Trump’s Huawei ban will hit rural US carriers the hardest as replacing equipment will cost ‘millions’

It took Jim Kail’s telecommunications company LHTC Broadband nearly five years to equip almost 1,000 customers in the rural township of South Canaan, Pennsylvania, with high-speed fibre broadband. But now, Kail could be at risk of having to undo all that work, simply because LHTC had chosen to install hardware made by Chinese telecoms equipment supplier Huawei Technologies.

Huawei’s equipment, the US government says, is a potential security threat that could be used for Chinese intelligence. Government agencies are already banned from using its gear, and the Federal Communications Commission (FCC) is deliberating over whether to ban carriers from using subsidies received to procure Chinese telecoms equipment.

“If we had to replace that equipment for over 950 customers, it would take us one to two years of doing nothing but that, and we’d have to put ongoing projects on hold,” said Kail, the chief executive of LHTC Broadband. “I don’t even want to think about it.”

Companies like LHTC may be required to replace the Huawei equipment if the proposed ban goes through since it would be difficult to service and upgrade gear from prohibited Chinese suppliers.

Although Huawei accounts for less than 1 per cent of the US telecommunications equipment market, according to research estimates by Dell’Oro Group, companies like LHTC. which have limited budgets and receive subsidies from the FCC, tend to rely on Chinese equipment because it is often the most cost-effective.

Kail said that the effects from a business standpoint would be “devastating”, as the company’s South Canaan operations would not be generating any additional revenue for years while incurring the costs of having to replace hardware for most of its customers in the South Canaan area. Communities in rural areas would also suffer as they lag behind in getting high-speed internet services.

A review of over 94 filings made to the FCC by telecommunications associations, carriers and Huawei show that a majority of rural carriers and telecoms industry associations agree. Soon after the FCC proposed prohibiting carriers from using subsidies to buy telecoms equipment from companies like Huawei in April last year, numerous associations and rural carriers filed comments opposing such a ban, citing “staggering” costs to replace existing Chinese gear, which would harm not just small businesses but also the consumers they serve.

About 25 per cent of Rural Wireless Association (RWA) members use telecoms equipment from prohibited Chinese companies named in the NDAA, the Washington DC-based trade association said in its comments to the FCC. The Chinese suppliers banned from providing equipment to government agencies include Huawei, ZTE Corp, video surveillance equipment firms Hangzhou Hikvision Digital Technology and Dahua, as well as radio transmission gear company Hytera.

However, despite the NDAA ban, US President Donald Trump said in a tweet in February that he wanted the United States to “win through competition, not by blocking out currently more advanced technologies” when it comes to 5G – a tweet interpreted by some experts as a possible olive branch to Huawei.

“The US government’s approach to managing the risks that Chinese equipment might present appears to be continuing to evolve,” said Elsa Kania, an adjunct senior fellow at the Centre for a New American Security’s technology and national security programme.

“The apparent uncertainty regarding the ultimate approach that the US will take to equipment from Huawei and other Chinese companies, including in light of Trump’s tweets, has been quite counterproductive.”

The conversation about the security of 5G mobile networks should extend beyond recent debates on Huawei, to think about the range of risks and options to enhance security going forward, Kania said.

The consequences of US wariness of China and equipment manufactured by the Chinese could rack up huge costs for small carriers, many of which have fewer than 100,000 customers.

“The record demonstrates that some carriers would have to spend millions of dollars – and in some cases, more than US$100 million – on just the immediate costs of ripping up and replacing equipment,” said a group of telecommunications associations in reply comments in July to the FCC’s proposal. The associations include the Competitive Carriers Association, rural broadband association NTCA, the Computer & Communications Industry Association, and broadband providers association ITTA.

“Rural carriers that chose ‘the most cost-effective option’ available to them at the time of purchase will be forced to rebuild their networks at a cost substantially greater than they spent to build the networks in the first place.”

Alabama-based Pine Belt Cellular, an RWA member, said costs of replacing its equipment and losses in revenue could reach US$13 million, while Montana’s Sagebrush Cellular pegged the total cost to be as high as US$57 million.

However, the Telecommunications Industry Association (TIA), a body which develops industry standards for information and communication technologies products, argued in favour of prohibiting the use of FCC subsidies for Chinese equipment, as it is in line with “congressional intent to promote national security across all federal funding programs for communications equipment”.

Huawei, in a filing to the FCC dated February 15, said that it “has been a long time victim of the lack of fair process”.

“For years, [Huawei] has been criticised for security risks by the US government, even though the only evidence of back doors in Huawei’s equipment was the result of implants by the NSA,” the company wrote.

Despite being deemed as a security risk, Chinese tech companies like Huawei have in large part found success with rural US carriers because they were willing to work with and serve these smaller companies, which are often neglected by rival telecommunications equipment companies, and do so at a lower price.

“Huawei was very hungry for our business,” said LHTC’s Kail, who has worked in the telecoms industry for nearly three decades. “They really wanted to do business with rural companies, and most of the time for large companies like Huawei, the numbers aren’t big enough for them to do business with companies like mine.”

“But they gave us very competitive prices, and it saved us several hundred thousand dollars at the time. And their customer support was always responsive whenever there were issues with the product ... it’s really been a partnership, there’s a good relationship, and that’s the way it should work.”

In a November 16 comments filing by the NTCA, the association stated that Sagebrush Cellular found Lucent Technologies and Ericsson equipment to be double and quadruple the price of a Chinese supplier when it solicited for bids in 2010 for its networks.

“If we are required to replace all the Huawei equipment, it would seem like we are punished for going with the most economically sound decision we made five years ago,” said Kail.

“If this were truly a national security issue, I would never jeopardise our network in any way just to make a buck,” he said. “You got to protect your country from any harm. But this seems to be all about politics ... I don’t see any security issues yet, and, as far as I know, nobody’s given any proof to show otherwise.”