Equipment Ban Creates Static for Rural Telecom Operators

Complete replacement of Huawei equipment could disrupt network operations, cost $1 billion to replace

President Trump’s recent executive order that likely will soon effectively ban U.S. telecommunications operators from buying Huawei-made telecom equipment is expected to impact rural telecom operators more severely than other operators in America. A prohibition against Huawei network technology may force operators to seek replacement equipment from alternative vendors.

According to a new report from the CoBank Knowledge Exchange Division, in recent years, rural operators had little choice but to purchase core technologies from Huawei—the global market share leader in the telecom equipment industry—for use in their networks. For some rural operators that sought bids, competing vendors would not respond to proposal requests for network equipment, or the prices quoted were 30% to 40% higher than what Huawei was offering.

However, it appears likely that rural operators will not be able to rely on Huawei equipment much longer. The president’s executive order signed on May 15, 2019, laid the groundwork to block certain Chinese telecom companies from selling equipment to U.S. companies. The Department of Commerce has 150 days from when the order was signed to establish rules that identify “particular countries or persons” as foreign adversaries. It is conventional wisdom that Huawei will be listed as a foreign adversary. In conjunction with the executive order, the Department of Commerce added Huawei to its “entity list,” which restricts how U.S. companies engage in commerce with certain foreign organizations.

Congress has introduced a bill that would provide up to $700 million to help telecom carriers remove Huawei equipment from their networks. However, according to Jeff Johnston, lead economist for the communications sector at CoBank, the actual costs are likely to top $1 billion.

“If U.S. carriers are required to replace Huawei gear, the government needs to increase its proposed support mechanism to avoid putting rural operators in dire straits,” Johnston said. Beyond the costs, there are operational issues that also need to be considered.

“A system-wide replacement of network technology from a new vendor can lead to service outages and other operational issues that can impact network access,” said Johnston. “Even if the government does not require a rip-and-replace, some operators may be forced to do so anyway. Mixing and matching vendor equipment in a network can be problematic, increasing the need for product development and testing costs, for example.”

Read the full report, Equipment Ban Creates Static for Rural Telecom Operators.

About CoBank

CoBank is a $138 billion cooperative bank serving vital industries across rural America. The bank provides loans, leases, export financing and other financial services to agribusinesses and rural power, water and communications providers in all 50 states. The bank also provides wholesale loans and other financial services to affiliated Farm Credit associations serving more than 70,000 farmers, ranchers and other rural borrowers in 23 states around the country.

CoBank is a member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture, rural infrastructure and rural communities. Headquartered outside Denver, Colorado, CoBank serves customers from regional banking centers across the U.S. and also maintains an international representative office in Singapore.

For more information about CoBank, visit the bank's website at cobank.com.

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