China Telecom Should Be Barred in U.S. as Threat, Agencies Say

(Bloomberg) -- A group of U.S. security agencies is urging the Federal Communications Commission to revoke China Telecom’s permission to operate in the country.

“This recommendation reflects the substantial and unacceptable national security and law enforcement risks” associated with China Telecom’s access to the U.S. telecommunications network, the agencies said in a filing at the FCC.

The U.S. and China are at odds over a suite of issues such as the spread of the novel coronavirus, trade, and security of telecommunications networks. U.S. officials have moved to bar Chinese gear maker Huawei Technologies Co. as a security threat, an assertion the company denies.

China Telecom “unequivocally” denies the allegations, a representative said in an email.

“The company has always been extremely cooperative and transparent with regulators,” said the representative, Ge Yu. “In many instances, we have gone beyond what has been requested to demonstrate how our business operates and serves our customers following the highest international standards.”

Thursday’s recommendation to revoke an authorization held by China Telecom since 2007 is part of a review announced last year by the FCC, as the commission barred China Mobile Ltd. from the U.S. market. The FCC usually follows recommendations from security agencies.

“We welcome the input of the executive branch agencies and will review it carefully,”said Tina Pelkey, an FCC spokeswoman.

‘Beholden’

“The threat from China Telecom is a reflection of the threat that we see from Chinese telecommunications companies generally,” said John Demers, assistant attorney general for national security. “They are beholden to the government of China both by law and in fact to do its bidding.”

“We have seen behavior in violation of the mitigation agreement that we had entered into with China Telecom at the time that the license was approved,” Demers said. “That raises national security concerns.”

Agencies taking part in Thursday’s filing include the Departments of Justice, Homeland Security, Defense, State, Commerce and the U.S. Trade Representative.

China was also a factor in another recent regulatory decision. Alphabet Inc.’s Google and Facebook Inc. won U.S. regulatory approval for an undersea trans-Pacific internet cable on condition the project not carry data traffic to Hong Kong.

“There is a significant risk that a direct cable connection between the United States and Hong Kong would seriously jeopardize the national security,” the Justice Department said in an April 8 filing to the FCC.

‘Disrupt and Misroute’

China Telecom offers U.S. customers access to international private lines, which it markets as providing secure bandwidth for sensitive data, according to the filing. It also offers mobile service under the CTExcel brand name, according to the filing.

The Chinese government has “ultimate ownership and control” of China Telecom, and the company’s U.S. operations “provide opportunities for increased Chinese government-sponsored economic espionage,” according to the filing.

The company made inaccurate statements about where its records were stored, and had “inadequate”cybersecurity and privacy practices, the agencies said in the filing.

The scope of China Telecom’s activities in the U.S. wasn’t immediately clear. The security agencies said the company connects to the Internet at 18 points, giving “Chinese government-sponsored actors with openings to disrupt and misroute U.S. data and communications traffic.”

The company on its website lists six U.S. offices in New York, Los Angeles and other cities, with a headquarters in Herndon, Virginia, near Washington, D.C. China Telecom works “to deliver high-quality data and voice solutions and services between the Americas and China to businesses and carriers,” according to the website.

The parent company, China Telecom Corp., says it’s the second-largest mobile provider in China, with 336 million subscribers. Revenue at the company’s China Telecom Americas business has had 68% compound growth annually since 2005, according to the company’s website.

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