Huawei, ZTE Gear Declared Ineligible for U.S. Subsidies

(Bloomberg) -- The U.S. Federal Communications Commission prohibited the use of federal subsidies to buy telecommunications equipment made by a pair of Chinese companies deemed a security threat and said it would consider requiring carriers now using the products to remove them..With a 5-0 vote on Friday, the agency declared the equipment by the companies, Huawei Technologies Co. and ZTE Corp., ineligible to receive funding from the subsidy program that’s used mainly by small, rural carriers..“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 FCC Chairman Ajit Pai..He said China requires both companies to cooperate with intelligence agencies, and “have engaged in conduct like intellectual property theft, bribery, and corruption.”.The move came as security for fast 5G communications networks draws increased attention in Washington. Lawmakers this week asked the Trump administration to appoint a senior leader for communications matters, and a group of senators objected to recent Commerce Department steps to ease restrictions on Huawei that had been announced in May..Supporters of the FCC ban say the time is right to impose restrictions as the industry begins installing infrastructure for 5G, a next-generation network that could enable a profusion of applications including autonomous vehicles and connected homes and factories..How Huawei Became a Target for Governments: QuickTake.Because there could be billions of connected devices on 5G, fears have been raised that so many points of vulnerability could be exploited by bad actors. The government is wary of employing foreign technology for vital communications for fear that the manufacturers could leave a backdoor that enables outsiders to access information, or that the companies themselves would hand over sensitive data to their home governments..Attorney General William Barr in a Nov. 13 letter backed the FCC’s proposal, saying it was needed to protect national security..Huawei denies it’s a security threat, and has argued the FCC’s measures will hurt small carriers in rural areas. In a June filing, the company told the FCC that targeting specific vendors isn’t a sufficient step to ensure that telecommunications gear is secure, and may also violate international trade obligations..Huawei called the FCC’s action unlawful and said the agency had acted “on selective information, innuendo, and mistaken assumptions.”.“These unwarranted actions will have profound negative effects on connectivity for Americans in rural and underserved areas across the United States,” Huawei said in an emailed statement..“Huawei has remained open to engaging with the U.S. government to verify productive solutions to safeguard U.S. telecommunications systems. Huawei would never breach its customers’ trust,” the company said..President Donald Trump has backed the spread of fast 5G networks, and said in a Thursday tweet he had asked for help from Apple Inc.’s chief executive officer, Tim Cook, in building the U.S. networks..“We do not have a coordinated national strategy in place for 5G—and we need one,” said FCC Commissioner Jessica Rosenworcel, a Democrat. She called for research into secure networks, and more vetting of devices to ensure they’re not vulnerable to exploitation..USTelecom, a trade group of broadband service providers, applauded the FCC action and agreed that a comprehensive effort to secure the nation’s network is needed..“Let’s be clear: a cohesive national policy on supply chain requires a ‘whole of government’ approach, which the FCC has appropriately embraced,” the organization, whose members include AT&T Inc. and Verizon Communications Inc., said in a statement..The FCC action formalizes its proposal last year to bar the use of U.S. telecommunications subsidies to buy from companies that pose a national security threat..Small carriers have said a ban would deny them good, cheap equipment used to offer broadband in remote areas. They asked the FCC to make clear they would be able to maintain existing equipment until it can be replaced and destroyed..The FCC proposed setting up a program to reimburse the costs of replacing the gear, and estimated the expense at $160 million to $960 million, according to its order prepared for Friday’s meeting..Separately, Congress is considering legislation to help small carriers purge their networks of parts from Huawei and ZTE. A House bill would provide $1 billion, and a Senate measure offers $700 million, according to a summary distributed by FCC Commissioner Geoffrey Starks..--With assistance from Jenny Leonard..To contact the reporter on this story: Todd Shields in Washington at tshields3@bloomberg.net.To contact the editors responsible for this story: Jon Morgan at jmorgan97@bloomberg.net, Wendy Benjaminson.©2019 Bloomberg L.P.

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Huawei, ZTE Gear Declared Ineligible for U.S. Subsidies

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