The estimated costs for U.S. carriers to remove and replace risky network equipment from Chinese vendors has skyrocketed to $5.6 billion after initial review of reimbursement requests under the FCC program to help cover the endeavor. It represents significantly more than the $1.9 billion already allocated by Congress to fund the process.
In a statement released last week, FCC Chairwoman Jessica Rosenworcel said that 181 carriers submitted initial reimbursement application requests totaling approximately $5.6 billion.
Carriers are required to remove and replace existing network gear from Huawei and ZTE after the vendors were deemed national security risks. Congress in late 2020 set aside around $1.9 billion to fund and carry out the effort under the Secured and Trusted Communications Act 2019.
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The preliminary estimates were multi-billions lower, and came after the FCC issued a public notice in September 2020 listing around 51 companies that participated in the rip and replace data collection process to identify insecure gear and cost estimates associated with installing and removing equipment in their networks. Based on the data collection from providers expected to apply, the FCC had said all filers reported it could cost an estimated $1.83 billion to swap out Huawei and ZTE gear, and of that the FCC determined filers that appeared to initially qualify for reimbursement could require around $1.61 billion.
At the end of October the FCC opened the filing window for the reimbursement program, which applies to both wireless and wireline providers and closed January 28.
“Last year Congress created a first-of-its kind program for the FCC to reimburse service providers for their efforts to increase the security of our nations communications networks,” said Chairwoman Rosenworcel. “We’ve received over 181 applications from carriers who have developed plans to remove and replace equipment in their networks that pose a national security threat.”
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Rosenworcel said there’s more work to do to review the applications, but noted she “look[s] forward to working with Congress to ensure that there is enough funding available for this program to advance Congress’s security goals and ensure that the U.S. will continue to lead the way on 5G security.”
As for doling out funds if there’s not enough in the pot to cover all requests, the FCC in response to Fierce said: “If necessary due to demand exceeding supply we will follow the prioritization scheme directed by Congress, as stated in our rules, and prorate across the prioritization scheme.”
The program largely affects smaller and rural carriers, who previously installed Huawei and ZTE gear, which is typically is lower cost.
Last year changes were made to the reimbursement program to expand eligibility to include providers with up to 10 million customers, up from the original limit of 2 million or less subscribers.
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According to the prioritization scheme, first priority are advanced communications service providers with fewer than 2 million customers; that’s followed by providers that are accredited public or private non-commercial educational institutions providing their own facilities-based educational broadband service, and health care providers and libraries providing advanced communications service; followed by any remaining approved applicants eligible under the program.
If needed, reimbursements will be pro-rated across the different categories.
As the FCC designated Huawei and ZTE national security risks, in 2019 it also prohibited service providers from tapping Universal Service Fund (USF) dollars to purchase or maintain equipment and services from the vendors. That includes a newly established Rural 5G Fund, which aims to allocate $9 billion over 10 years to subsidize deployment of 5G services in under and unserved communities.
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Steven Berry, president and CEO of the Competitive Carriers Association representing smaller and regional carriers, called out the significantly higher cost estimates and need to fund the rip and replace reimbursement program.
“Both the number of applications and the gross cost estimate demand for support are tremendously larger than previously estimated,” Berry said in a statement. “The Reimbursement Program is critically important, especially for smaller competitive carriers, and policymakers must ensure the program is fully funded to keep rural America connected as affected carriers transition their networks. We now know the extent of the demand and must have adequate resources to secure our networks.”