Huawei sues FCC over ban on use of federal subsidies to purchase its equipment

Huawei sues FCC over ban on use of federal subsidies to purchase its equipment
File photo dated 06/12/18 of the UK Headquarters of Huawei in Reading. The fate of Huawei’s involvement in the UK’s 5G network could be decided by the end of the year, Digital Secretary Nicky Morgan has said.

On December 5, 2019, Chinese telecom giant Huawei announced it is suing the US Federal Communications Commission (FCC) to overturn last month’s decision banning carriers from using the Universal Service Fund (USF) to buy telecom equipment from Huawei and another Chinese telecom company, ZTE. The USF is an $8.5 billion federal fund that supports the purchase of equipment to build communications infrastructure, especially in rural and low-income areas.

Huawei’s press statement claims the ban will disproportionately affect rural America. The company’s lead counsel for the lawsuit Glen Nager said the ban “exceeds the agency’s statutory authority” and violates the constitution.

He also said the FCC’s designation of Huawei’s equipment as a national threat “lacks legal or factual support.” He argues that “the designation is based on a fundamental misunderstanding of Chinese law and on unsound, unreliable, and inadmissible accusations and innuendo, not evidence. The designation is simply shameful prejudgment of the worst kind.”

Huawei’s Chief Legal Officer, Dr. Song Liuping, also claims that the FCC ignored 21 rounds of “detailed comments” submitted by Huawei to explain “how the order will harm people and businesses in remote areas.” According to Reuters, small carriers in rural America prefer Huawei and ZTE equipment as it is dependable and inexpensive. Following the FCC’s announcement, some carriers are considering switching to Nokia or Ericsson equipment, but their prices are less competitive.

FCC decision to block subsidies from being awarded to Huawei and ZTE

On November 22, the FCC unanimously voted to block broadband subsidies from going to Huawei and ZTE, which US lawmakers claim threatens national security, according to Politico. The decision is backed by Attorney General William Barr, who said these companies’ record of alleged bank fraud, obstruction of justice and intellectual property theft serves as proof they are “a threat to our collective security.”

“Both companies have close ties to China’s communist government and military apparatus,” FCC Chairman Ajit Pai told Politico before the vote. “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.”


Potential cybersecurity risks from Huawei

In 2012, a US Congressional panel found that Huawei and ZTE constitute a national security threat due to attempts to extract sensitive information from American companies as well as their loyalties to the Chinese government, according to the New York Times.

In April 2019, UK-based network operator Vodafone told Bloomberg that it had found vulnerabilities going back years with Huawei equipment. The company reported that it had identified hidden backdoors in the software that could have given Huawei unauthorized access to the carrier’s fixed-line network in Italy. Vodafone noted that the risks included possible third-party access to a customer’s personal computer and home network.

In May 2019, Huawei was placed on the US Entity List which subjects the company to meet license requirements for the export, re-export, and transfer of its products to the United States. According to South China Morning Post, companies on the Entity List are essentially barred from doing business with US companies. In addition, US companies that wish to export to these entities have to apply for a license from the Bureau of Industry and Security (BIS) – although license applications are likely to be denied.

In January, the United States Department of Justice opened a criminal investigation against Huawei, alleging that the company stole trade secrets from its US business partners. In May, Huawei’s chief financial officer and daughter of its founder, Meng Wanzhou, was also charged with fraud.

Huawei responds with federal lobbying

In response, Huawei spent $1.8 million on federal lobbying in the third quarter of 2019, a 6,000% increase compared to the same period last year, Bloomberg reported in October. Huawei also hired a fundraiser for President Donald Trump with deep ties to Republican leadership.

Despite the controversies, Huawei reported nearly $89 billion in global revenue in the first nine months of 2019 – a 24% growth compared to the same period last year.