To protect themselves in an evolving geopolitical landscape, telecom operators should prepare for a new era of government scrutiny around their supply chains. Global competition and conflict is rising, prompting new regulation – in the U.S. and abroad – that could block access to electronic equipment at every point in the supply chain: from the moment the raw materials for a component are secured until it is designed, assembled and shipped.
It’s important for operators to deeply understand the journey made by every scrap of metal, plastic, silicon and glass in their systems. In short, it may not be enough for operators to know their supplier – they should also know their suppliers’ suppliers.
Anxiety around outsourcing the manufacture of equipment used in American telecom networks has been building for some time. In recent years, the Federal Communications Commission has passed rules greatly restricting some foreign companies from providing telecommunications equipment and services in the US. For instance, the Secure and Trusted Communications Networks Reimbursement program financed the removal of foreign equipment deemed insecure from existing domestic networks.
The Commission and its agency partners have also banned the use of certain suppliers and revoked authorizations and licenses for some foreign companies, citing national security risks. In 2022, Congress also passed the CHIPS Act, which offers more than $250 billion in funding to incentivize the domestic manufacture of semiconductors.
Currently, however, the supply chains of telecom companies are multinational at some level and, as such, at risk of being examined, temporarily disabled or even shut down.
Take semiconductors as just one source of risk. It would be impossible to operate a communications network without them, and yet a look at the materials and processes required to make them reveal many potential vulnerabilities — not just to war, but also to sanctions and supply disruptions due to shifting political winds. It’s likely known that advanced semiconductor manufacturing is concentrated in Taiwan. But potential vulnerabilities stretch throughout the supply chain and are perhaps most acute in raw materials, as semiconductors are commonly fabricated from silicon and germanium or the compound gallium arsenide.
Worldwide, more than 90% of germanium and gallium are produced in China and Russia, according to the U.S. Geological Survey. The two countries are also the top producers of silicon, with China generating roughly 70% of the global supply in 2021, nearly 20 times the output of the U.S.
Not just hardware
The risks likely extend well beyond physical goods into software and services. Major telecom applications, and even embedded software deep in network infrastructure, originates from foreign countries ranging from China and Russia to Ukraine and Pakistan. These, too, can contain risk of disruption, regulation or outright removal from networks.
Tracing supply chains to their origins, however, is just the first step in enhancing the resilience of those logistical systems. The second is to plan for a range of possible geopolitical scenarios. That could require understanding existing alliances and emerging new ones as globalization unwinds into a situation where nations are categorized by whether they are primarily doing business with Eastern or Western nations. Supply chain map in hand, American companies can shore up their relationships with producers abroad that can help them meet regulatory obligations or seek out alternatives.
It is also important to remain aware that, while the supply chain is a major source of risk, infrastructure is not the only aspect of telecommunications that’s finding itself in the crosshairs of heightened national security concerns. The number of mergers and acquisitions reviewed by the Committee on Foreign Investment in the US (CFIUS) has spiked by 50% since 2020. With recent moves indicating an increased interest in foreign investments well beyond the historical focus on domestic ownership, it’s conceivable that lawmakers might also give the CFIUS additional authority to monitor other types of transactions abroad.
These potential rules and regulations may appear to have little to do with current restrictions on equipment and licensing or the domestication of semiconductor manufacture, but they are all connected in at least two respects: They stand to quickly change the landscape for telecommunications companies, and they stem from growing fears that foreign influence may be compromising American safety. Thus, companies should keep domestic security top of mind as they assess their supply chains and endeavor to become flexible enough to withstand sudden shifts in prevailing geopolitical winds.
Dan Hays is a principal with PwC and leads the firm’s enterprise strategy consulting practice for the technology, media, and telecommunications sector. As a senior member of PwC’s Strategy& consulting practice, Dan works with terrestrial and satellite communications and information service providers, network equipment and device manufacturers, distributors, software and internet platform companies, and their investors worldwide. Based in Washington, D.C., Dan has worked with clients across the Americas, Europe, Asia, the Middle East, and Oceania, and focuses in the areas of growth strategy, regulatory and policy strategy, deals, innovation, product development, and operational strategy.
Industry Voices are opinion columns written by outside contributors—often industry experts or analysts—who are invited to the conversation by FierceTelecom staff. They do not represent the opinions of FierceTelecom.