Research Notes

Is your telecom infrastructure ready for General Secretary Xi to deliver on his Taiwan promise? The FCC votes unanimously to revoke China Telecom Americas’ license

Earlier this week the US Federal Communications Commission (FCC) voted unanimously to revoke the license of China Telecom to provide domestic interstate and international telecommunications services within the United States.  The order is based in part on the April 2020 recommendation of the Department of Justice (DOJ) and related Executive Branch agencies (collectively “Team Telecom”) and reflects a specific proceeding launched in December 2020 in which the FCC asked China Telecom to address its concerns.

What’s the deal with Taiwan?

Many question US-China policy as mere trade tactics or whether there are legitimate threats. The situation in Taiwan should leave no doubt that People’s Republic of China (PRC) General Secretary Xi intends to deliver on his promise: join the PRC or else. He underscored the point by sending dozens of military jets into Taiwan airspace. However the PRC’s main form of intrusion is via telecom networks. Taiwan’s Ministry of Foreign Affairs reports that cyberattacks by the PRC increased 40-fold in 2020 from 2018. It has recorded 778,000 intrusions in 2020, or 2,100 per day.   

If the PRC violates Taiwan’s sovereignty, many around the world are likely to express their condemnation and could retaliate through sanctions and other measures. The PRC could order Huawei and ZTE to interfere, slow, or shut down communications networks in countries with conflicting views to the PRC’s Taiwan policy. It need not look like a bold block but could be remote access enabled surreptitiously via kill switch on Chinese equipment inside a network component.

Consider the arrest of Huawei CFO Meng Wanzhou in Canada for fraud and violation of international law by supplying tech to Iran. The DOJ case was settled with Wanzhou confirming that she willfully made untrue statements to HSBC to enable illegal transactions in U.S. but avoided a fine and guilty plea. While the matter should have been treated as a straightforward corporate fraud case, the PRC unscrupulously took two Canadian nationals as hostages to strengthen Huawei’s hand. Wanzhou enjoyed her stately Vancouver homes while the hostages were confined to windowless prison cells with no toilets for 1000 days.

Huawei has consistently said it is independent of the PRC government, but its actions show otherwise. The spectacle of Wanzhou’s return to Huawei’s headquarters in Shenzhen was choreographed as a hero’s welcome with the progress of the flight reported on state media. Flanked by an Air China jet and in a red dress on the red carpet, Wanzhou addressed the throng of reporters: “I have never had a moment when I didn’t feel the caring and warmth from the Chinese Communist Party, the country, and the people. Chairman Xi cares about the safety of every citizen, and took my business to his heart, which has deeply touched me…the motherland is the strongest backer for us,” she said.

Naturally leaders go to the aid of their citizens internationally on civil matters, but executives indicted for corporate criminal acts are not usually celebrated, as the PRC sought to elevate the so-called princess of Huawei. Unsurprisingly, PRC state media never mentioned that Wanzhou admitted that she willfully committed a crime. In any event, numerous DOJ cases against Huawei and other PRC entities for fraud, theft, racketeering, and espionage continue.

What’s the FCC got to do with it?

The FCC proceeding found that the security environment has changed significantly since it issued the license to China Telecom Americas some 20 years ago. It found that the state-owned enterprise is subject to exploitation, influence, and control by the PRC government, which can access, store, disrupt, and/or misroute U.S. communications on the foreign-owned network. This is done without the necessary legal procedures and independent judicial oversight the US demands. Moreover it didn’t help that China Telecom Americas violated the transparency terms of the FCC agreement and other misrepresentations.

FCC Commissioner Brendan Carr noted, “Our own review reveals that China Telecom Americas’ operations appear to provide opportunities for Chinese state-sponsored actors to disrupt and misroute U.S. communications traffic. When you combine this and other evidence with the particular place in the U.S. communications network where China Telecom Americas operates, the concerns we have raised are only heightened. I therefore agree with the Commission’s determination today.”

US policymakers now realize that the relatively free and open nature of US networks, built in part with PRC equipment, makes the US vulnerable to PRC espionage, sabotage, and other forms of compromise. According to the Department of Justice, the US loses some $600 billion annually in theft of intellectual property to the PRC, among other sobering statistics. A parallel proceeding to deny equipment authorizations to Huawei, ZTE, Dahua, Hikvision, Hytera, and possibly DJI suggests the FCC’s work is just getting started to reduce the risk. See Brendan Carr explaining the proceeding at an event hosted by China Tech Threat.

Now that the greater part of value in society is contained in online information, governments and telecom operators must determine what they need to do protect users and property. Having at least one Chinese telecom network is a good start. However it’s a tall order for countries like Germany which has doubled-down on its commitment to Huawei.

Every time the Germany-based US Commanding General Christopher Cavoliare of United States Army Europe and Africa his staff, or his family use a mobile phone, their traffic is sent through a Chinese mobile network. General Christopher Cavoliare and the rest of the people in Germany can’t get a network free from Chinese government tech.

Telecom networks are the foundation of the digital society. COVID19 proved that telecom networks are essential, as they have allowed people to work, learn, shop, and get healthcare from home during a period of lockdown and social distancing. Consequently, the importance of security and resilience of these networks is heightened. Policymakers are justifiably concerned about the vulnerabilities of these networks. The want to examine the network elements their vendors, supply chains, and protocols and adopt measures to secure them.

Note that foreign technology providers have faced systematic blockade in the PRC as well as sudden, inexplicable, and undressable restrictions. IPVM explains. The difference in the US is that any effort to restrict technology is conducted through a lengthy constitutional process allowing the provider due process and judicial redress. The regulatory instruments are tailored to confine restrictions to specific products and timeframes for specified reasons. Foreign providers in PRC do not enjoy such fair treatment.

China Telecom and OpenRAN

There are a multitude of non-PRC equipment providers that want to do business around the world. Most are bona fide and add value to the countries where they work.  While China Telecom is one of the world’s largest telecom operators, its ability to operate in a foreign country is a privilege, not a right. It lost is US license for failing to honor its commitments and for presenting unacceptable national security risk.

However the revoking the license does not necessarily insulate the US from China Telecom. The company is one of the Chinese members of the O-RAN Alliance and that together with over 44 other Chinese companies, they have a central role in the O-RAN Alliance.

Many US policymakers have failed to see the contradiction of pursuing OpenRAN development as a strategy to find alternatives to Huawei and ZTE while ignoring that the PRC is backing the OpenRAN effort outside the US, that Huawei is a lead contributor to open source code there are the fundament for OpenRAN, and that US firms would ostensibly produce the OpenRAN equipment in the PRC where it could be further compromised.

In 2019, 5G became a mainstream topic and rebooted the discussion of the value that telecommunications brings to society including innovation, security, and inclusion. Consider the many transformations that the industry has delivered from the invention of the telephone. Today the digital world, including its businesses, the communications of individuals, and the operations of the public sector is predicated on the advanced infrastructure that the telecom industry provides.

Policymakers in the US and EU have today a lot of focus on communications network equipment from Chinese vendors. In 2019 Strand Consult published many research notes and reports to help telecom companies navigate a complex world. We focused heavily on the problem of Chinese equipment in telecommunications networks. While the media has largely focused on Huawei, the discussion should be broadened to the many companies that are owned or affiliated with the Chinese government including but not limited to TikTok, Lexmark, Lenovo, TCL, and so on. Although some of our customers disagree with our views, Strand Consult’s job is to publish what is actually happening and how policy decisions may affect their business in the future. Here are some of our key research.