U.S. National Security and Trusted Global Manufacturers: Part 1

by Michael O'Rielly

One of the undeniable priorities of the federal government is to preserve the security of the nation – and as a result, the safety and security of the American people – against those who seek to do us harm.  At the same time, national security-based prohibitions and restrictions should not be used like a fishing net to capture unrelated matters or entities.  Their application must be narrowly tailored to only those relevant threats or risks.  Simply put, over-inclusiveness under the guise of national security stifles or stops dead legitimate and positive activities and commerce.  Yet recent telecom debates and the accompanying rhetoric have suggested that some people believe foreign equipment manufacturers are monolithic and all of equal risk to U.S. national security and its companion concern: supply chain breakdowns.  This kind of imprecision can negatively and unfairly impact the market.  Policymakers should carefully differentiate, in their words and when drafting legislative text, between foreign equipment manufacturers that are a real risk to national security and those global manufacturers that are not.  

To unpack the current provider market for telecom equipment, it’s worth understanding some of the past.  Until the mid-1990s, the U.S. had several fairly strong equipment manufacturers headquartered domestically and operating globally.  They supplied much of the old needs of the world’s telecom providers.  Because of a number of factors, including the development of new Internet equipment providers, poor management and decisions, implosion of the long-distance sector, and an overall bursting of the telecom industry stock bubble, U.S. manufacturers faced enormous pressures.  Equipment providers went through a very long and painful rebranding and industry consolidation, leading to some leaving the business and to foreign companies merging with and some ultimately purchasing U.S. providers.  As a result, much of the U.S. market, certainly the wireless sector, is serviced primarily by global telecom equipment providers that are, in fact, headquartered overseas. 

Deriding global equipment providers for being “foreign,” however, does a real injustice to their underlying U.S. roots.  In reality, three of the larger companies – Ericsson, Nokia, and Samsung – are headquartered in U.S.-allied countries.  They partner with U.S. law enforcement and intelligence agencies, as well as global intelligence agencies, as necessary and appropriate.  Moreover, these companies are de facto American, given their massive investments in facilities, workers, and responsibilities in this country.  Research and development is done here; their customer deployments are managed, led, and executed here; and their procedures and operations comply with all U.S. law.  At least one manufactures 5G equipment here.  They should be viewed not as foreign affiliates, but U.S. companies that also have affiliates throughout the world.  Given the unique histories of each of these companies, it’s irrational to think or expect that they would relocate their headquarters to the U.S.  Nonetheless, this is not a reason to treat them as anything other than trusted partners in the fight against risks to U.S. national security. 

The situation involving these trusted equipment providers differs substantially from at least two others.  The first are foreign-based equipment providers that originate or reside in adversarial countries known to directly generate national security risks, or that have obligations because of their headquarters within those foreign governments or regimes.  Because of these relationships, the practices of their host countries, and other considerations, equipment firms from Russia and China have appropriately received additional scrutiny and remediation efforts.  Treating these companies in adversarial countries differently, as U.S. lawmakers have done in recent times, can make sense under the right conditions.

Chinese companies, in particular, can raise certain political and economic tensions, given the Chinese government’s historic involvement in commerce and the operational requirements it imposes.  Added to this is extensive mistrust internationally from decades of sensitive and critical intellectual property and business secret-stealing by Chinese organizations.  Furthermore, financial arrangements and lending practices of the Chinese government, combined with the involvement of Communist Party officials in companies’ activities, produce additional national security concerns. 

The second category worthy of greater review are those equipment providers headquartered in the U.S. that effectively conduct all their work offshore or by foreign operators.  Having a shell of a company in the U.S. claiming to be a domestic provider should cause heightened attention.  At a very minimum, these companies should not be placed on a pedestal.  Yet, these types of companies have been lining up efforts to both receive favorable treatment as “U.S. firms” and impose penalties or competitive disadvantages on trusted global equipment providers.  That twists logic on its head. 

This circumstance is exactly why headquarters location is such a poor measurement of how “domesticated” or “U.S. nationalized” a company supposedly is.  The selection of a location for company headquarters is done for many reasons, like owners’ nationality or tax and legal purposes, and is difficult to determine based on this how exactly ingrained the company may be in U.S. soil or society.  It is also always subjective, as someone must make a judgment call about whether certain functions or services should count as domestic or foreign, and then determine if those rise above some arbitrary level.  In the end, it is a useless exercise, because domestication does not necessarily equal trusted partners and overseas producers don’t necessarily equal greater risk to U.S. national security.  

Instead, whether a firm can be trusted to protect U.S. national security should be the proper determination.  Is the equipment it builds, installs, manages, or sells trustworthy?  In other words, is its equipment properly secure from being used for nefarious or harmful purposes?  Does it alert proper authorities if or when a secure chain is compromised?  Does it provide equipment and service to the U.S. government for sensitive functions?  These are just some of the questions that are relevant when discussing trust, and they get to the heart of whether national security concerns may be raised by an equipment provider or servicer. 

While imprecision may be plaguing recent debates, official congressional actions through the legislative process have actually proven to be thoughtfully constructed and consistent with my points here.  Consider the Secure and Trusted Communications Act of 2019 (P.L. 116-124).  Section 2 requires the FCC to produce a public list, which it has done since, of covered communications equipment or services that “poses an unacceptable risk to the national security of the United States or the security and safety of United States persons.”  In section 8, the law requires the National Telecommunications and Information Administration (NTIA) within the U.S. Department of Commerce to “engage with trusted providers of advanced communications service and trusted suppliers of communications equipment or services.” It specifically defines “trusted” to only be those providers or suppliers, “not owned by, controlled by, or subject to the influence of a foreign adversary.”  This is certainly one direction for addressing national security that avoids a proximity examination of a company’s headquarters to U.S. homeland.  

That law differs substantially from other, misguided legislative efforts.  For example, a Senate amendment filed to the U.S. Innovation and Competition Act (formerly the Endless Frontier Act) would have created a new grant program to promote Open Radio Access Networks, or Open RAN, but limited funding to only companies that are U.S.-headquartered.  Thankfully, the amendment was not offered or approved, partly because it would have raised numerous violations of U.S. obligations to the World Trade Organization, and partly because it is lousy policy.  Likewise, the House is not immune from such wrongheaded efforts.  Report language was added to the House Armed Services Committee’s FY2022 National Defense Authorization Act favoring Open RAN and seeking reports from the U.S. Department of Defense on its efforts “supporting the development of a domestic industrial base for 5G.”  This is a blatant attempt to favor U.S.-headquartered companies at the expense of trusted global telecom equipment providers. 

In the end, the foreign headquarters location debate, and considering ways to inappropriately treat global equipment and service providers, are detrimental to national security by impeding such trusted companies.  These efforts ignore the real threats and seek to promote U.S.-headquartered companies, which typically are mere shells for work done overseas.  That means policymakers must stop drafting and advocating for imprecise or intentionally slanted efforts that focus on the wrong targets.  Congress has proven that it can and should center attention and added scrutiny on non-trusted providers, and the rhetoric leading up to any final law should match this approach. 

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The opinions expressed in this document are those of the author and are not intended to be a submission to the Federal Communications Commission (or any other government agency or proceeding) with the intent to influence agency employees in the performance of their official duties in any current or future Commission matter.