BAD SIGNAL

Rural America has another reason to stress over US-China relations: internet speeds

Rural America is worried about the state of US-China relations. Agriculture players, including sorghum farmers in Texas and cranberry growers in Wisconsin, will feel the pain from a tariffs spat between the two nations. Less noticed, internet users in rural areas will suffer, too, thanks to a different sort of tension—about national security.

On Tuesday, the Federal Communications Commission voted 5-0 in favor of a measure that would prevent US carriers from using federal funds to buy networking equipment from certain companies.

The ban, which is not yet final, primarily targets Huawei and ZTE, two Chinese telecommunications companies. The firms have been enormously successful selling networking equipment to telcos worldwide. But they’ve struggled to attract business in the United States, in part due to a 2012 Congressional investigation that concluded buying equipment from Huawei and ZTE might undermine national security.

Huawei has, however, achieved some success in the United States selling to small, regional carriers in rural areas without the means to pay for equipment from other suppliers. For example Pennsylvania’s LHTC Broadband, which has 7,000 customers, and Eastern Oregon Telecom are both Huawei customers (paywall). Many of these small carriers rely on funding from the Universal Service Fund, a government program that provides $8.5 billion (pdf) in subsidies to improve connectivity in remote parts of the United States. Many of these areas are home to residents still stuck in the dial-up era (paywall).

The measures pushed forward this week prevent those carriers from using federal funds to buy “equipment or services from any communications equipment or service providers identified as posing a national security risk to communications networks or the communications supply chain.” In a draft proposal (pdf) of the measures published in March, the FCC singled out Huawei and ZTE as the main targets.

Cutting out the Chinese companies from rural markets could place significant financial pressure on carriers and reduce their ability to provide adequate connectivity. “If you start dictating what kind of equipment I can use, it tips the scales,” Eastern Oregon Telecom’s CEO told the Wall Street Journal (paywall) in a piece published before the vote.

On April 9 the Rural Wireless Association, a Washington, DC-based trade group representing US carriers with under 100,000 subscribers each, published a letter (pdf) arguing the measures would “fail to effectively protect national security” and “irreparably damage broadband networks (and limit future deployment) in many rural and remote areas throughout the country.”

When asked about the vote, Huawei provided a statement stressing the company’s independence from any government agency and accused US authorities of making “a series of allegations against Huawei that simply aren’t true.”

“We are disappointed by the FCC’s proposal,” Huawei added. “If adopted, rural operators will have fewer options available to them, and the consumers and businesses that depend on them will have less access to quality and convenient telecommunications services.”

The FCC’s vote comes one day after the US commerce department banned any US company from supplying components to ZTE. The department argued that ZTE failed to discipline over 30 employees who helped circumvent sanctions the US imposed on Iran, violating the terms of a settlement reached in June 2017.

Meanwhile in January, Huawei’s intended deal to sell smartphones with AT&T collapsed due to government intervention. And last month the Committee on Foreign Investment in the United States cited concerns about Huawei while blocking Singapore’s Broadcom from buying US-based chipmaker Qualcomm.

Speaking at an event in Shenzhen on April 17, Huawei’s deputy chairman Eric Xu expressed exasperation when asked about how US-China trade tensions were affecting the company’s business plans in the states. “It’s definitely beyond myself to really explain what’s going on in the two countries,” he told the audience, adding, “Some things cannot change their course according to our wishes.”

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