Huawei inevitably loses appeal against FCC designation

A US appeals court has denied Huawei’s petition for review of the decision by the FCC to designate it a national security threat.

The designation by the US communications regulator was made a year ago, as the basis for prohibiting the use of federal funds to buy kit made by either Huawei or ZTE. This seemed to largely affect niche operators, especially those specialising in rural connectivity, as that’s where most state subsidies are directed in the US. Just last week the FCC announced its intention to expand that prohibition to all US companies, even if they don’t receive a cent of federal funds.

So it was perhaps not a coincidence that the latest FCC announcement coincided with the appeal court ruling in support of its position on Huawei and ZTE. In the introduction to the ruling, it was explained that the most compelling aspect of Huawei’s appeal was its insistence that the FCC is not qualified to designate anything a national security threat, since it has no foreign relations remit.

“Assessing security risks to telecom networks falls in the FCC’s wheelhouse,” concluded the introduction. “And the agency’s judgments about national security receive robust input from other expert agencies and officials. We are therefore persuaded that, in crafting the rule, the agency reasonably acted within the broad authority Congress gave it to regulate communications. Additionally, having carefully considered the companies’ other challenges under the Administrative Procedure Act and the Constitution, we find those unavailing as well. We therefore deny the petition for review.”

While Huawei was justified in appealing the FCC’s unilateral decision, it’s hard to imagine the US state ever allowing it to succeed given the overwhelming momentum against Chinese vendors there. In hindsight the FCC should have just made it clear it was implementing the will of the government, but presumably it wanted to retain its veneer of independence. Either way, it’s an organ of the US state and, especially on this matter, is bound to follow the party line to the letter.

To date direct retaliation by China has been limited but it’s surely just a matter of time. Just as in matters of trade, a tit-for-tat system seems inevitable. Ericsson already seems resigned to being punished as a proxy of Sweden and any US company that does business in China must be having a strategic rethink. It’s hard to view China’s current restraint as anything other than a calm before the storm.