Yahoo Finance Small carriers fight to survive amid delayed Huawei rip-and-replace funds
Jerry Whisenhunt, general manager of Pine Telephone Company in a rural corner of Oklahoma, has some choice words about the Washington bigwigs who ordered him to rip up his mobile network but have failed to cough up the promised funding to help him replace it.
“It’s kind of a train wreck,” he said. “They’re slow as Christmas getting things done.”
Four years after Congress ordered U.S. network operators to remove all telephone and internet equipment made by the China-based companies Huawei and ZTE, citing security risks, the “rip-and-replace” program remains stalled due to a $3 billion funding shortfall - a shortfall that is larger than the $1.9 billion Congress appropriated for the task.
The Federal Communications Commission is now warning that some rural areas may lose cell service altogether if more funding does not materialize soon, as small carriers struggle to stay afloat against the pressure to spend millions of dollars replacing their networks.
In a letter sent Thursday to Sen. Maria Cantwell (D-Wash.), chair of the Senate Commerce Committee, FCC Chairwoman Jessica Rosenworcel said 40 percent of local network operators cannot complete the removal of Huawei and ZTE equipment without more money and that some risked shutdown of their operations. “Several recipients have recently informed the Commission that they foresee significant consequences that could result from the lack of full funding, including having to shut down their networks or withdraw from the program,” Rosenworcel wrote.
Rosenworcel wrote that for certain operators, “a shutdown of all or part of their networks could eliminate the only provider in some regions.”
Cantwell’s office did not immediately have a comment on the letter Thursday. The committee she chairs recently acknowledged that some rural providers are “on the verge of bankruptcy” due to the state of the rip-and-replace program. Last week, she released the Spectrum and National Security Act, which proposes to restore the FCC’s commercial auction authority and use the proceeds to fill the $3 billion gap.
The rip-and-replace program’s woes suggest the kind of logistical snarls and ballooning costs that are likely to ripple across more of the U.S. economy as officials look to increase restrictions on China-based vendors amid an intensifying U.S.-China rivalry. The looming TikTok ban could have broader spillover effects for the online-video ecosystem, social media experts say, while law enforcement officers say they will be hamstrung in fighting crime if they are banned from using drones manufactured by China’s DJI.
Huawei and ZTE equipment has always been de facto banned from major U.S. networks built by the likes of Sprint or Verizon, with U.S. officials considering the gear at higher risk of infiltration by China’s intelligence agencies. Small, rural U.S. operators were allowed to buy gear from Huawei and ZTE through the 2000s and most of the 2010s, as the phone calls and internet traffic they carried were considered less sensitive.
However, as China has made swift technological strides and become viewed as a near-peer rival, the bar has shifted. Security hawks have pointed out that U.S. military bases are often based in rural areas and that the idea of rural internet traffic being less sensitive should be rethought. Huawei and ZTE have maintained that they do not help China’s government spy and that their products are not a security threat.
In 2020, Congress passed the Secure and Trusted Communications Networks Act, directing the FCC to set up the rip-and-replace program. The FCC quickly discovered that an additional $3 billion would be needed to fully fund the program. With limited cash in hand, the FCC began giving small carriers 39.5 percent of what they needed to do a full replacement in 2022 and 2023.
Leslie Williams, president of Jackson, Tenn.-based SI Wireless, said his network has been down since 2022 for the gear replacement, with no revenue coming in since. Williams said he’s had to take out loans to try to keep afloat, and that invoices submitted for reimbursement through the program have taken an average of 150 days to be processed, with the longest one taking 354 days. He said SI Wireless has only received a bit more than $24 million from the FCC, around 13 percent of the $181 million needed to complete the rip-and-replace.
On the customer side, he said, the result has been dead zones in rural stretches of Tennessee and Kentucky where there used to be cell reception.
“Currently, customers are without service,” he said.
Network operators are required under the terms of the program to fully remove Huawei and ZTE equipment within a year of receiving the first tranche of funds. With the remaining 61 percent of funds not forthcoming, the FCC is receiving a flood of letters from carriers across the nation complaining that they have been stuck holding the bag and pleading for extensions.
Plateau Telecommunications, a small carrier in Clovis, N.M., said in a filing with the FCC in April that the underfunding of the rip-and-replace program has forced it to “pivot” to fewer cell towers and a reduced footprint, and even so, it is running behind schedule. “It is increasingly evident that achieving our mid-July completion target is not feasible,” the company wrote.
Mark Twain Communications, a small carrier in northeast Missouri, told the FCC that it is unable to complete the rip-and-replace due to the lack of funding coupled with skyrocketing costs. “Vendors have been unwilling to negotiate costs and many have increased prices due to high demand,” the company reported. “Mark Twain has found replacement equipment over double the cost.”
The Bristol Bay Cellular Partnership, a carrier with a staff of 14 in the town of King Salmon, Alaska, pleaded for an extension and the rest of the funds. “The fuel surcharge is at times up by 45 percent,” the carrier wrote, saying its 17 sites are accessible only by plane and boat. “It is difficult for the smaller companies to compete.”
Viaero Wireless, in Fort Morgan, Colo., also reported that it was stuck. “Congress’ inaction and the lack of funding is completely outside of our control,” Viaero wrote.
Those asking for more time even included the board of trustees of Northern Michigan University. NMU, which operates 79 cell sites in the rural portions of Michigan’s Upper Peninsula in addition to providing higher education, told the FCC about the challenges it has faced in trying to replace its equipment with limited funds, including its discovery that it would have to build a new cell tower.
“The new tower must overcome a 30′ ground elevation differential, resulting in a replacement structure of 330 feet,” NMU’s board of trustees wrote.
In her letter on Thursday, Rosenworcel wrote that carriers in the program are supposed to have all their Huawei and ZTE gear removed by May 29 to Feb. 4, 2025, depending on when they received their initial distribution of funds. She reported that the FCC has so far granted 64 extensions, including 52 based at least partly on the funding shortfall.
“The Commission stands ready to assist Congress in any efforts to fully fund the Reimbursement Program,” she wrote.
Whisenhunt, the Pine Telephone Company general manager in Oklahoma, said he is facing the prospect of shutting down parts of his network, with the rest of the rip-and-replace funds nowhere in sight. He said that even without the millions of dollars in expenses of replacing equipment, parts of his coverage area across Choctaw Nation land were unprofitable due to the sparse population.
“For rural companies like us, it’s dire,” Whisenhunt said. “There’s a certain segment of the population here, and in Choctaw Nation, that just will lose service.”
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Jeanne Whalen contributed to this report.
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