On November 19, 2019, the FCC is prepared to vote on an Order in Docket 18-89 which would prohibit prospective use of Universal Service Funds (USF) for the purchase of equipment or services from any company that poses a national security threat to the integrity of U.S. communications networks or the communications supply chain. Specifically, the Order is targeted toward rural American telephone companies that obtain universal service support and are using or planning on purchasing relatively cheap equipment from the Chinese companies Huawei and ZTE for their 5G networks. The Order would also establish a process to add other companies to the banned list.

5G wireless networks being built across the world will bring a new level of speed, responsiveness and capacity, and will affect every part of the U.S. infrastructure including, power grids, hospitals and transportation. The best example of the power of 5G that is often cited is that it would enable “driverless” cars controlled by computers transmitting the position of all vehicles by constant communication through 5G networks.

But as FCC Commissioner Ajit Pai points out, under Chinese law, even so-called private companies in China are subject to the edicts of the government and its intelligence services.

That means that China could compel Huawei to spy on American individuals and businesses. Imagine if a 5G network with Huawei equipment were operating near a U.S. military installation, critical infrastructure facility or other sensitive location. Beijing could demand the installation of a “back door” to allow secret access to the network, insert malware or viruses, and receive all kinds of information – without Americans ever knowing. Independent experts confirm the risk. A report issued this year by the cybersecurity firm Finite State found a majority of the Huawei firmware images it analyzed had at least one potential backdoor and that each Huawei device had an average of 102 known vulnerabilities. (Ajit Pai, Wall Street Journal Op-Ed, October 29, 2019.)

The biggest problem the FCC will face in eliminating the Chinese companies from the U.S. market is the fact that due to their relative inexpensiveness, many rural rate-of-return (ROR) ILECs have already made Huawei and to a lesser extent ZTE part of their broadband networks. Most of these companies do not have the resources to discard their current equipment and rebuild their networks with equipment approved by the FCC.

Thus, in addition to the Order it plans on adopting, the Commission plans on releasing a Further Notice of Proposed Rulemaking that would propose requiring LECs receiving USF funds, to remove all existing equipment and services from banned companies from their networks.

It will also seek industry comments on how to provide financial assistance to these carriers to help them transition to more trusted suppliers. The draft item would also adopt an information collection 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. (FCC October 28, 2019, News Release).

Finding new funds to provide to ROR LECs will be quite a challenge for the industry. The USF budget at $8.5 billion annually is already straining at the seams to help pay for high cost areas, build broadband networks, offer dial tone discounts through Lifeline and provide discounts to schools, libraries and hospitals. Funds will have to come from Congress, a new Commission mandate or from already existing programs. American taxpayers will surely end up footing the bill. But as Pai points out, we cannot take chances with 5G networks.

When it comes to 5G and America’s security, we can’t afford to take a risk and hope for the best. We need to make sure our networks won’t harm our national security, threaten our economic security, or undermine our values. The Chinese government has shown repeatedly that it is willing to go to extraordinary lengths to do just that. And Chinese law requires all companies subject to its jurisdiction to secretly comply with demands from Chinese intelligence services. As the United States upgrades its networks to the next generation of wireless technologies—5G—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. (Ajit Pai, October 28, 2019 Statement.).

Industry comments are due 30 days after the Further Notice appears in the Federal Register.