US vs. China —

FCC says it will block Chinese technology to protect national security

Huawei and ZTE gear would be banned in FCC-funded broadband projects.

A Huawei phone shop in Vientiane, Laos.
Enlarge / A Huawei phone shop in Vientiane, Laos.
Getty Images | urf

Chinese technology vendors Huawei and ZTE could soon be prevented from selling products to US companies and organizations that receive broadband funding from the Federal Communications Commission.

FCC Chairman Ajit Pai's new proposal would prevent Universal Service Fund money from being used "to purchase equipment or services from any communications equipment or service providers identified as posing a national security risk to communications networks or the communications supply chain."

Pai's proposal comes as President Donald Trump imposes new tariffs and other penalties on Chinese goods. But the proposed FCC policy has its roots in a 2012 Congressional report, which said that Huawei and ZTE equipment should not be used by US government systems because of the companies' alleged ties to the Chinese government. The report also encouraged private US companies to "consider the long-term security risks associated with doing business with either ZTE or Huawei for equipment or services" and to seek other vendors.

Pai's proposal cites the 2012 report and a December 2017 letter to the FCC from 18 US lawmakers who objected to Huawei smartphones being sold by AT&T or other carriers in the US. The Huawei/AT&T deal was dropped by the companies, apparently due to political pressure. The FCC itself does not use Huawei or ZTE products, Pai told lawmakers last week.

Besides phones, Huawei and ZTE sell a variety of home networking products and more expensive network gear for businesses and carriers.

"Hidden ‘back doors’ to our networks in routers, switches—and virtually any other type of telecommunications equipment—can provide an avenue for hostile governments to inject viruses, launch denial-of-service attacks, steal data, and more," Pai said.

The FBI is "deeply concerned about the risks of allowing any company or entity that is beholden to foreign governments that don’t share our values to gain positions of power inside our telecommunications networks," FBI Director Christopher Wray told the Senate Intelligence Committee last month.

But the US government hasn't publicly presented evidence to back up its suspicions, and Huawei and ZTE have denied allegations that their products are used for spying. In 2012, Huawei offered to let the US conduct security assessments of its products, as the UK already does with Huawei products. That offer was rejected by US lawmakers.

Pai's proposal wouldn't necessarily limit the restrictions to Chinese companies or to Huawei and ZTE. But the proposal focuses primarily on China and those two companies.

"The FCC does not have the authority or capacity to solve this problem alone," Pai's proposal said. "But it does have a role to play in meeting this challenge. Specifically, given its role in overseeing the Universal Service Fund (USF), the Commission has an obligation to ensure that the money in the USF is not used in a way that undermines our national security."

Small ISPs buy from Huawei

The Universal Service Fund helps carriers improve telephone and broadband networks in primarily rural areas, and it provides financial support to poor people, schools, libraries, and rural health care providers. The fund is paid for by Americans via surcharges on their phone bills, and it distributes $8.5 billion a year.

Big telcos like AT&T "have long steered clear of Huawei," but a ban on using the company's products could hurt smaller carriers, a Wall Street Journal report said. Many "regional American providers of wireless, TV and Internet services have flocked to Huawei, attracted by what they say are Huawei’s cheaper prices, quality products and attentive customer service," the report said.

Huawei is "the world’s top maker of cellular-tower electronics and a major manufacturer of equipment for cable and Internet providers," and the company has been "actively courting" small Internet providers that need to replace old equipment with high-speed networking gear, the Journal report also said.

The FCC's proposed ban would apply only to universal service money "going forward." Companies could keep equipment they've already bought, but they would have to find new vendors the next time they use the FCC funding.

FCC asking questions

Pai's plan is laid out in a Notice of Proposed Rulemaking (NPRM), which will be voted on at the FCC's April 17 meeting. The NPRM is the first major step in the rulemaking process—it describes the FCC's tentative proposal and asks the public for comment on a series of questions. After taking comments for at least three months, Pai can come up with a final plan and schedule it for a vote.

The questions in the NPRM suggest the FCC hasn't decided exactly what types of equipment will be subject to the purchasing ban. The FCC is also still determining how it will decide which companies pose national security threats and what penalties there would be for organizations that violate the purchasing ban.

The FCC could prevent universal service funds from being used to purchase any equipment or services "from companies that have been identified as raising national security risks," the NPRM says. Alternatively, the FCC could "limit the scope of the proposed rule to equipment and services that relate to the management of a network, data about the management of a network, or any system the compromise or failure of which could disrupt the confidentiality, availability, or integrity of a network."

As for choosing the companies subject to a purchasing ban, the FCC might rely on the determinations of other federal agencies. One option would apply the rule to "any company that has been prohibited from bidding on a contract, participating in an auction, or receiving a grant by any agency of the Federal Government, for reasons of national security," the FCC said. The commission could also apply the purchasing ban to products or services from non-risky companies that include critical components from companies that allegedly pose national security risks.

Another possible approach for the FCC is to rely on the list of banned companies from the annual National Defense Authorization Act, which prevents the military from using Huawei or ZTE products.

The Universal Service Fund administrator would confirm funding recipients' compliance with periodic audits. The FCC is taking comment on how violators should be punished and how money should be recovered from violators.

The FCC also wants to make sure that small organizations know about the purchasing ban. "Regardless of which approach we adopt, we seek comment on how to ensure that USF recipients (especially smaller USF recipients, including schools, libraries, and rural health care facilities) can learn which companies fall within the scope of our proposed rule," the NPRM says.

Pai's plan likely to pass

The NPRM is almost certain to pass because Pai and his fellow Republicans have a 3-2 majority. It's not yet clear whether Democratic commissioners Mignon Clyburn and Jessica Rosenworcel will support the NPRM. Spokespeople for the Democratic commissioners told Ars that Clyburn and Rosenworcel are still reviewing Pai's proposal.

However, Rosenworcel recently raised concerns about supply chain decisions being made by the Committee on Foreign Investment in the United States, which focuses on national security and is "authorized to review transactions that could result in control of a US business by a foreign person."

"If we want to lead in 5G, we need serious policies to address our equipment supply chain challenges," Rosenworcel said earlier this month. "That means developing a real plan rather than relying on opaque decisions issued from behind the closed doors of the Committee on Foreign Investment in the United States. We do not do that here."

Channel Ars Technica