes” partners to reject Huawei technology in their communications networks.

The Justice Department unveiled a superseding indictment against Huawei in February, charging it with racketeering and conspiracy to steal trade secrets. The 16-count indictment charged Huawei and its U.S.-based subsidiaries with conspiracy to violate RICO and outlined new claims about Huawei’s deceptive efforts to evade U.S., European Union, and United Nations sanctions when doing business in North Korea and Iran.

The Permanent Subcommittee on Investigations, led by Republican Sen. Rob Portman of Ohio, released a report in June detailing how the federal government provided “little-to-no oversight” of Chinese state-owned telecoms for two decades and how China is illicitly targeting U.S. communications the same way it has targeted education, research, and personal data. That subcommittee previously released reports on China’s foreign funding on U.S. campuses, theft of U.S. research, and cyberattacks against U.S. companies.

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