The US has designated Huawei and ZTE as national security threats, banning American telecoms firms from spending government money on equipment from the Chinese companies.
On Tuesday (30 June), the US Federal Communications Commission (FCC) designated Chinese telecoms giants Huawei and ZTE as national security threats.
In a statement, FCC chair Ajit Pai said that the decision was based “on the overwhelming weight of evidence” that Huawei and ZTE pose a risk to US communications networks and the country’s 5G future.
“Both companies have close ties to the Chinese Communist Party and China’s military apparatus, and both companies are broadly subject to Chinese law obligating them to cooperate with the country’s intelligence services.”
Huawei and ZTE have not publicly responded to the decision yet, but both companies have repeatedly denied posing any threat to US national security.
The consequences of the decision
In November 2019, the FCC voted unanimously to bar telecoms manufacturers it deemed threatening from receiving money from the $8.3bn Universal Service Fund, which is aimed at expanding internet access to underserved areas in the US.
As a result of this week’s decision, the FCC will now prevent US telecoms businesses from using federal funding to purchase equipment from Huawei or ZTE. According to The Verge, this could make it difficult for smaller companies to provide affordable services.
The FCC has said that it is examining ways that carriers could remove and replace existing Huawei and ZTE products in their networks, which will have an impact on rural carriers that rely on subsidies to fund networks in areas where it is not profitable to build a network.
The New York Times reported these carriers have traditionally used Chinese equipment, as it is often less expensive than alternatives developed and manufactured in Europe by companies such as Ericsson or Nokia.
The US placed Huawei on an entity list in May 2019 due to security concerns, which essentially barred US companies from doing business with the Chinese telecoms giant without government approval.
In May of this year, the US Department of Commerce introduced further restrictions preventing foreign manufacturers of semiconductors using American technology in their operations from shipping their products to Huawei unless they get a licence from the US.
As a result, it was reported that Taiwan Semiconductor Manufacturing Company (TMSC) had halted orders from Huawei as the US tightened export controls. Huawei is TMSC’s second largest customer, after Apple.
Additionally, the US has been trying to convince other countries to exclude Huawei when rolling out 5G. While countries such as Australia and Japan have banned Huawei tech in their 5G networks, the UK gave Huawei the green light earlier this year, albeit with a limited role.
In India, the government is discussing whether ZTE and Huawei should be excluded from the country’s 5G roll-out plans, due to increasing political tensions between China and India. This week, India has also blocked 59 Chinese apps including WeChat and TikTok, claiming that they pose a threat to national security.