No money from the FCC's $8.5 billion Universal Service Fund, used to subsidize purchases to support the rollout of communications infrastructure, will be spent on equipment from these companies.
"We take these actions based on evidence in the record as well as longstanding concerns from the executive and legislative branches," said FCC Chairman Ajit Pai in a statement. "Both companies have close ties to China’s Communist government and military apparatus. Both companies are subject to Chinese laws broadly obligating them to cooperate with any request from the country’s intelligence services and to keep those requests secret. Both companies have engaged in conduct like intellectual property theft, bribery, and corruption."
The Chinese companies have faced federal scrutiny for years, and vague suspicions of selling compromised hardware that the government there could take advantage of, but it was only at the beginning of 2019 that things began to heat up with the controversial arrest of Huawei CFO Meng Wanzhou. The companies, it hardly needs mentioning, have vehemently denied all allegations.
Increasingly complicated relations between China and the U.S. generally compounded the difficulty of ZTE and Huawei operating in the States, as well as selling to or purchasing from American companies.
The FCC's new rule was actually proposed well before things escalated, a fact that Commissioner Jessica Rosenworcel, though she supported the measure, emphasized.
"This is not hard," she wrote in a statement accompanying the new rule. "It should not have taken us eighteen months to reach the conclusion that federal funds should not be used to purchase equipment that undermines national security."
Working out the details may have been difficult, however, given the generally chaotic state of the federal government right now. For instance, one month this summer it was going to be illegal for U.S. firms to sell their products to Huawei — and then it wasn't. Just yesterday several senators wrote to protest the Department of Commerce issuing licenses to firms doing business with Huawei.
Another proposal discussed today but not yet adopted would require companies that receive USF funds to remove equipment from those companies that they may have already installed.
Admittedly it may be a financial burden for smaller carriers to comply with these rules. There's a plan for that, though, as Chairman Pai explained: "To mitigate the financial impact of this requirement, particularly on small, rural carriers, we propose to establish a reimbursement program to help offset the cost of transitioning to more trusted vendors."