FCC Expands Ban on Chinese Telecom Devices

By Trevor Bernardo, Yaron Dori and Joceyln Jezierny

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As experienced operators in the U.S. defense industry are keenly aware, the U.S. government has taken several actions in recent years to counter the threat posed by adoption of Chinese technology and the impact on U.S. defense capability.

These actions include the prohibition on defense contractors utilizing telecommunications equipment or services produced by Huawei Technologies Co. or ZTE Corp., and the more recent requirement that defense contractors disclose certain activities in China.

The U.S. government has taken these efforts to another, broader level as the Federal Communications Commission has now effectively banned certain Chinese telecom and video surveillance devices from the U.S. market — demonstrating the power of its authority over virtually all electronics equipment, which until now had been exercised only to address technical, scientific and engineering concerns.

With congressional backing, the FCC now has established itself as a potent vehicle for excluding products from the U.S. market on national security concerns.

Specifically, the FCC released a Report and Order and a Further Notice of Proposed Rulemaking on Nov. 25 that changed the FCC’s device and equipment authorization rules to broadly prohibit the importation, marketing, and sale of radio frequency devices and equipment by entities that the FCC has determined, based on input from the national security community, to pose a threat to the security of U.S. supply chains and networks.

The commission has published the list of such entities on its “Covered List,” and each of the equipment manufacturers on the list has some reported affiliation with the Chinese government. Radio frequency devices and equipment are those that generate and/or emit RF energy, which effectively amounts to all electronic devices. Going forward, all applicants for FCC device and equipment authorizations will be required to attest that they are not subject to this prohibition to secure their authorizations.

Furthermore, the FCC previewed potentially greater changes to its rules in its effort to advance national security goals. For example, the commission has asked for comment on whether and to what extent to revoke existing device and equipment authorizations held by covered entities, such that equipment already in the marketplace could be rendered unlawful. It also asked whether the new ban should extend to “components” made by covered entities but used by others in their own devices and equipment. How it decides these and other issues presented in the notice of proposed rulemaking could have profound effects on the market for RF devices and equipment in the United States.

The Communications Act requires the FCC to issue authorizations for devices and equipment that generate and/or emit RF emissions before they can be imported, marketed or sold in the United States. Such authorizations are needed to ensure that devices and equipment do not exceed certain emissions thresholds, which can cause harmful interference to other services and equipment or present health and safety risks.

For decades, the FCC generally has been expansive in issuing device and equipment authorizations, including to foreign-owned companies, provided they satisfied the RF emissions rules. But newly enacted laws, resulting in part from increased strains in U.S.-China relations, have prompted the commission to reconsider this approach.

The Report and Order amended the FCC’s device and equipment authorization rules to prohibit the authorization of telecommunications and video surveillance equipment imported, marketed or sold by an entity on the Covered List.

Underscoring the impact of refusing equipment authorizations to these entities, FCC Chairwoman Jessica Rosenworcel explained in an accompanying statement:

“The action we take today covers base station equipment that goes into our networks. It covers phones, cameras, and Wi-Fi routers that go into our homes. And it covers re-branded or ‘white label’ equipment that is developed for the marketplace. In other words, this approach is comprehensive.”

The new rules also closed loopholes that might otherwise have enabled the continued sales of equipment on the Covered List. Moreover, although the FCC declined to decide immediately whether existing authorizations for equipment by Covered List manufacturers should be revoked, it set the stage to do so by concluding that the agency has authority to revoke authorizations of equipment on the Covered List authorized before the Report and Order’s adoption on Nov. 11.

In the accompanying further notice, the FCC made clear that it may continue to use the equipment authorization rules as a lever to promote national security concerns.

The ban adopted in the Report and Order is prospective and therefore doesn’t require removal of equipment manufactured by Covered List entities in the past. In the further notice, the FCC asks whether and under what circumstances it should apply the ban retroactively. Given that equipment on the list remains in the telecommunications networks of many carriers, any retroactive ban could cause a meaningful financial impact. While Congress previously has appropriated funding for carriers to “rip and replace” such equipment from their networks, demand for the available funding far exceeds the appropriated amounts.

Furthermore, the new rules do not require applicants for equipment authorizations to state whether any component part of the equipment to be authorized consists of covered equipment.

In the further notice, the FCC recognizes that this may be a gap in the rules. It accordingly has sought comment on the extent to which component equipment parts should be considered in the prohibition on covered equipment and on a range of related issues, including what should be considered a “component part.”

Yaron Dori is a partner and Trevor Bernardo and Joceyln Jezierny are associates in the Communications and Media practice group of Covington & Burling LLP. Matt DelNero, also a partner, contributed to this article.


Topics: Contracting, Contracting RulesEthics, International

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