China Tech’s Grip Persists in US Long After Orders to Rip It Out

[Nan Yang]

May 11, 2022​

China Tech’s Grip Persists in US Long After Orders to Rip It Out​

Sheridan Prasso, Bloomberg News

Mike Laskowsky Photographer: Doug Barrett/Bloomberg , Photographer: Doug Barrett

(Bloomberg) -- It’s been three years since US officials sounded the alarm: Citing national security threats, the White House, Congress and federal agencies began ordering that certain Chinese-made equipment had to be ripped out from telecommunications and security networks.

But delays, deferrals and a serious funding shortfall have left that threat largely unaddressed, and Chinese technology remains in place throughout America — including in some surprising places. More than 100 telecom providers are still connecting mobile phone calls for hundreds of thousands of customers with gear from Huawei Technologies Co. and ZTE Corp. Chinese-made equipment is also still serving Department of Defense facilities, the corporate jets of some of the largest US companies and the biggest commercial airlines.

“It’s striking that it’s taking people so long to wake up to this reality,” says Isaac Stone Fish, founder and chief executive officer of Strategy Risks, a New York-based consulting firm that helps companies mitigate their exposure to China. “As US-China tensions continue to worsen, and growing numbers of people in the US national security establishment view China as an adversary and likely future combatant in a hot war, certain types of Chinese technology pose clear and present national security threats.”
Meanwhile, the mandate to rid US telecom networks of billions of dollars’ worth of Chinese tech is also posing a public safety risk. Carriers say that without adequate funding for a federal aid program known as Rip and Replace, they’ll have to cut service to swaths of rural America, reducing the reach of 911 services along busy highways — or halt it altogether. While there’s no penalty for failing to meet the mandate, there is a pressing deadline: Because the Chinese manufacturers are ending their US-based service programs, networks that rely on their equipment are one lightning strike away from a crisis.
Read more: Chinese Spies Accused of Using Huawei in Secret Australian Telecom Hack

The Department of Defense sought and received two waivers from the Director of National Intelligence allowing it to keep contracting with vendors that use equipment made by Huawei, ZTE and other manufacturers through September 2022. The waivers pertain to equipment and products “deemed to be of low risk potential but are necessary to execute the DOD mission.” A Pentagon spokesman declined to say where the Chinese equipment is used.

The DOD waivers specifically mention cameras made by Hangzhou Hikvision Digital Technology Co., another banned firm. Across the US, as many as 700,000 Hikvision surveillance cameras connect to the internet every weekday, according to a search tool called Shodan that finds devices’ web connections. Shodan reveals each service provider address that a camera connects to, but not the camera’s location or operator. Research from the Center for Strategic & International Studies in Washington found that Hikvision cameras had been installed on US military bases and domestic police departments before the ban, and that government officials have had trouble finding them all.

In the skies, internet connectivity still travels via ZTE’s ground-to-air network equipment in 1,400 regional jets operated by American Airlines Group, Delta Air Lines Inc., United Airlines Holdings Inc. and others. ZTE is also still used in 6,400 private jets, including charter and fractional-share operators such as NetJets Inc., FlexJet LLC and others, as well as business aircraft owned by major US corporations. The connectivity comes from Gogo Inc., which sold its commercial aviation business to Intelsat SA in December 2020 but continues to operate it under a network-sharing agreement, both companies confirmed.

Gogo has applied for $333 million from the Federal Communications Commission to “enable Gogo to significantly accelerate replacing ZTE equipment with American-made equipment on those networks,” spokesman Dave Mellin says.

It may not get that money. Congress last year allocated $1.9 billion to the FCC’s Rip and Replace program, which is primarily aimed at helping rural telecommunications providers replace their Chinese network equipment with Western manufacturers’ products. But when the agency in January tallied the funds requested by 181 applicants, it came to $5.6 billion, almost three times the available funds. There’s no sign that Congress plans to address that shortfall anytime soon, and telecom executives are frustrated.

“This is supposed to be a national security issue, the whole threat of China being able to weaponize these networks,” says Carri Bennet, general counsel for the Rural Wireless Association, a trade group that represents carriers with fewer than 100,000 subscribers. Bennet says the group hasn’t encountered any actual opposition to increasing the funding — and yet, it hasn’t happened. “It’s just that so many other things are going on, it’s not being given the focus right now.”

Companies like United Wireless Communications Inc., which serves 17 counties in southwest Kansas, are identifying the services they’d have to cut if they don’t get the funds they’ve requested. First on the chopping block would be Clark State Fishing Lake, a 300-acre oasis of blue on the prairie outside Dodge City, Kansas, which draws boaters, swimmers and fishermen by the thousands each summer, company officials say. If United Wireless doesn’t get enough of the $173.5 million it’s seeking from the FCC, cellphone connectivity at the lake, including 911 service, will be cut. If the subsidy is reduced too much, the company might have to shut down. It’s not lost on Todd Houseman, the CEO and general manager, that these difficult choices arise from a national security mandate.

“We’re patriots here in western Kansas,” says Houseman, whose company has about 3,000 member-owners and serves about 20,000 customers. “We believe in doing the right thing. But worst-case scenario, if we’re not funded enough, we’d even make a decision as drastic as needing to exit the business.”

‘Broad Strokes’

Then-President Donald Trump touched off industrywide concern in 2019 when his executive order imposed an initial ban on Chinese-made networking tech. Congress, the FCC and other US agencies have expanded the list of prohibited manufacturers since. Huawei, ZTE and others have denied for years that they pose any security threat, and Chinese officials have questioned the motives of their US counterparts.
Chinese Foreign Ministry spokesman Zhao Lijian said in January that the US was using security concerns as a pretext to punish Chinese competitors and called it “an abuse of state power.” In March, when the FCC added China’s Pacific Networks Corp. and ComNet (USA) LLC to the banned list, China’s commerce ministry spokesman, Gao Feng, said: “The US should immediately stop its unreasonable suppression of Chinese companies and the wrong practice of politicizing economic and trade issues.”

Now China is taking similar measures. On May 6, Bloomberg News reported that China has ordered central government agencies and state-backed corporations to replace at least 50 million foreign-branded personal computers with domestic alternatives within two years.

Amid the charges and countercharges, US officials haven’t provided public evidence of the threat posed by the Chinese tech. But the products carry real risks, experts say.

“It’s a potential entry point for Chinese espionage,” says James Lewis, senior vice president at the Center for Strategic & International Studies. “The risk is that they could disrupt our communications at will.”

In May 2019, United Wireless’s Houseman was among about 20 rural network operators summoned to the basement of the US Capitol. They met with the leaders of the Senate Intelligence Committee, Democrat Mark Warner and Republican Marco Rubio, along with representatives from the Central Intelligence Agency, the Federal Bureau of Investigation and other national security agencies. The officials made a series of presentations about the danger of Chinese equipment and told the local operators they had to take it out. “It was in pretty broad strokes,” Houseman recalls. “They said, “If you knew what we knew ….”

He returned to Dodge City determined to rip Huawei equipment out of his network core, where federal officials said it posed the most danger. United Wireless used its own operating capital to replace banks of Huawei equipment at its headquarters with similar gear from Nokia Oyj.

But now the company needs to replace the Huawei radio heads that receive and broadcast calls and data on its 114 towers, and to swap out connecting bay stations and other equipment. The demands on the FCC’s Rip and Replace fund suggest that United Wireless might receive just a third of its $173.5 million request. Trying to operate a network over a vast service area with just 40 towers or so isn’t feasible, Houseman says. “It could be a death blow for us.”

Congress has a chance to make up the FCC’s funding shortfall as part of the Bipartisan Innovation Act, which is primarily designed to devote billions to tech innovation and boost US semiconductor production. Lawmakers are working to reconcile House and Senate versions of the bill, but the prospects for additional Rip and Replace funding aren’t clear. Spokespeople for Senator Patrick Leahy, the Democrat who chairs the chamber’s appropriations committee, and Senator Richard Shelby, the panel’s Republican vice chairman, didn’t respond to requests for comment.

A spokesperson for Rubio, who sponsored the law that required the removal of the equipment, declined to address the funding issue. “FCC’s Rip and Replace plan is a critical national security priority to address this threat, and I look forward to seeing it carried out to its completion,” Rubio said in a statement.

Meanwhile, FCC officials are auditing the funding requests they’ve received to ensure that all the expenses are allowable, and the agency has indicated that not all will qualify. FCC officials plan to decide by June 15 how to allocate the $1.9 billion fund, assuming that Congress doesn’t come through with more money.
FCC Chairwoman Jessica Rosenworcel has told Congress it’s critical to make up the shortfall; the agency plans to report back the exact amount after its audit. She told legislators on March 31 that the $1.9 billion request was based on estimates voluntarily submitted to the agency by carriers with fewer than 2 million subscribers. But after Congress expanded the number of eligible recipients and instituted procedures that carriers would have to follow to get the money, the agency received many more applications than anticipated, with higher funding needs, she said.

Rosenworcel had previously expressed frustration about the slow pace at which the FCC has taken action to secure America’s communications networks. In congressional testimony in 2019, when she was a Democratic commissioner under a Republican chairman, she criticized a move to bar the use of federal subsidies to buy untrusted equipment: “I have only one complaint with this effort: that it took us so long to get here. This is not hard. It should not have taken us 18 months to reach the conclusion that federal funds should not be used to purchase equipment that undermines national security.”

Now, however, the FCC defends its pace. “We cannot comment on Congress’ actions, but the moment Congress appropriated funding, the Commission has moved very quickly,” the agency said in a statement.

‘I’m Done’

For rural telecoms, the clock is ticking. The FCC will require replacement work to be done within a year of granting the funds. Also, ZTE has already halted its US customer support, and Huawei will soon follow suit.

That’s a big problem for John Nettles, who has ZTE equipment mounted on the 67 towers making up his Pine Belt Communications network in central Alabama. His network is falling apart, he says, and without replacements or repairs, a hurricane could shut down much of his five-county service area. His towers are old and may not be able to take the weight required during the replacement phase. (To keep service running, the new Nokia equipment he plans to buy would have to go up alongside the ZTE radio heads, which would come down afterward.) So he has to pay to test them and possibly to shore them up as well.

Without the $75 million he requested from the FCC to cover costs, Nettles doubts he can continue the company his father set up in 1958. Its towers serve as many as 30,000 travelers a day on highways from Montgomery to Selma, then west to Mississippi or south to Mobile.

“If I can’t do any of it, those national security issues, you give them a nice wave goodbye,” Nettles says. “When it breaks, I’m done.”

Rural providers snapped up the Chinese equipment a decade ago in part because federal subsidies for extending mobile service required them to choose the lowest-cost carriers. If US officials hadn’t banned it, United Wireless would have upgraded to 5G service with Huawei’s equipment already, says Mike Laskowsky, the telecom’s network operations manager. For now, however, that will have to wait: The Rip and Replace program will cover only like-to-like equipment replacements, not upgrades. “They stopped us being able to grow,” Laskowsky says.

That’s not the only problem. After United Wireless installs its replacement equipment, all its customers’ 3G mobile phones will have to work with a new network protocol. But because phones and other consumer products aren’t covered by the Rip and Replace fund, customers will have to pay for those changes themselves.

Extra consumer costs, slower upgrades and — unless Congress acts — the potential loss of 911 service in well-traveled places: It’s a steep price for getting Huawei the heck out of Dodge.

©2022 Bloomberg L.P.


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