trending Market Intelligence /marketintelligence/en/news-insights/trending/gc4ddxn_aw6ajkwnoqv53w2 content esgSubNav
In This List

House lawmakers say full ban on ZTE, Huawei could hurt US telecom providers

Blog

Municipal CUSIP Request Volumes Climbs for Fourth Straight Month

Blog

Corporate Credit Risk Trends in Developing Markets: An Expected Credit Loss (ECL) Perspective

Video

Root & Branch - June 2021: Greenium, Transparency and Advent

Blog

LCD Monthly: ESG Sustainability linked bonds offer pricing perk


House lawmakers say full ban on ZTE, Huawei could hurt US telecom providers

As the White House considers easing its position on China's ZTE Corp., lawmakers are weighing different options for ensuring the security of U.S. telecommunications networks, especially when it comes to the deployment of next-generation 5G service.

At a May 16 hearing, the House Subcommittee on Communications and Technology debated options for promoting competition in both the U.S. wireline and wireless markets while also protecting the network infrastructure, especially in rural areas, from national security threats.

One option is to ban the importation of any equipment from any company identified as a national security threat, such as ZTE or Huawei Technologies Co. Ltd. Earlier this month, reports indicated U.S. President Donald Trump was considering an executive order to further restrict ZTE and Huawei from selling their products in the U.S., though Trump's recent public comments seem to indicate he has backed away from this option. In April, the U.S. Commerce Department imposed export restrictions on ZTE for seven years, accusing the Chinese telecom gear-maker of repeatedly making false statements and violating international sanctions.

A number of lawmakers and industry experts at the hearing expressed concern about an outright prohibition on equipment from select manufacturers or countries.

"The quick and easy route would simply ban foreign vendors of vulnerable hardware and software from accessing our markets. But the marketplace for hardware and software is global, and a hallmark of the communication industry is scale," said subcommittee Chairman Rep. Marsha Blackburn, R-Tenn. She added that a ban could, over time, make it difficult for U.S. communications providers to obtain network infrastructure from trusted sources.

Charles Clancy, a professor of electrical and computer engineering at Virginia Tech, agreed with Blackburn's comments, saying in prepared testimony that banning specific vendors or products would not be a durable long-term solution. While "protectionist measures" might promote a domestic market in the near term, he said, "In the long term companies will only be viable if they can compete internationally as the US is only around 20% of the global telecommunications market."

Rep. Frank Pallone, D-N.J., said the worst thing Congress can do "is to rush to act without evaluating unintended consequences." He pointed to a proposal in the National Defense Authorization Act that he said would "cut off access to a wide array of network equipment without considering how to manage the risks to Americans."

The provision in the bill in question would prohibit federal agencies from contracting with "covered telecommunications providers," which are explicitly named and limited to Huawei and ZTE. It remains unclear, given past purchases and contracts with these companies, if the definition of "covered telecommunications equipment or services" could be interpreted to include all domestic telecommunications providers as well.

But Pallone stressed that some action from Congress on this issue is needed given the recent debate about ZTE. After ZTE said May 9 that the Commerce Department's restrictions had forced the company to cease its major operating activities, Trump tweeted May 13 that he is working with China's President Xi Jinping to "give massive Chinese phone company, ZTE Corp., a way to get back into business, fast." On May 16, Trump said no final decision had been made, tweeting, "Nothing has happened with ZTE except as it pertains to the larger trade deal."

Pallone said this "muddled" approach to foreign policy is a clear sign Congress needs to spend more time understanding potential options and coming up with a coherent plan.

"We are dealing with a complicated relationship between the future of our communications networks and national security. These issues should not be taken lightly," he said.

Rep. Leonard Lance, R-N.J., also expressed concern about Trump's potential trade deal with China but indicated he would prefer a tougher approach as he said there could be national security implications for lessening the punishments against ZTE. "National security and the security of our networks is the primary concern here," he said.