Huawei and ZTE Designated as Threats to National Security

On June 30, 2020, the Federal Communications Commission's (FCC) Public Safety and Homeland Security Bureau (PSHSB) made final the Commission's prior proposed designation of Huawei Technologies Company (Huawei) and ZTE Corporation (ZTE), as well as their parents, affiliates, and subsidiaries, as covered companies for purposes of the agency's November 2019 ban on use of Universal Service Fund support by Eligible Telecommunications Carriers (ETCs) to purchase equipment or services from companies that pose a national security threat.

The Order, which immediately became effective upon release, is based in part on the Commission's authority under the Secure and Trusted Communications Networks Act of 2019. The FCC stated in its November 2019 designation order that it will entertain waiver requests but has not provided guidance regarding the standards it will apply. The Order did not adopt another proposal, which would require ETCs to "rip and replace" currently installed Huawei and ZTE equipment; that proposal remains pending before the Commission.

As described in our previous advisory, in November 2019, the FCC unanimously adopted a ban on the use by ETCs (telecommunications companies eligible to receive subsidies from the High Cost and Lifeline federal Universal Service programs) of Universal Service Fund support to purchase, obtain, or maintain any equipment or services produced or provided by companies posing a national security threat to the integrity of communications networks or the communications supply chain.

The move followed the May 2019 Executive Order on Securing the Information and Communications Technology and Services Supply Chain, which regulates the acquisition and use of information and communications technology and services from "foreign adversaries" that pose a threat to the national security, and the addition of Huawei to the Entity List which restricts Huawei's access to U.S. components, software, and technology needed to design, build, and support its devices and network equipment.

In its November 2019 order, the Commission proposed that Huawei and ZTE be covered by this rule based on its findings that the companies have substantial ties to the Chinese government and military apparatus, are subject to Chinese law requiring them to assist in espionage activities, have known cybersecurity vulnerabilities in their equipment, and are the subject of ongoing Congressional and Executive Branch concern as significant national security risks. In the Order, the PSHSB confirmed these findings.

With the final designation now effective, money from the FCC's $8.3 billion annual Universal Service Fund may no longer be used to purchase, obtain, maintain, improve, modify, or otherwise support any equipment or services produced or provided by these suppliers. The Commission denied petitions to delay the immediate designation of Huawei and ZTE until a reimbursement mechanism has been established, noting that the designation does not require any USF recipient to remove and replace existing equipment. However, migration to permitted vendors' equipment may, at some point, force telecom companies to replace existing Huawei/ZTE equipment, reimbursements or not, or to seek waivers that will permit the continued use of USF funds to support that equipment.

The Commission has yet to take action on the Further Notice of Proposed Rulemaking (FNPRM) released with the November 2019 Order, which sought comment on proposals to:

1. Require, as a condition on the receipt of any future USF support, that ETCs not use or agree to use, within a designated period of time, communications equipment, or services from Covered Companies;
2. Require ETCs receiving USF support to remove and replace covered equipment and services from their network operations; and
3. Establish a reimbursement program to offset reasonable transition costs, which are estimated to be $2 billion or more, funding for which would need to be appropriated by Congress.

The public comment period for the Further Notice concluded on March 3, 2020.

Following on the heels of the Order, the Commission released on July 17, 2020, a Second Further Notice of Proposed Rulemaking (SFNPRM). With the SFNPRM, the FCC began the process of establishing a list of covered equipment and services from designated vendors deemed to pose an unacceptable risk to U.S. national security.

The Commission has requested public comment on:

1. What communications equipment and services from Huawei and ZTE should be included on the list;
2. The ban on use of federal subsidies, including USF funding, for any communications equipment or services placed on this list;
3. A requirement that all providers of advanced communications services¹ report on whether they use any covered communications equipment or services; and
4. The prevention of waste, fraud and abuse in the rip-and-replace reimbursement program.

Comments are due by August 31, 2020.

These actions are part of a broader government-wide effort to ban foreign-sourced equipment and services that purportedly undermine national security. DWT continues to closely monitor and actively participate in these proceedings. Please contact us if you want to:

• Review comments filed regarding the FCC's final designations or the FNPRM;
• Submit comments regarding the SFNPRM;
• Learn more about how the recent equipment and service bans may impact your operations; or
• Apply for a waiver in the event that operation of your network will be unduly burdened by the prohibition on using USF funds to maintain or otherwise support equipment or services produced or provided by covered companies.

FOOTNOTE

1  "Advanced communications services" are defined, without regard to any transmission media or technology, as high-speed, switched, broadband telecommunications capability that enables users to originate and receive high-quality voice, data, graphics, and video telecommunications using any technology. 47 U.S. Code § 1302(d)(1); see Pub. L. 115-232, 132 Stat. 1608, Sec 9(1).

This article was originally featured as a communications advisory on DWT.com on August 17, 2020. Our editors have chosen to feature this article here for its coinciding subject matter.