The FCC will deny funds to any US carriers or internet service providers that buy components from China's Huawei and ZTE.
The commission on Friday voted 5-0 to adopt the rules, citing the need to protect US networks from national security threats. The FCC is worried that Huawei and ZTE will secretly backdoor their telecommunication products so the Chinese government can snoop on Americans.
It's a spying charge both Huawei and ZTE have adamantly denied over the years. Nevertheless, the commission voted on Friday to adopt a rule that designates both companies as a security threat. As a result, carriers and ISPs that source telecommunication equipment from Huawei and ZTE will no longer be able to tap an $8.5 billion FCC fund to subsidize their projects.
"Given the threats posed by Huawei and ZTE to America's security and our 5G future, this FCC will not sit idly by and hope for the best," FCC Chairman Ajit Pai said today.
According to the commission, hundreds of carriers rely on the $8.5 billion Universal Service Fund to build telecommunication networks for low-income areas that have little access to phone or internet service. (However, it's important to note the fund is not used to supply smartphones to consumers.)
On the same day, the FCC also approved a proposal that seeks to force the same US carriers and ISPs to rip out and replace any existing Huawei and ZTE equipment in their networks.
For now, the FCC is going to embark on a study to determine how many carriers and ISPs are currently using Huawei and ZTE technology. The same order will seek comment from the public on how it'll subsidize the remove and replace of all the affected equipment.
In response, Huawei said the FCC's action today will disrupt the business for many carriers in the US, particularly in rural areas, which are reliant on the Chinese company's networking technologies. "Without access to those solutions, these carriers will lose their ability to provide reliable and high-speed telecommunications and internet services. Rural schools, hospitals, and libraries will feel the effects," the company said in a statement.
Huawei also claims the FCC's order threatens to reduce competition in the telecommunications market, which will cause prices for the equipment, including 5G technologies, to go up.
"Huawei believes this order is unlawful as the FCC has singled out Huawei based on national security, but it provides no evidence that Huawei poses a security risk. Instead, the FCC simply assumes, based on a mistaken view of Chinese law, that Huawei might come under Chinese government control," the company said, before adding: "Huawei would never breach its customers' trust."
ZTE did not immediately respond to a request for comment.