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U.S. FCC Bars China Mobile, Reviewing Other Chinese Carriers

Todd Shields
U.S. FCC Bars China Mobile, Reviewing Other Chinese Carriers

(Bloomberg) -- The U.S. Federal Communications Commission barred China Mobile Ltd. from the U.S. market over national security concerns and said it was opening a review of other Chinese companies amid friction between the world’s biggest economies.

The FCC voted 5-0 to deny China Mobile’s request to enter the U.S. market, after being urged to do so by the Trump administration. FCC Chairman Ajit Pai after the vote said the agency is “looking at” authorizations granted earlier to China Telecom and China Unicom. He declined to say what that process entails.

The FCC said it had determined China Mobile is controlled by the Chinese government.

“The Chinese government could use China Mobile to exploit our telephone network to increase intelligence collection against U.S. government agencies and other sensitive targets that depend on this network,” Pai said. “That is a flatly unacceptable risk.”

The vote came as senior Chinese officials visited Washington for negotiations Thursday and Friday to resolve the trade dispute. In the most dramatic step yet, the U.S. raised tariffs to 25% on more than $200 billion in goods from China Friday, as people familiar with the talks said President Xi Jinping’s top trade envoy and his U.S. counterparts made little progress on Thursday.

The Trump administration also is trying to persuade allies to shun Huawei Technologies Co., the Shenzhen-based network-gear maker that U.S. officials call a security risk. Huawei officials dispute the accusation. The FCC is considering whether to allow Huawei to operate in the U.S. and is awaiting a recommendation from the Trump administration, Pai said.

The FCC vote rejected an application filed in 2011 by China Mobile International (USA) Inc. The agency said parent company China Mobile is 100% owned by the Chinese government.

Parent China Mobile is the world’s largest mobile phone operator by customers, with about 899 million subscribers. It wanted approval to be listed as a “common carrier” that would let it to carry international voice traffic between the U.S. and foreign countries, and to connect that traffic with the U.S. telecommunications network. China Mobile told the agency it wouldn’t provide domestic telephone or mobile services in the U.S.

Granting the request would have given China Mobile greater access to telephone lines, fiber-optic cables and cellular networks, raising concerns about its ability to alter, block and re-route traffic, the White House told the FCC.

“They consider the risks to be unacceptable,” the FCC said in a document prepared for Thursday’s vote. “The Chinese government could use China Mobile USA to conduct or to increase economic espionage and intelligence collection against the United States.”

U.S. concern focused on Chinese law that requires companies to cooperate with state intelligence agencies, which the U.S. has said could be used for economic espionage or intelligence activities. China Mobile’s size and technical resources make it particularly vulnerable to such demands, the government said.

China Mobile said it wouldn’t be required to comply with such requests and said it “is no more vulnerable to exploitation” than any other U.S. or foreign carrier that uses “best-practices” measures.

“We comply with all applicable laws in the course of operations and have not engaged in any behavior that causes ‘substantial and serious national security and law enforcement risks,”’ China Mobile said in an emailed statement prior to the vote.

The moves by the FCC won’t have an impact on China Unicom, Chairman Wang Xiaochu told reporters in Hong Kong Friday. The carrier hasn’t violated any law, international or local, and it relies on partners in the U.S., where it has no facilities, he said.

Republican Commissioner Brendan Carr said the agency should go further and investigate China-owned carriers that received approval to connect with U.S. networks earlier, citing concerns that at least one of them “has been hijacking U.S. traffic and redirecting it through China.”

FCC Commissioner Jessica Rosenworcel, the agency’s senior Democrat, said the Republican-majority FCC is doing too little to ensure network security.

“This application has been in these halls for more than eight years,” Rosenworcel said in a written statement. “So while I support this vote, it does nothing to change the status quo.”

(Updates with China Unicom comments in 14th paragraph.)

--With assistance from Jinshan Hong.

To contact the reporter on this story: Todd Shields in Washington at tshields3@bloomberg.net

To contact the editors responsible for this story: Jon Morgan at jmorgan97@bloomberg.net, Elizabeth Wasserman

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