Broader crackdown on Chinese telecoms

Tensions flare as U.S. signals broader crackdown on Chinese telecoms

A senior Justice Department official's comments point the way toward more revoked licenses.

By JOHN HENDEL and BETSY WOODRUFF SWAN

The Trump administration is signaling a broader crackdown on the Chinese communications sector — well beyond the companies that have already come under harsh U.S. scrutiny.

In an interview, a senior DOJ official told POLITICO that the government’s past objections to powerful Chinese telecommunications players operating in the U.S. may provide a blueprint for the Federal Communications Commission to pursue other firms as well.

This administration blessing comes potentially weeks ahead of the agency moving to revoke licenses for some of the few remaining Chinese telecom companies authorized to operate within the U.S., including China Telecom and China Unicom, and marks an escalation in the tensions between Washington and Beijing that have only grown more acute since the coronavirus pandemic began sweeping the globe.

A Washington crackdown could mean the end of any China-based telecommunications providers doing business within the borders of the United States.

“We’re concerned about providers that are subject to the undue influence and control of the Chinese government,” Deputy Assistant Attorney General Adam Hickey told POLITICO in a recent interview. “Once you make that conclusion, it’s hard for me to understand if it’s true for one company or a second company, why wouldn’t it be true for a class?”

Although these Chinese telecom companies have a modest footprint among U.S. consumers, the aggressive scrutiny during the Trump era marks a stark change from just a few years earlier, when American companies freely did business with a variety of Chinese telecommunications companies with little concern. It also suggests Washington is ready to extend its scrutiny well beyond any one Chinese company such as Huawei or ZTE.

The Justice Department has led administration efforts in reviewing multiple prominent China-based providers in recent years, including government-affiliated China Mobile and China Telecom, in order to make security-based recommendations to the FCC — and it now says the commission should be able to take those recommendations to curtail Chinese players more broadly.

DOJ’s Hickey, a senior official in the department’s National Security Division, outlined several concerns with business operations in China.

“We don’t think there’s sufficient rule of law there,” said Hickey. “We don’t think there’s reciprocity. We certainly don’t participate in their telecom sector. We don’t want the companies that are accountable primarily to the Communist Party to provide critical telecommunications infrastructure and services here.”

That skepticism dovetails with Trump’s own. The president has indicated he’s intensely frustrated over how Chinese officials handled the initial virus outbreak. In mid-May, he threatened a more aggressive approach to China, telling Fox Business, “We could cut off the whole relationship.”

Tensions surrounding the telecommunications sector have ratcheted up in recent years as the U.S. and China both vie for supremacy over the rollout of advanced 5G wireless networks and amid administration warnings over the potential dangers lurking in China’s networks.

These battles have ensnared titanic Chinese companies including Huawei and ZTE, which Trump has sought to block from American markets on the grounds that they pose a surveillance threat to U.S. communications networks and over past bad behaviors. The FCC is moving to designate both companies as national security threats in its own ongoing proceeding, which has prompted a lawsuit from Huawei accusing the agency of trying to cater to Congress. And lawmakers say they want to subsidize rural U.S. carriers in ripping out and replacing any Huawei and ZTE network gear they may own.

In another escalation, the Trump administration recently warned Google against trying to run an underseas cable network through Hong Kong, citing concerns about national security risks. And this month, Trump extended by another year — to May 2021 — his executive order preventing U.S. companies from relying on telecom gear deemed a security risk, a move seen as directed at China.

The allegations coming from Washington are principally that the Chinese government could surveil U.S. citizens and steal American technology, and that they have been deceptive about their operations. Chinese providers broadly dispute these charges. And some, including Huawei, accuse the U.S. government of playing politics during a broader trade war.

Under former Attorney General Jeff Sessions, the department started a broad undertaking designed to counter criminal activity connected to the Chinese government and dubbed it the China Initiative. Attorney General Bill Barr, Sessions’ replacement, has enthusiastically supported the initiative, along with U.S. efforts to limit Chinese telecom firms’ footprint in the U.S. and help Western companies compete with Chinese giants Huawei and ZTE. Barr, a former telecom executive, discussed the issues in detail earlier this year at a Justice Department conference on the China Initiative.

“From a national security standpoint, if the Industrial Internet becomes dependent on Chinese technology, China would have the ability to shut countries off from technology and equipment upon which their consumers and industry depend,” he said, according to his prepared remarks. “The power the United States has today to use economic sanctions would pale by comparison to the unprecedented economic leverage we would be surrendering into the hands of China.”

Days later, the department filed a superseding indictment charging Huawei with conspiring to break the Racketeer Influenced and Corrupt Organizations (RICO) Act––a U.S. law often used to target organized crime. The department also alleged that the company helped the Iranian government surveil protesters. The company has pleaded not guilty.

John Demers, the head of the department’s National Security Division, told Politico in April that the department hopes each U.S. Attorneys Office will bring cases as part of the initiative. And cases have sprung up around the country, including high-profile investigations of college professors who failed to disclose Chinese government funding for scientific research.

FCC commissioners and Congress, meanwhile, are quick to support the White House and say the dangers are real. Senate Minority Leader Chuck Schumer (D-N.Y.) teamed up with Sen. Tom Cotton (R-Ark.) last fall to urge the FCC to get aggressive.

“This isn’t just email and phone calls that are going over these networks anymore,” FCC Commissioner Brendan Carr, a Republican who has recently taken to calling out Chinese officials repeatedly on social media in the wake of the coronavirus’s spread, told a group of Washington lawyers during a keynote address this month. “With 5G, it’s telehealth...it’s banking information. It’s power grid information. If these networks are threatened, then everything we have come to value is threatened.”

The FCC has already signaled a desire to go beyond administration recommendations in tackling these Chinese firms.

The DOJ in April released a scathing administration recommendation that the FCC revoke and terminate the authorization for the U.S. subsidiary of China Telecom, which has more than 100 million customers globally, to operate within the U.S.

China Telecom, which provides phone and internet service as well as IT technology, has already been here for nearly two decades, headquartered domestically in Herndon, Virginia, and quick to talk up local ties. At the end of last month, the company touted its donation of computers to Virginia’s George Mason University to help students caught up in the virus. The Trump administration, however, paints a different picture. The administration cited evolving cybersecurity threats from China, concerns the company is vulnerable to manipulation from Beijing and a lack of compliance with earlier authorization conditions.

The FCC picked up the DOJ’s recommendation in a matter of weeks, issuing orders not only to China Telecom’s U.S. subsidiary but also China Unicom Americas, Pacific Networks and ComNet asking for proof within 30 days that they are not subject to the control of China’s communist government and why the agency shouldn’t revoke their licenses to operate within the United States.

“We simply cannot take a risk and hope for the best when it comes to the security of our networks,” Chairman Ajit Pai said at the time.

These orders could set up FCC revocation of all their licenses, effectively kicking the providers out of the U.S. The agency last year followed a similar Trump administration call and rejected an application from China Mobile.

In subsequent weeks, China Telecom has told the FCC it needs more time to respond due to the coronavirus pandemic and sought to clarify what the agency really wants. The FCC recently assented, narrowing the scope of its requests and giving China Telecom until June 8 to respond, among other brief extensions.

But the DOJ is pleased, according to Hickey, who framed the FCC actions as “taking the initiative” in following what he sees as administration guidance.

The White House is also trying to set guardrails and timelines firming up the process by which its cabinet agencies vet foreign telecommunications players operating in the U.S., an attempt to streamline existing procedures and provide certainty for industry.

The key example is an executive order Trump issued in April codifying an interagency review process known as “Team Telecom,” which pleased FCC commissioners who have long called for greater clarity. DOJ, the Pentagon and the Homeland Security Department are the three lead agencies conducting these reviews. At the FCC, Pai has pledged to conclude a long-pending rulemaking on overhauling how the agency reviews foreign ownership in U.S. telecom networks.

While Hickey avoided weighing in on the particulars of individual companies the FCC is now scrutinizing, he suggested the executive branch has already presented a path for the FCC chief to follow.

“We laid out some basic principles for evaluating whether a company should have a license,” Hickey told POLITICO. “What’s true for China Mobile is in many ways true for China Telecom and is going to be true for other companies as well.”

“Once we make that record and once the FCC has accepted that record in denying China Mobile’s application, it seems logical to me that they might start to address other carriers or other providers that fit the same criteria,” he added.