FCC National Security Rules for USF Program Still Seen Moving Forward

The FCC is thought likely to move forward on rules that bar use of money in any USF program to buy equipment or services from companies that “pose a national security threat” to U.S. communications networks or the communications supply chain. Commissioners approved an NPRM 5-0 in April (see 1804170038). CTIA and other carrier groups' comments raised concerns (see 1807050028), but industry officials said the FY 2019 National Defense Authorization Act may require FCC action.

President Donald Trump signed the NDAA in August (see 1808130064). It bars U.S. agencies from using “risky” technology produced by ZTE or fellow Chinese telecom equipment firm Huawei.

The FCC has to put out another notice to implement NDAA because the April NPRM doesn’t address it, said a small carrier official: “Seems they have some time on this and can possibly take it up in context of specific proceedings for support.” The agency didn't comment.

"The controversy regarding certain foreign equipment being used by American carriers is not new,” said Robert McDowell, former commissioner now at Cooley. “It has been a hot topic for at least a decade and policymakers on both sides of the aisle have received classified briefings to see the compelling evidence. So it is no surprise that the FCC would work to curtail subsidies of such equipment. ... As global networks become more interconnected through IoT proliferation, it will become more difficult to prevent penetration."

There's “ample evidence the Chinese will use any means at their disposal to gain knowledge about technology and people and businesses in the U.S.,” said Thomas Duesterberg, senior fellow at the Hudson Institute. “It seems ridiculous that a federal subsidy, which is what the USF is, would be used to buy Chinese equipment in the first place given those dangers.” There has been so much “blowback” from Congress on the administration’s decision to reopen the ZTE case (see 1806260031) that “the political forces are aligning in favor of the proposed rulemaking,” Duesterberg said.

The Telecommunications Industry Association "strongly" supports the FCC focus "on this important national security issue, and we have urged them to move ahead quickly,” said Cinnamon Rogers, senior vice president-government affairs. “5G rollouts are happening in real time, and the agency needs to provide carriers and equipment manufacturers with clarity regarding specific vendors of concern and how these issues will be handled going forward.”

USTelecom backs "the federal government evaluating and acting upon supply chain threats using a ‘whole of government’ risk management methodology,” said Mike Saperstein, vice president-law and policy. “The FCC would be well served to seek comment on how the NDAA applies to its pending supply chain NPRM” and also work with a Department of Homeland Security communications technology supply chain task force, he said.

The FCC appears likely to move forward, said Doug Brake, Information Technology and Innovation Foundation director-broadband and spectrum policy. “Any rules blocking specific companies from supplying USF funded equipment should be based on as transparent of evidence as possible, and coordinated with other government actors to avoid unintended consequences.”

The commission "has to weigh what is more important -- have greater security of American communications networks by excluding Chinese vendors or allowing them to help build out" the rural U.S., said Roger Entner, analyst at Recon Analytics. “Small carriers consistently report Chinese vendors to be more affordable and provide significantly better service than traditional vendors. Ideally, we would have vendors who provide lower cost equipment with great customer service to small carriers without jeopardizing national security.”