FCC bans use of USF funds for Huawei, ZTE equipment

The Federal Communications Commission (FCC) on Friday voted unanimously to ban the use of Universal Service Fund (USF) dollars to purchase telecom equipment and services from vendors that pose risks to national security, specifically China’s Huawei and ZTE.

The annual $8.5 billion USF subsidizes U.S. broadband deployment through four separate programs, with many recipients providing coverage in rural or underserved areas of the country.

The order initially designates Huawei and ZTE as “covered” companies that USF recipients can’t use gear or services from, with the option to add additional entities in the future. Huawei and ZTE were previously flagged as national security threats because of their close ties to the Chinese government, which the U.S. has indicated could force the companies to act as apparatuses for state-sponsored activities like espionage, malware attacks and theft of U.S. data through their presence in the country’s telecommunications networks.

RELATED: Commissioner Starks: ‘Network security is national security’

The U.S. has been actively campaigning for allies around the world to keep Huawei equipment from 5G networks over security concerns. Distributed processing in 5G networks makes the radio access network (RAN) even more vulnerable in the event of an attack, according Commissioner Geoffrey Starks’ report.

“While many talk of security issues surrounding ‘back doors,’ I have said many times that the untrustworthy equipment from these companies could readily serve as a ‘front door’ for Chinese intelligence gathering, at the expense of our privacy and national security,” Starks said in his prepared remarks. “I fully support the effort to ban future purchases of such equipment using USF funds.”

Huawei, which has also found itself in the center of U.S.-China trade tensions, has denied allegations that it would spy or disrupt networks for the purposes of China. 

In an emailed statement, Huawei called the FCC’s actions “unwarranted,” adding “Huawei believes this order is unlawful as the FCC has singled out Huawei based on national security, but it provides no evidence that Huawei poses a security risk. Instead, the FCC simply assumes, based on a mistaken view of Chinese law, that Huawei might come under Chinese government control.”

Rip and replace

In addition the order, the FCC adopted an accompanying  Further Notice of Proposed Rulemaking that would require carriers using USF funds, and potentially even those that are not, to remove and replace existing equipment from Huawei and ZTE that’s already present in U.S. networks and seeks comment on how to fund the process.

Most carriers in the U.S. don’t use equipment from Huawei, but the Chinese vendor has more of a presence in rural America, in part because of its lower-cost equipment and willingness to work with smaller operators.

Still, the process to identify, remove and replace existing gear could prove to be a major and expensive undertaking. Starks has been spearheading efforts to address the issue and convened a workshop earlier this summer with various stakeholders. Some estimates peg the cost of a rip-and-replace approach as higher than $1 billion, with per-cell site costs ranging from $70,000 to $130,000, according to Starks’ report (PDF) on findings from the workshop, released Thursday. 

RELATED: House bill asks for $1B to rip and replace Huawei equipment

The U.S. Energy and Commerce Committee has introduced a bill to authorize $1 billion to aid smaller telecom providers rip and replace Huawei equipment.

In terms of banning future purchases of Huawei and ZTE equipment using federal funds, all five FCC members were united in their support and voted in favor. At Friday’s open meeting, both commissioners Brendan Carr and Jessica Rosenworcel used the example of the Malmstrom Air Force Base and the 341st Missile Wing where they said 150 intercontinental ballistic missiles are loaded in underground silos across northern Montana, but surrounded by clusters of cell towers operated by a small wireless provider.  

“You might not know it when you look at them, but these towers represent a bigger risk to our national security than the missiles they surround,” said Rosenworcel. “That’s because the communications equipment that hangs on these towers is from Huawei and we have good reason to believe that it’s susceptible to undue foreign influence and control.”

She acknowledged that in rural areas Chinese equipment is less costly to deploy and therefore has sometimes been the only economical option for delivering wireless service to less populated rural areas, sometimes located in and around sensitive U.S. military bases.

RELATED: Commerce Dept. bans Huawei, 70 affiliates from sourcing U.S. components

“But it gets worse. This insecure equipment has been subsidized by the United States government and this very agency,” she said. “It was purchased with money from the Universal Service Fund at the FCC. If a foreign government ever chose to exploit the radio transmitters that have been placed alongside key military installations, it could suck up sensitive data, shut down service, or launch Denial of Service attacks.”

Moving to 5G, insecure equipment could take cybersecurity risks to “entirely new levels” as they support a broader range of mission critical applications, according to Rosenworcel. 

Carr indicated a similar sentiment. “This is not just a concern for the military,” he said in prepared remarks. “Everything we do in modern society now runs on interconnected networks, from banking, to transportation, and even our power grids. This will become only more so as carriers continue to build out 5G networks.”

Huawei in its statement urged the FCC to refrain from finalizing the designation, which it said would negatively impact “connectivity for Americans in rural and underserved areas” in the U.S., saying “Huawei is an international leader in developing and adopting mechanisms to improve cybersecurity to protect the reliability of its equipment and the privacy of consumers. And Huawei has remained open to engaging with the U.S. government to verify productive solutions to safeguard U.S. telecommunications systems.”

Still, even as the FCC voted to prohibit the use of government funding for future purchases of Chinese telecom equipment and services, the situation with Huawei remains uncertain as the company is caught within both trade and security issues with the U.S.

RELATED: Rural carriers get another 90-day extension to work with Huawei

Earlier this week, the U.S. government granted a third 90-day extension for U.S companies to continue working with Huawei, after the Chinese vendor was placed on the Commerce Department’s Entity List earlier this year over national security concerns.  That effectively blacklisted Huawei from buying technology components that pose a security risk from U.S. firms without approval, but also impacted rural carriers with existing Huawei network equipment.

The extension allows carriers to continue maintenance activities with Huawei, such as running software updates and patches, Competitive Carriers Association SVP and general counsel Alexi Maltas previously told FierceWireless.

The U.S. government also this week granted Microsoft’s request for a license to export software to Huawei, which has been pressured the last six months since being blacklisted.

According to Reuters, roughly one-quarter of 300 license requests from U.S. companies have been approved, while half have not been processed yet. Citing an unnamed source familiar with the process, Reuters said some licenses included sales of cell phone components and non-electronic components.

Huawei is both a telecom equipment giant and leading smartphone maker, and the licensing issue means among other things, it hasn’t had access to Google’s proprietary Android operating services. So new Huawei handsets launched without the popular and familiar Google Play Store for apps.