The Federal Communications Commission (FCC) says that the cost of removing Huawei and ZTE equipment far exceeds the previously allocated funding of $1.9 billion

Back in 2020, President Donald Trump signed the Secure and Trusted Communications Network Act, essentially mandating US telcos to replace networking provided by vendors that the government deemed untrustworthy with regards to national security, such as China’s Huawei and ZTE. 

Of course, ripping and replacing networking equipment, especially on a large scale, does not come cheap. Many US telcos were quick to point out that they would struggle to comply with the new rules without significant subsidies from the government.

At the time, similar woes were being felt in other international markets that had similarly ruled to exclude Huawei and ZTE; in the UK, for example, BT had complained that replacing Huawei equipment would cost them £500 million.

As such, the Act ordered the Federal Communications Commission (FCC) to create a fund to reimburse carriers for replacing their equipment. This Reimbursement Fund, totalling $1.9 billion, was targeted to directly support the smaller operators, defined as having less than two million subscribers, which were deemed to be less able to bear the financial strain of the replacement process.

Later, in summer 2021, the FCC expanded the reimbursement programme to cover telcos with less than ten million subscribers.

Eligible companies were invited to apply for receive funding from October 2021, with applications subsequently accepted or rejected by the FCC this year. Any funding left over at the end of the initiative would reportedly be funnelled to public or private non-commercial education institutions, healthcare providers and libraries.

However, it is now becoming increasingly apparent that the idea there would be money left in the kitty after the plethora of rip and replace projects were completed was very optimistic.

The FCC says it has received 181 applications to receive reimbursement by the start of 2022, with the telcos collectively requesting $5.6 billion. The vast majority of these applications have been deemed legitimate, with the FCC suggesting that around $4.98 billion would be required to reimburse eligible telcos fully.

Thus, as it stands, the FCC would only be able to reimburse around 40% of the total costs for removing Huawei and ZTE equipment.

“Absent an additional appropriation, the Commission will apply the prioritization scheme Congress specified in the CAA. Because demand within the first prioritization group exceeds available funds for the Reimbursement Program, the Commission will prorate reimbursement funds equally to each eligible applicant in the first prioritization group. The pro-rata factor for those allocations will be approximately 39.5% of demand,” explained FCC chair Jessica Rosenworcel in a letter updating Congress of the initiative’s progress. 

For now, it remains unclear whether the almost $3 billion in extra funding can be secured to meet the initiative’s needs, but it seems unlikely that such a large sum can be signed off quickly by government. 

In the meantime, the FCC is set to begin handing out initial allocations in the coming days, with priority given to applicants based on government guidance. Once companies have received reimbursement, the equipment is expected to be removed within a year.

What impact will the expensive rip and replace of Huawei equipment have on the US telecoms industry and its 5G rollout? Find out from the experts at live at Connected America 2023

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