FCC Moves Toward Banning 3 Chinese Telco Firms From US

Citing national security concerns, the Federal Communications Commission is moving forward with legal proceedings to ban three Chinese-owned companies from providing telecommunications services in the U.S. Those companies are China Telecom’s two U.S.-based units – China Unicom Americas and Pacific Networks – and Pacific Networks’ wholly owned subsidiary, ComNet.

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The FCC, which voted 4-0 Wednesday to move forward with investigating the companies, gave no timeline for when it will schedule a final vote on the ban.

The commission previously said the pending ban is based on “changed circumstances in the national security environment, including the U.S. government’s increased concern in recent years about the Chinese government’s malicious cyber activities” as well as “its apparent failure to comply with U.S. federal and state cybersecurity and privacy laws.”

The FCC also voiced concern that the companies’ presence in the U.S. “provides opportunities for increased Chinese state-sponsored cyber activities, including economic espionage and the disruption and misrouting of U.S. communications traffic.” It noted that under Article 7 of China’s National Intelligence Law, “all Chinese companies must collaborate in gathering intelligence.”

Taking Action

The FCC, which gave the companies a deadline of March 1 to demonstrate why the commission should not revoke their permission to do business in the U.S., says the companies’ responses failed to allay national security concerns.

“We know some countries may seek to exploit our openness to advance their own national interests,” FCC acting Chairwoman Jessica Rosenworcel said in a Wednesday statement. “And when we cannot mitigate that risk, we need to take action to protect the networks that are important to our national security and economic prosperity. That is what we do today. We institute proceedings to revoke the domestic authority and international authorizations … [of these companies]. There is strong reason to believe that they will have to comply with requests from the Chinese government and advance its goals and policies.”

The FCC’s actions “are also just the start of what needs to be a more comprehensive effort to periodically review authorization holders with foreign ownership providing service in the United States,” she adds.

FCC Commissioner Geoffrey Starks noted that Chinese companies are required under Chinese law to disclose sensitive customer information upon demand to assist government intelligence activities. “They’ve also demonstrated a lack of transparency and reliability in previous dealings with the commission. … For example, both companies (China Unicom Americas and Pacific Networks) failed to comply with commission rules concerning disclosure of ownership changes and company reorganization, and they failed to provide crucial information concerning their affiliations with the Chinese government and cybersecurity practices.”

China Unicom Americas and Pacific Networks did not immediately respond to a request for comment.

Scrutiny of Chinese Telecoms

The Justice Department and several other federal agencies asked the FCC last year to revoke China Telecom’s license to provide international telecommunications services to and from the U.S., citing the Chinese’s government influence over its operations. The company has denied those charges of government influence.

Last October, the FCC sought information from the Justice Department and other executive branch agencies on whether another Chinese telecom firm posed a significant threat to national security.

In June 2020, the Senate Permanent Subcommittee on Investigations released a 100-page report about Chinese-owned telecommunications firms operating in the U.S., stating the FCC and other agencies have not done enough to address national security concerns. The report also urged the FCC to make quicker decisions to revoke licenses if there are security concerns (see: Senate Report: Chinese Telecoms Operated Without Oversight).

As far back as September 2019, lawmakers were expressing concerns about Chinese telecom companies. Sens. Chuck Schumer, D-N.Y., and Tom Cotton, R-Ark. asked the FCC to reconsider operating licenses for China Telecom and others, citing concerns over national security and espionage (see: Senators Urge FCC to Review Licenses for Chinese Telecoms).

Other FCC Actions

Earlier, the FCC designated two other Chinese firms, Huawei and ZTE, as threats to U.S. national security because they could exploit vulnerabilities in America’s telecom networks to spy on communications on behalf of the Chinese government.

As a result, smaller and rural U.S. telecom companies and wireless carriers can no longer tap into the FCC’s $8.3 billion Universal Service Fund to buy equipment from Huawei and ZTE. The commission is requiring these telecoms to rip and replace the Chinese equipment from their networks (see: FCC: Rip and Replace Huawei, ZTE Gear to Cost $1.8 Billion).

In addition to the FCC’s actions, the U.S. Commerce Department in 2019 put both Huawei and ZTE on its “entity list,” which effectively blacklisted both companies from doing business in the U.S. The federal government has also restricted Huawei’s ability to gain access to U.S. chip technology (see: FCC Upholds Ruling That Huawei Poses National Security Threat).