U.S. Taxpayers to Fund 1 Billion Dollars to Replace Huawei Equipment

Sep 26
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A bipartisan legislation spearheaded by the Energy and Commerce Committee of the U.S. House of Representatives would grant up to $1 billion in order to assist wireless service providers in replacing their network equipment sourced from blacklisted entities such as Huawei and ZTE (SHE:000063). A joint statement released by the leading members of the committee asserted that the bill would protect the “nation’s communications networks from foreign adversaries by helping small and rural wireless providers root-out suspect network equipment and replace it with more secure equipment.” The House panel is set to hold a hearing on the bill this Friday.

The legislation is intended to prevent the use of federal funds for the acquisition of communication equipment or services from companies that are considered a national security threat by the U.S. administration. It would also impose an obligation upon the Federal Communications Commission (FCC) to provide active assistance to rural wireless service providers to replace such equipment. According to Reuters, almost a dozen U.S. telecom service providers that depended upon Huawei equipment have been negotiating with Nokia (HEL:NOKIA) and Ericsson (STO:ERIC-B) since June to obtain substitutes to their Chinese-sourced network gear.

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This bill is quite similar in scope to the one approved in July 2019. That legislation was propounded by the U.S. Senate Commerce Committee and authorized grants of up to $700 million to remove Huawei-sourced network equipment. It also served to establish a policy of excluding blacklisted Chinese entities from participating in the establishment of 5G wireless network in the U.S.

In May 2019, the Trump administration included Huawei in the blacklisted entities list for undermining U.S. national security amid widespread fears of spying through backdoor installations in the sensitive wireless equipment. Huawei has repeatedly and vehemently denied installing such backdoors. The placement of entities in the blacklist obligates U.S. companies to obtain clearance from the administration prior to the initiation of any business dealings with those entities. However, soon after this ‘Huawei ban’, the administration granted a temporary license to the affected U.S. companies to continue business dealings with Huawei for a period of 90 days. This temporary license was extended for another 90 days in August 2019 to allow companies still using Huawei equipment “to ween off them” as per the U.S. Commerce Secretary, Wilbur Ross (read our previous coverage here). Given the penetration of Huawei network gear and the difficulty of securing an alternate supply, a complete purge will nonetheless require a substantially longer period than the one currently allotted for this purpose.

The tech giant represents the crown jewel of Chinese technological prowess. Yet, it remains highly dependent on externally-sourced semiconductors and other sensitive components for its devices. It is this vulnerability that has unfortunately led Huawei to become a valuable pawn in the ongoing U.S. – China trade war. Moreover, the Trump administration has been coaxing its European allies to forgo equipment from the Chinese tech giant as they look to establish the next generation 5G wireless network which, in turn, will severely hamper the company's efforts to lead the global rollout of this technology. Until an amicable resolution to this trade conflict is found, Huawei will likely remain a target for further reprisals.

Although Huawei isn't publicly traded, some of the potential winners from these actions are and if the US manages to convince major international partners to pursue similar courses of action, it could bode well for telecoms equipment makers from countries deemed to be US allies.

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