FCC Faces Tough Policy Calls on Supply Chain Issues as 5G Starts to Roll Out

With tough choices looming, FCC officials don't appear to have decided on rules or other actions stemming from a proposal to bar use of USF money to make purchases from companies that “pose a national security threat” to U.S. communications networks or the communications supply chain. Industry officials said supply chain issues are expected to be a focus at CES Jan. 8-11 in Las Vegas.

Chairman Ajit Pai earlier this month said work following up on the NPRM remains a big focus (see 1812120043), with “serious national security issues" at stake. A day later, the Communications Security, Reliability and Interoperability Council approved a recommendation that new rules be narrowly tailored to prevent network disruptions and asking the FCC to work with other agencies before taking further steps. Commissioners approved the supply chain NPRM 5-0 in April (see 1804170038). Smaller carriers have concerns since so many of them have used cheap equipment from Chinese vendors (see 1803260037).

“This issue creates a tension between one of Chairman Pai's self-proclaimed high priorities, rural broadband, and the administration's self-proclaimed high priority, a secure network,” said New Street analyst Blair Levin. “This initiative will have the potentially positive effect of making our networks more secure while also the certain negative effect of making rural broadband deployment, at least in the near-term, more expensive.” Levin sees signs of frustration by some rural lawmakers “that the FCC's many pronouncements about rural broadband are not being accompanied by sufficient action.” But “as is often the case in D.C., many don't want to face up to the practical realities of trade-offs and believe that tweeting is a substitute for the hard work," he said.

“If the U.S. government decides to ban Huawei and ZTE equipment, then a plan needs to be developed to assist small rural carriers with a transition,” a Rural Wireless Association spokesperson emailed. “A network transition to an approved supplier will take at least seven-ten years to complete at a substantial cost. RWA estimates that for its members alone, the forklift effort would run $800 million to $1 billion and does not include all the equipment integrated in U.S. networks.”

RWA hopes the FCC does more to build a record. “The FCC needs to host a workshop to determine what the costs would be to replace offending equipment and the length of time and cost involved,” the spokesperson said. Once determined, “there needs to be funding in place to help these small carriers transition. We must be mindful of the fact that the offending equipment was purchased and installed with the support of the U.S. government in an effort to make the best use of universal support funds.”

“Small rural carriers will be the most affected by the NPRM as a large share of their budget for communications networks comes from the USF program,” said Roger Entner, analyst at Recon Analytics. “It will raise the cost of equipment leading the FCC to choose between slower build out in rural America or to make up the price increase through higher subsidies.”

Others said the threat is a big challenge for the U.S. and the FCC. The agency didn’t comment.

Bipartisan Concerns

"Keeping America's communications infrastructure as free of security risks as possible has long been a bi-partisan public policy priority,” emailed Cooley's Robert McDowell. “Many federal agencies have a role here with the FCC being front and center, and Chairman Pai recognizes that."

We’re only seeing “the tip of the iceberg” with more equipment coming online as 5G rolls out, said American Enterprise Institute scholar Shane Tews. Tews warned of dangers of letting in the wrong vendors. “They’re getting really good at … if they break into one network, they figure out something about that, which leads them to the next one,” she said. Smaller carriers that want to work with Chinese vendors to keep costs low are networked with the major carriers, she said. “It’s a big fear factor,” she said.

Thomas Duesterberg, Hudson Institute senior fellow, cited the threat posed by Huawei. “The evidence is piling up that Huawei presents a formidable national security risk,” he said. “Japan, Australia, New Zealand and Britain’s largest mobile carrier have all banned or signaled they are likely to ban use of Huawei equipment in their networks. Two of Huawei’s largest global bankers, HSBC and Standard Charter, have decided to withdraw from any new business with the company. Britain’s head of MI-6 has warned of the risks.” Those developments “add to the case being built by U.S. authorities,” he said.

USTelecom “strongly supports a ‘whole of government’ approach to examining communications supply chain vulnerabilities,” said Mike Saperstein, vice president-law and policy. “Given the global focus on cyber threats, it is critical the commission collaborate across government and through public-private partnerships … in its process to identify and combat supply chain threats.” Saperstein cited the Department of Homeland Security Information and Communications Technology Supply Chain Risk Management Task Force, which held its initial meeting Nov. 15.