Just a few years ago, big Chinese telecom firms ZTE and Huawei were making major inroads in the US. They were selling more smartphones every year and were positioned to supply 5G network infrastructure. Today, neither company is doing much business in the US, and that trend is probably going to continue. After several Commerce Department penalties, the FCC has now stepped in to declare ZTE and Huawei are “national security threats.”
The government first focused on ZTE in 2018 when the Commerce Department slapped it with trade restrictions connected to a previously settled case. The government claimed ZTE had not sufficiently complied with the previous agreement, but the company said it was doing everything required. That situation was eventually resolved, but its network equipment business in the US has never recovered. Huawei is currently on the Commerce Department’s entity list, which prevents US businesses from doing business without specific government authorization. This affects not just network equipment but the company’s phones as well.
According to the FCC, the evidence points toward the companies being a danger to US interests. “We cannot and will not allow the Chinese Communist Party to exploit network vulnerabilities and compromise our critical communications infrastructure,” the FCC said in a statement. This distinction means Huawei and ZTE hardware will not be eligible for the Universal Service Fund, an $8.5 billion pot of money that helps subsidize equipment that improves connectivity in the US.
The FCC says the order takes place immediately, but it’s not clear what the order actually changes. It was unlikely ZTE or Huawei would be permitted to supply network hardware regardless of this declaration. The government has already strongly discouraged companies from using the Chinese firms for 5G infrastructure, alleging that the Chinese government could pressure the companies to spy on Americans. This is something ZTE and Huawei have always denied. The FCC also calls on Congress to fund the Secure and Trusted Communications Networks Act, which will allow network operators to replace potentially untrustworthy components.
The order shouldn’t affect smartphones, not that either company is directing many resources toward launching devices in the US right now. Both are still major players in China and some other markets, but tightening restrictions could eventually cut them off from technology that they need to develop new hardware.
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