FCC Blocks Huawei, ZTE From Billions In U.S. Federal Subsidy Dollars

Huawei and ZTE Corp have once again found themselves in hot water with the U.S. government that could also mean implications for U.S.-based telecom providers.

Chinese telecoms Huawei Technologies and ZTE Corp. have now been designated as national security risks.

The Federal Communications Commission (FCC) on Friday voted unanimously to ban U.S.-based telecom providers from using an $85 billion government subsidy program, the Universal Service Fund (USF) to buy equipment or services from the two Chinese telecom providers.

The FCC also voted on whether U.S.-based carriers with technologies from Huawei and ZTE Corp within their existing networks would need to replace that equipment. That final decision is expected to come next year, but could largely impact rural carriers that have relied on Huawei's affordable equipment.

[Related: Struggling Huawei Pleads Not Guilty To Trade Secret Theft, Wire Fraud In U.S.]

“Given the threats posed by Huawei and ZTE to America’s security and our 5G future, this FCC will not sit idly by and hope for the best,” said FCC chairman Ajit Pai on Friday.

Huawei said in a prepared statement that its new designation as a national security threat is "based on selective information, innuendo, and mistaken assumptions." The carrier went on the say that “these unwarranted actions will have profound negative effects on connectivity for Americans in rural and underserved areas across the United States."

ZTE could not be reached for comment on Friday.

Huawei and ZTE will have 30 days to contest the designation.

The decisions this month follow a series of trouble over the last several years that has landed both Huawei and ZTE in hot water with the U.S., among other countries.

Huawei has come under fire for its relationship with the Chinese government recently. Huawei lost carrier support for its devices in the U.S. and several large tech firms, including reportedly Google and Intel, stopped working with the company. The Chinese telecom equipment maker was blacklisted by the U.S. government in May following concerns that Huawei's connection to the Chinese government could mean security risks for the U.S if the carrier came under government control.

In December 2018, Huawei CFO Meng Wanzhou was arrested in Vancouver by Canadian police on behalf of the U.S. because of alleged activities during her time as head of a Huawei-affiliated company that U.S. prosecutors believe sold equipment to Iran in violation of U.S. regulations. Diplomatic tensions between China and the U.S. have been flaring ever since.

The U.S. and several other countries, including Australia and New Zealand, have moved to keep Huawei out of their upcoming 5G infrastructure buildouts.

The U.S. Department of Commerce in 2018 handed down a settlement to ZTE in order to keep the Shenzhen, China-based telecom afloat. The deal included a $1.4 billion fine and 30 days for the company to change its board of directors and leadership team after the telecom was slapped with a seven-year buying ban after ZTE was caught for the second time selling banded U.S. technology to North Korea and Iran, in violation of U.S. trade agreements.