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Federal Subsidy Ban for Purchases of Mainland Chinese Telecom Equipment under Consideration

On 28 October, U.S. Federal Communications Commission Chairman Ajit Pai formally proposed banning the use of U.S. federal telecommunication subsidies for equipment purchases from Huawei and ZTE. The FCC is also considering a process for designating additional covered companies in the future. A vote on the proposal has been scheduled for 19 November and, if approved, it could take effect 30 days from that date (although the two companies could contest the action for 120 days).

The FCC’s US$8.5 billion Universal Service Fund was established to subsidise telecom services in rural areas. Pai’s proposal would initially allow USF recipients to continue to use equipment or services from Huawei and ZTE but would preclude the use of additional USF funds to “maintain, improve, modify, or otherwise support such equipment or services.” The FCC is proposing to go even further in a second stage, with plans to collect information “to help assess the extent to which eligible telecommunications carriers have deployed Huawei and ZTE equipment in their networks as well as the costs to remove and replace it.” The FCC would then develop a plan to provide financial help to enable these rural systems to replace all equipment from those firms. The U.S. Rural Wireless Association has estimated that replacing Huawei and ZTE equipment would cost between US$800 million and US$1 billion.

Pai referred to Huawei and ZTE as “untrusted vendors” that “pose a national security risk.” He stated that the United States needs to “make sure our networks won’t harm our national security, threaten our economic security, or undermine our values” and claimed that the mainland Chinese government “has shown repeatedly that it is willing to go to extraordinary lengths to do just that.” As the United States upgrades its networks to the 5G generation of wireless technologies, Pai said, “we cannot ignore the risk that that the Chinese government will seek to exploit network vulnerabilities in order to engage in espionage, insert malware and viruses, and otherwise compromise our critical communications networks.”

In Beijing, Foreign Ministry spokesperson Geng Shuang expressed the mainland Chinese government’s firm opposition to “the United States abusing its state power and suppressing particular Chinese companies without any evidence.”

Content provided by Picture: HKTDC Research
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