Chinese telecommunications giant Huawei asked a U.S. court on Wednesday to overturn a Federal Communications Commission (FCC) ruling that bans carriers from using federal funds to purchase equipment from Huawei and rival ZTE.
In Huawei’s petition for review, filed in the U.S. Court of Appeals for the Fifth Circuit in Louisiana, the company argues the FCC order “exceeds” the agency’s “statutory authority and violates federal law, the Constitution, and other laws.”
Speaking at a press conference at Huawei’s headquarters in Shenzhen China, Chief Legal Officer Song Liuping said the FCC’s ruling fails to solve “any cyber security challenges.”
“If the FCC is truly worried about the security of telecom supply chain, then equipment made in China, by any vendor should also have the same risk as us,” Liuping said. “Not only Huawei and ZTE, but also Nokia and Ericsson.”
Last month, the FCC voted to ban carriers from using the $8.5 billion a year Universal Service Fund to purchase equipment and services from companies that pose a national security threat, including Huawei and ZTE under that designation. The FCC also passed a plan to assess how much equipment from Huawei and ZTE are currently in the networks and to seek public comments on the “rip and replace” policy that will remove existing Huawei and ZTE equipment from the networks completely.
Huawei has called on the court to deem the FCC’s actions “unlawful,” adding that it would harm rural communities that currently use its equipment.
“Even if [the FCC] has the authority to make these national security designations, they went about it in a way that violates our due process rights and is fundamentally unfair,” said Michael Carvin, Partner with Jones Day, the law firm representing Huawei. “They gave us no notice that we will be singled out in the notice of proposed rulemaking. They gave us no opportunity to present the facts...and they didn't give any reason, and there is no rational reason why these two companies are singled out.”
Huawei says it currently serves 40 rural wireless and wireline operators in the U.S. Even though the revenue from its U.S. business is “minimal” for the telecom giant with over $100 billion in revenue in 2018, the company decided to take on the legal fight with FCC because it suffers “reputation damage” from being listed as a national security risk, said Karl Song, vice president of Huawei's communications team and former Huawei U.S. CEO.
Last year, North America and South America combined contributed to only 6.6% of total revenue for Huawei. The carrier business, which drives over 40% of Huawei’s revenue, faces some headwinds as European governments decide on what role to let Huawei play in building out networks following warnings from Washington.
Huawei and ZTE equipment, once approved by the FCC, has increasingly become seen as a security risk as lawmakers worry their equipment could be backdoors for the Chinese government. If the “rip and replace” policy is passed by the FCC, rural carriers will have to turn to other equipment makers like Nokia and Ericsson. The Rural Wireless Association, which represents carriers with fewer than 100,000 users, estimates equipment replacement could cost their members about $1.2 billion. The FCC estimates the cost ranges from $1 billion to $2 billion, depending on how much equipment needs to be replaced.
FCC Chairman Ajit Pai has vowed to provide financial assistance to these carriers to help them transition to “more trusted vendors” in an October blog post.
The funding for rural carriers to replace Huawei and ZTE equipment will likely come from two pending bills in Congress on financing the replacement of 3G and 4G equipment. One bill in the Senate calls for $700 million, while the one in the U.S. House of Representatives asks for $1 billion.
Akiko Fujita is an anchor and reporter at Yahoo Finance. Follow her on Twitter: @AkikoFujita
Krystal Hu is a reporter at Yahoo Finance. Follow her on Twitter: @readkrystalhu