ZTE petition denied, FCC affirms it poses security risk

The FCC on Tuesday affirmed a designation that deems ZTE a national security risk to telecom networks and supply chain, denying the Chinese vendor’s petition to reconsider.

This means that ZTE can’t benefit from the FCC’s $8.3 billion annual Universal Service Fund, with a ban prohibiting U.S. companies from tapping USF money to purchase, maintain, or support any gear or services from ZTE or its affiliates.

In denying ZTE’s petition, the FCC said that after reviewing the record, its Public Safety and Homeland Security Bureau “found no basis for reconsideration.”

In November 2019 the FCC voted unanimously for the ban on universal service support to buy telecom equipment and services from vendors that pose risk to national security, and initially named ZTE along with China’s Huawei, as “covered companies” that should be subject to the rule, citing close ties to the Chinese government. The final designation (PDF) was made June 30, 2020. 

“With today’s order, we are taking another important step in our ongoing efforts to protect U.S. communications networks from security risks,” said FCC Chairman Ajit Pai in a statement (PDF) Tuesday.

Huawei and ZTE have continuously denied they pose risks to telecom networks and have fought against the FCC classifications.

RELATED: FCC bans use of USF funds for Huawei, ZTE equipment

Last week the FCC said it’s extending the timeline (PDF) for responding to Huawei’s application for a review of its designation until December 11. The commission noted Huawei’s comments totaled more than 5,000 pages and the two-week extension will allow the FCC to adequately “consider the voluminous record in this proceeding.”

In its formal declaration over the summer, the FCC said its Public Safety and Homeland Security Bureau made the decision taking into account findings and actions by Congress, the Executive Branch, the intelligence community and other allies, as well as fillings submitted by Huawei, ZTE and other parties.

A factor frequently cited by the FCC against Huawei and ZTE is that the firms are broadly subject to Chinese law that could force them to cooperate with China’s intelligence services, acting as an apparatus to help spy or disrupt networks. It has also cited vulnerabilities in the vendor’s network equipment.

Huawei last December filed a lawsuit against the initial designation, and at the time said the decision was based “on a fundamental misunderstanding of Chinese law.”

Commission action has emphasized the need to secure telecom gear in U.S. networks and supply chain, and in particular, that the U.S. shouldn’t subsidize, through USF money, the purchase of equipment from insecure vendors.

Rip and replace reimbursement on December agenda

At its upcoming December 10 meeting, the FCC will also vote on rules to help carriers remove any untrusted equipment that’s already present in networks, an undertaking known as “rip and replace” (or “replace and rip,” as CCA President Steven Berry prefers, since connectivity needs to be maintained during the swap).

RELATED: CCA president discusses open RAN, Huawei issues and CBRS

In March, the Secure and Trusted Communications Networks Act was signed into law, and the FCC was given the authority to establish a reimbursement program to help small communications providers that must replace suspect network gear. However, the program still needs to be funded by Congress.  

Huawei and ZTE are present in telecom networks of some smaller and rural providers, many of which are USF recipients and need assistance for what is expected to be a costly undertaking.

On Monday, House Energy and Commerce Committee Republican leader Greg Walden (R-OR) and Chair Frank Pallone, Jr. (D-NJ) wrote a letter (PDF) to FCC Chairman Pai urging him to take steps to help companies prepare and start the process before funding is in place by taking “specific, non-controversial actions as quickly as possible.”

Those include, developing and releasing a list of eligible replacement gear as soon as possible, and reassuring companies that they won’t negate their eligibility for reimbursement even if they buy replacement equipment before the program is funded.

“The COVID-19 pandemic has demonstrated the importance of having reliable and secure communications services, and companies eligible for reimbursement under the Program will have to engage in very careful and intentional planning to replace suspect equipment while at the same time not disrupting its service,” the letter stated.

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In Tuesday’s announcement, Pai referenced the upcoming open meeting vote and reiterated that “it is more vital than ever that Congress appropriate funds so that our communications networks are protected from vendors that threaten our national security.”

Huawei has previously said the FCC’s rip and replace rules and designations would hurt rural carriers the most, many of which receive USF support.

More broadly, Huawei has been the target of U.S. actions, including placement on the U.S. Commerce Department’s blacklist in May 2019, and additional sanctions since then.

The U.S. administration has also campaigned globally for allies to ban the Chinese vendor from 5G networks. Notably, the UK and others like Australia have banned Huawei from next-gen networks, while France and Germany have stopped short of outright bans or singling out the Chinese firm.