FCC classifies Huawei and ZTE National Security Risks

American cellular businesses will no longer be able to spend federal money on equipment from both Chinese companies

The U.S. Federal Communications Commission (FCC) has officially designated Chinese telecommunication providers Huawei and ZTE as national security risks, a decision that officially prohibits American phone companies from purchasing their equipment with government subsidies.

The agency voted unanimously last year to bar telecommunications manufacturers it deemed to be threats from receiving money meant to expand internet access to underserved areas, including rural America.

The announcement Tuesday was the final step in blocking Huawei and ZTE from the funds.

The FCC’s decision takes effect immediately. It prevents U.S. companies regulated by the agency from spending federal funds obtained through the $8.3 billion Universal Service Fund (USF) — which is designed to promote universal access to phone services — on equipment or services from Huawei or ZTE.

The companies are subject to a Chinese law that requires firms to provide authorities with sensitive data, even if they’re unwilling to do so.

FCC Chairman Ajit Pai said in a statement that both companies “have close ties to the Chinese Communist Party and China’s military apparatus,” and that the FCC considered the intelligence community’s recommendations in its final determination.

“We cannot and will not allow the Chinese Communist Party to exploit network vulnerabilities and compromise our critical infrastructure,” the FCC statement said.

Huawei and ZTE each have consistently denied any wrongdoing.

The FCC initially voted in November to blacklist Huawei and ZTE, though Tuesday’s order finalises the effort.

This is likely to affect rural carriers who rely on the subsidies to fund networks in areas where there are not enough customers to profitably build a network. Those carriers have in some cases used the Chinese equipment, which can be cheaper than alternatives built by European companies.

U.S. prosecutors also have charged Huawei and its subsidiaries with conspiracy to steal trade secrets and racketeering in a federal indictment unsealed in February.

Since then, current executives have admitted they are unable to determine if Huawei’s technology is used for surveillance.