WASHINGTON - The top U.S. telecommunications regulator proposed on Tuesday to bar government programs from buying from companies that pose a security threat to U.S. telecoms networks, a rule that could hurt U.S. sales of China's Huawei and ZTE.
The Federal Communications Commission is considering more steps in the wake of growing concerns in Washington that Huawei Technologies Co Ltd and ZTE Corp, which make networking equipment and handsets, could act as conduits for espionage, something the two companies have denied.
The FCC decision came a day after the U.S. Commerce Department banned American firms from selling parts and software to ZTE for seven years. The move was sparked by ZTE's violation of an agreement that was reached after it was caught illegally shipping U.S. goods to Iran.
The United States and China have threatened each other with tens of billions of dollars in tariffs in recent weeks, fanning worries of a full-blown trade war that could hurt global supply chains as well as business investment plans.
The proposed new telecoms rules are expected to be finalized this year. They would prevent money from the $8.5 billion FCC Universal Service Fund, which subsidizes telephone service to poor and rural areas, from being spent on goods or services from companies or countries which pose a "national security threat to the integrity of communications networks or their supply chains."
"Hidden 'backdoors' to our networks in routers, switches, and other network equipment can allow hostile foreign powers to inject viruses and other malware, steal Americans' private data, spy on U.S. businesses, and more," said FCC Chairman Ajit Pai, who introduced the proposal.
Pai did not specify China or specific companies.
But in a letter to Congress last month, Pai said he shared the concerns of U.S. lawmakers about espionage threats from Huawei, the world's third-largest smartphone maker.
The proposal appears to be another prong in a U.S. effort to prevent ZTE and Huawei from gaining significant market share in the United States. Both are strong contenders in telecoms markets elsewhere.
USTelecom, an industry trade group, praised the FCC's "proposal to confront nation-state actions that threaten the confidentiality, integrity and availability of our nation's network infrastructure."
Republican U.S. senators have also introduced legislation that would block the U.S. government from buying or leasing telecoms equipment from Huawei or ZTE.
Huawei's planned deal with U.S. carrier AT&T Inc (T.N) to sell its smartphones in the United States collapsed in January after U.S. lawmakers sent a letter to Pai citing concerns about Huawei's plans to launch U.S. consumer products.
Amid a steady drip of bad news, Huawei has laid off its vice president of external affairs, Bill Plummer, and four other employees at its Washington office, according to sources familiar with the matter.
The company slashed lobbying expenditures to $60,000 in 2017 from $348,500 in 2016, according to Huawei filings.
ZTE has similarly cut its lobbying expenditures, from $860,000 in 2016 to $510,000 last year, according to ZTE filings.
The U.S. Congress in 2017 banned U.S. government agencies from using security software from Moscow-based Kaspersky Lab amid mounting concern among U.S. officials that the software could enable Russian espionage and threaten national security.