5 Takeaways on the FCC’s Rip and Replace Program

The US Federal Communications Commission (FCC) released a statement that 181 telecom providers submitted applications to its Secure and Trusted Communications Networks Reimbursement Program.  This program was established to cover the costs of removing, replacing, and disposing of insecure equipment and services in US networks. Reimbursement requests totaled some $5.6 billion, almost three times the $1.9 billion budgeted.

  1. The number of applicants, 181, is small compared to all US operators, some 5500. The 181 applicants largely reflect small providers in discrete locations. Indeed, many of these companies would not be considered traditional telecom operators. For example, one large applicant is Level 3 Communications, now part of CenturyLink/Lumen. There are many smaller operators, schools, universities, and inflight broadband provider Gogo Business Aviation. Notably the major 5G providers (Verizon, AT&T, T-Mobile etc) have not used Huawei or ZTE. See this link for a list of applicants.
  2. The requested reimbursement is small compared to what US operators have invested in 5G infrastructure to date and will invest in future.  The US has not suffered by restricting Huawei and ZTE. Indeed, the US is considered a 5G leader by number of base stations, subscriptions, and prevalence of 5G devices and services. Infrastructure rollout policies and spectrum matter more than choice of equipment. Approaching some $90 billion annually in private network investment, the US accounts for one quarter of the world’s total, so the amount of reimbursement requested is small.
  3. Not all requests for reimbursement are necessarily eligible. Indeed the FCC subsequently announced that only 162 applicants were eligible. When upgrading to 5G, operators must shed 4G equipment (some of which may be 10 years old), so the FCC will likely rationalize what is legitimate for reimbursement. The budget figure is based upon a detailed FCC study of how much equipment needs to be replaced. The FCC detailed its reimbursement and prioritization methodology here to maintain the reimbursement budget and more information about the program is available at https://www.fcc.gov/supplychain.
  4. The requested need for reimbursement is likely inflated. When a regulatory agency offers free money, it is unsurprising that demand exceeds supply. For example, new companies participated in the program which were not expected. Companies also “found” insecure equipment about which they had “forgotten.” Additionally, some companies may overstate their need, using the reimbursement funds to purchase an advanced solution which exceeds their original budget figure. Moreover, most operators did not expect that reimbursement would happen anyway, so when the FCC opened the filing October 29, 2021- January 28, 2022, there was a vigorous response.
  5. It is important to remove insecure equipment, and the FCC should be commended for its leadership to develop a comprehensive network security policy. Notably prevention is always better than treatment. As such, with the full support of Congress and the President, the FCC has succeeded to establish a Covered List of entities which pose unacceptable risk to national security and are not eligible for purchase with federal funds (See China Tech Threat’s coverage of the FCC’s effort to ensure secure equipment). These entities include Huawei, ZTE, Hytera, Hikvision, and Dahua. As it is better policy is not to purchase insecure equipment in the first place, equipment authorizations for these companies will likely be denied. Additionally, the FCC has revoked operating licenses for China Telecom and China Unicom and has denied a license to China Mobile. Moreover, FCC Chair Rosenworcel is also stepping up to lead the federal interagency forum on cybersecurity.

For more information about rip and replace efforts globally, see Strand Consult’s report and the study of rip and replace costs in 102 mobile networks in Europe.