FCC starts process to ban Chinese telcos in US

The FCC has issued what is known as a ‘Show Cause Order’ to four Chinese telcos operating in the US, demanding evidence to prove they are not at the behest of the Chinese Government.

In what might prove to be an impossible task, China Telecom Americas, China Unicom Americas, Pacific Networks, and ComNet all have to prove two things to retain domestic and international section 214 authorizations, which allow them to operate in the US. Firstly, the four will have to demonstrate the licences are within the public interest, and secondly, that the executive team and/or corporate strategy is not under the influence of the Chinese Government.

What is worth noting is that there is a nuance in the language of the Order:

The Orders direct the companies to explain why the Commission should not start the process of revoking their domestic and international section authorizations enabling them to operate in the United States.

The starting point for the FCC is in the negative; the licences will be removed unless the four telcos can offer reason not to. This is different to most judgments, where one would hope the judge would enter in a neutral position. Once again, this action is built on the justification of pursuing or increasing US national security.

“Foreign entities providing telecommunications services – or seeking to provide services – in the United States must not pose a risk to our national security,” said FCC Chairman Ajit Pai.

“The Show Cause Orders reflect our deep concern – one shared by the US Departments of Commerce, Defense, Homeland Security, Justice, and State and the US Trade Representative – about these companies’ vulnerability to the exploitation, influence, and control of the Chinese Communist Party, given that they are subsidiaries of Chinese state-owned entities. We simply cannot take a risk and hope for the best when it comes to the security of our networks.”

And it appears the opportunity to fight the Chinese is a bipartisan cause.

“Since communist China is willing to disappear its own people to advance the regime’s geopolitical agenda, it is appropriate for the FCC to closely scrutinize telecom carriers with ties to that regime,” said FCC Commissioner Brendan Carr. “This is a prudent step to ensure the security of America’s telecom networks. In the Show Cause orders issued today, we give carriers 30 days to explain why the FCC should not initiate proceedings to revoke their authority.”

Within 30 days the four telcos will have to prove the value of operating in the US, to provide telecoms services to US corporations and foreign parties, as well as proving there is no material influence on strategy and operations from Beijing. We suspect this will be a very difficult mission to fulfil. With each of the four companies being owned by Government entities (to varying degrees), their presence in the US will have already irked lawmakers.

As with other iterations of this argument, Government ownership is going to be a major factor, as is the presence of a law which coerces Chinese companies to assist the Government with intelligence gathering activities.

The national intelligence law has been circulating for over a year, though there are many half-truths bouncing around, depending on your allegiance. In truth, the vagueness and nuanced language make it very difficult to understand the weight of the law, how regularly these rules are enforced and what it actually means for foreign interests.

While we do not pretend to be legal moguls, the law effectively states Chinese-national companies can be compelled to assist the Government in intelligence-gathering activities. This is a law which has been in place for domestic operations for decades, though it was expanded during 2019 to broaden the reach, possibly to include international operations.

Huawei has been under the spotlight thanks to this law, and it was one of the factors used to effectively ban US telcos from working with the equipment vendor. However, Huawei has also pointed to clauses in the laws which state Chinese companies cannot be compelled to assist where it would break the law, undermine trust or compromise commercial relationships in international markets.

Again, due to the vagueness of the way the rules are written, is not entirely clear which angle is actually correct, or what even counts as co-operation. Political bias has been leading this rhetoric for years and separating fact from propaganda is becoming increasingly difficult, though it has been positioned that the US is not safe from Chinese espionage while these companies are permitted to operate within its borders.

What is worth noting is that most lawyers have agreed it would be difficult for Chinese companies to resist orders from the Government for data which is stored on Chinese servers, or for companies which are state-owned. However, there is little evidence to validate any claims, irrelevant to the side of the argument.

Although the law, which is likely to be the focal point of many arguments, is incredibly difficult to fully comprehend, it is quite clear that the Chinese telcos are in a bit of bother. Popular opinion is forming against the Chinese, with the COVID-19 outbreak certainly not helping matters in the US, and the starting opinion of the authorities will make it very difficult to maintain the licences.