The Huawei crackdown could be a disaster for small carriers

After years of mounting suspicions, the United States government is making its biggest push yet to oust Chinese tech companies from American networks, and Huawei is feeling the pressure. The Trump administration is reportedly considering an order that would ban wireless carriers from purchasing Huawei or ZTE equipment, and another report said the US was pushing allies to also drop Huawei hardware. In a Senate appearance this week, American intelligence chiefs will likely cite Chinese companies’ 5G work as a key threat to US interests.

A crackdown on any major company inevitably has unintended consequences, and companies in the US and abroad are already surveying the fallout. Colleges have reportedly been stepping away from using the company’s equipment, and lawmakers have started to fret over whether vulnerabilities could lurk in the company’s solar products.

The Trump administration has banned contractors from using Huawei tech, and major carriers do not use Huawei equipment that could compromise that contract work. But the same isn’t true for smaller companies without those contracts. In the face of the unfolding controversy, the Federal Communications Commission has proposed rules that could prevent companies from using agency funds to buy equipment from businesses deemed a security risk — or possibly from using equipment from companies like Huawei at all. Small carriers will likely feel the brunt of that policy.

To build out its infrastructure, those small carriers say they often rely on Huawei, which has become the largest provider of telecommunications equipment in the world, offering whatever tools a company might need. Some of the companies argue that the Huawei-made equipment can mean several million dollars in savings.

In a filing to the FCC, the Rural Wireless Association (RWA), which represents small service providers as well as Huawei itself, has claimed that the costs associated with dumping Huawei products would be substantial. “RWA estimates that at least 25 percent of its carrier members would be impacted,” the group wrote in a filing to the agency. “Estimated rip-and-replace costs vary by carrier, but are significant across the board.” The RWA argues that the FCC should provide funding for any required change in equipment.

Rural carriers are already stretched thin. Closing the gap between rural and urban internet access has been a goal of the FCC and several lawmakers for years, and they have pushed to build out infrastructure quickly. In the filing, one member of the RWA estimated that replacing a network’s worth of equipment could take several years.

While the US government may have largely left Huawei behind, that’s not true for the world at large, and some international companies could also find it difficult to end their business with the company. Lawmakers have cited the use of Huawei gear by so-called “Five Eyes” allies like the United Kingdom as a potential security vulnerability for the United States, and a push to end those relationships could mean a disruptive breakup. Canada, for one, is debating whether to ban Huawei from work on its 5G network.

Huawei has argued that it’s critical to the future of 5G. The company has repeatedly said that, as a major company in telecommunications, it will be a key player in the rollout of the next-generation technology. Huawei has also warned that, without its cooperation, the United States will fall behind in its ambition to be the leader in the technology.

Not everyone is convinced. “I’m not so sure I buy into that argument,” Arthur Dong, a professor at Georgetown’s McDonough School of Business, says. He points to companies like Ericsson, another large telecom provider, and says other companies able to provide similar services will likely be winners if Huawei is pushed out of the competition. “I think they’re all very competent and rolling out,” he says.

Meanwhile, tensions between Huawei and the US government continue to escalate. Last month, a prominent executive of the company was arrested in Canada on suspicion of violating US sanctions, a case that has further eroded international relations with China.

Huawei has repeatedly denied that it is a security threat. The company says it is not a vessel for Chinese spying, that no proof of that allegation has been produced, and that its relationship with the Chinese government is analogous to US companies’ relationships with the American government. The US has argued that Huawei has close ties to the Chinese government, but that it does not need to offer definitive proof.

Responding to criticism, one of Huawei’s rotating chairmen, Eric Xu, told CNBC recently that “these remarks are out of political motivation and not at all based on facts. All these... suspicions do not have any substantiated facts.”