FCC Bans “Untrustworthy Communications Equipment” from the U.S. Market; Measure Could Have Broader Implications for All Device Manufacturers

FCC Bans “Untrustworthy Communications Equipment” from the U.S. Market; Measure Could Have Broader Implications for All Device Manufacturers

November 30, 2022, Covington Alert

Late last week, the FCC effectively banned certain Chinese telecom and video surveillance devices from the U.S. market – demonstrating the power of its authority over virtually all electronics equipment, which until last week’s decision had been exercised only to address technical, scientific and engineering concerns. With Congressional backing, the FCC now has established itself as a potent vehicle for excluding products from the U.S. market on national security concerns.

Specifically, the FCC released a Report and Order (“R&O”) and a Further Notice of Proposed Rulemaking (“FNPRM”) that changes the FCC’s device and equipment authorization rules to broadly prohibit the importation, marketing, and sale of radiofrequency (“RF”) devices and equipment by entities that the FCC has determined, based on input from the national security community, to pose a threat to the security of U.S. supply chains and networks. The FCC has published the list of such entities on its Covered List, and each of the equipment manufacturers on the list reportedly has some affiliation with the Chinese government. RF devices and equipment are those that generate and/or emit RF energy and thus effectively amount to all electronic devices. Going forward, all applicants for FCC device and equipment authorizations will be required to attest that they are not subject to this prohibition to secure their authorizations.

Of equal or greater noteworthiness, the FCC previewed potentially greater changes to its rules as part of its efforts to advance national security goals. For example, the FCC has asked for comment on whether and to what extent to revoke existing device and equipment authorizations held by covered entities, such that equipment already in the marketplace could be rendered unlawful. It also asked whether the new ban should extend to “components” made by covered entities but used by others in their own devices and equipment. How the FCC decides these and other issues presented in the FNPRM could have profound effects on the market for RF devices and equipment in the U.S.

By way of background, the Communications Act requires the FCC to issue authorizations for devices and equipment that generate and/or emit RF emissions before they can be imported, marketed, or sold in the U.S. Such authorizations are needed to ensure that devices and equipment do not exceed certain RF emissions thresholds, as exceeding such thresholds can cause harmful interference to other services and equipment or present health and safety risks.

For decades, the FCC generally has been expansive in issuing device and equipment authorizations, including to foreign-owned companies, provided they satisfied the RF emissions rules. But newly-enacted laws, resulting in part from increased strains in U.S.-China relations, have prompted the FCC to reconsider this approach.

Through the National Defense Authorization Act for Fiscal Year 2019, the SECURE Technology Act, and the Secure and Trusted Communications Networks Act of 2019 (“Secure Networks Act”), Congress limited the use of federal funds to procure equipment, services, or systems from certain foreign covered entities. The Secure Networks Act required that the FCC publish and periodically update the aforementioned Covered List. Last week’s R&O expanded these initiatives by adopting new rules that will prohibit certain RF devices and equipment from the U.S. market if they are deemed to be imported, marketed, or sold by an entity on the Covered List.

The R&O amended the FCC’s device and equipment authorization rules to prohibit the authorization of telecommunications and video surveillance equipment imported, marketed, or sold by an entity on the Covered List. Underscoring the impact of refusing equipment authorizations to these entities, FCC Chairwoman Rosenworcel explained in an accompanying statement:

The action we take today covers base station equipment that goes into our networks. It covers phones, cameras, and Wi-Fi routers that go into our homes. And it covers re-branded or “white label” equipment that is developed for the marketplace. In other words, this approach is comprehensive.

The FCC also took steps to close loopholes that might otherwise have enabled continued sales of equipment on the Covered List, e.g., by removing exemptions from the equipment authorization process for certain types of devices and emphasizing that the prohibition applies to “white label” equipment. Moreover, although the FCC declined to decide immediately whether existing authorizations for equipment by Covered List manufacturers should be revoked, it set the stage to do so in the future by concluding that the agency has authority to revoke, in the future, authorizations of equipment on the Covered List authorized before the Report and Order’s adoption on November 11, 2022.

In the accompanying FNPRM, the FCC made clear that it may continue to use the equipment authorization rules as a lever to promote national security concerns. For example:

Revocation of existing authorizations for Covered List equipment. The ban adopted in the R&O is prospective and therefore doesn’t require removal of equipment manufactured by Covered List entities in the past. In the FNPRM, the FCC asks whether and under what circumstances it should apply the ban retroactively. Given that equipment on the Covered List remains in the telecommunications networks of many carriers, any retroactive ban could cause a meaningful financial impact. While Congress previously has appropriated funding for carriers to “rip and replace” such equipment from their networks, demand for the available funding far exceeds the appropriated amounts.

Component parts. The new rules do not require applicants for equipment authorizations to state whether any component part of the equipment to be authorized is comprised of covered equipment. In the FNPRM, the FCC recognizes that this may be a gap in the rules. The FCC accordingly has sought comment on the extent to which component equipment parts should be considered in the FCC’s prohibition on covered equipment and on a range of related issues, including what should be considered a “component part.”

Competitive bidding procedures. The FNPRM seeks comment on whether participants in competitive bidding procedures (e.g., for spectrum licenses) should be required to certify that bids do not rely on financial support from Covered List entities. While the FCC had previously sought input on this topic, it now asks for more precise information about the contours of any such requirement, such as the level of diligence required of a bidder to confirm that its financing is not ultimately sourced from an entity on the Covered List.

Agent for service of process. The FCC proposes to require that any application for equipment certification provide a “responsible party located in the United States” to respond to inquiries and remedy any violations of the FCC’s rules with respect to the equipment.

If you have any questions concerning the material discussed in this client alert, please contact the members of our Communications and Media practice.