Rip and Replace Has Stalled, and That Threatens National Security
Episode ID S2E11
October 12, 2023
The effort to rip out and replace non-compliant, Chinese-made equipment from communication networks has been hobbled by a 60% funding shortfall and processing delays of 5-10 months. It’s jeopardizing not only national security, but also rural wireless access to 911 and the survival of local operators. In this episode of All Day Digital, telecom policy expert and Rural Wireless Association general counsel Carri Bennet outlines how we got here and what Congress needs to do now.
Carri Bennet: It's our understanding that one of the consultants that we work with said at the rate that we're going, it is going to take 17 years before this problem is solved if they don't put more attention on it.
Jeff Johnston: That was Carri Bennet, partner at Womble Bond Dickinson, about the massive delays stemming from the processes the government has put in place to fund the rip and replacement of non-compliant communications equipment.
Hello there, and welcome to the All Day Digital podcast, where we talk to industry executives and thought leaders to get their perspective on a wide range of factors shaping the communications industry. This podcast is brought to you by CoBank’s Knowledge Exchange group, and I am your host, Jeff Johnston.
In 2018, Congress passed the Secure Networks Act, which identified non-compliant telecommunications equipment that if in use, needed to be replaced for national security concerns. The Act appropriated $1.9 billion to cover the rip and replacement costs, which has turned out to be far too low, and the processes that have been put in place are far too cumbersome—all of which has put rural operators in an untenable situation.
Carri’s extensive telecom policy experience, and her advocacy work with the Rural Wireless Association, makes her the perfect guest to discuss this very important national security risk issue.
So, without any further ado, pitter patter, let’s hear what Carri has to say.
Carri, welcome to the podcast today. It is an absolute pleasure to have you back again.
Bennet: Thank you, Jeff. I'm so happy to be back, and I'm glad that we're all both healthy after Boston.
Johnston: There must have been something in the water in Boston. A number of people came back from NTCA feeling a little under the weather, you and I included. I'm super excited to have you on to talk about the rip and replace program and all the issues and challenges that rural wireless operators have been dealing with as they try to adhere to these requirements.
Before we get into the here and now and what's been happening in the last little bit, maybe you can just turn up to the level set, I guess, a little bit and just provide a very brief, high-level background as to what is the rip and replace program, and why do we have it, and who's impacted?
Bennet: Back in the, I want to say, 2010 time period, the FCC had a mobility fund phase one auction where they were auctioning off about $300 million to build out 3G and 4G in rural areas. It was the lowest price bidder got the money. A lot of companies at that point bid low, and they had been approached by both Huawei and ZTE, two companies that are based out of China and are heavily subsidized by the Chinese government to sell their equipment globally. A lot of the carriers, the small rural carriers, bought that equipment and installed it in their networks with the FCC's blessing and nobody telling them that there were any issues with this.
Then, lo and behold, it came out that there were some security issues with using Huawei and ZTE equipment. In 2012, I think it was first identified by Congress as an issue when Sprint tried to deploy it in their Clearwire network. They were told not to do that. Then fast-forward around 2018, the FCC issued a rulemaking to investigate this and try to do something about it. Congress eventually passed the Secured Networks Act, and along with that came $1.9 billion to rip and replace all of the Huawei and ZTE equipment, not only the wireless networks, but it turns out that Huawei has equipment for fiber optics equipment that lights up the fiber, and that has to be ripped out as well.
So any company that had ZTE or Huawei equipment, they got placed on a covered list, and they were covered companies that you cannot use that equipment anymore, and it had to be replaced. The program developed called the Reimbursement Program through the Secured Networks Act that Congress put into place, and the FCC started administering that.
In January of last year, or two years ago, companies had to put—I think it's going two years now, I'm losing track of time—had to put in their costs. The FCC last July told each company how much they were going to get. Unfortunately, there wasn't enough funding to distribute it to everyone. The FCC had a shortfall of roughly 60%, they could only fund the program by about 40%. That's caused a lot of problems with the plans and how the companies have had to rejigger what they're going to do and the priority that they're going to do it in.
They're still waiting for more funding for the shortfall, which is roughly about $3.5 billion or so. Congress keeps working on trying to allocate more money, but as you see, we almost had a government shutdown, and there's no sliver of hope from what we're seeing right now in the current budget to take care of this problem — even though there's been several folks who have put legislation through to try to solve the problem with the funding.
Johnston: So it’s not just the fact that Congress has yet to appropriate sufficient funds to cover all the costs associated with ripping and replacing non-compliant equipment, The reimbursement process that has been set up is another issue operators need to deal with. Let’s see what Carri has to say about that.
Bennet: The companies, as of July of this past year, they had to submit their first invoice because that was a requirement under the Secure Networks Act. Those invoices have to start getting processed. Once you submit your first invoice and you receive your first payment on an invoice, that triggers the one-year timeline for completing your project. With these wireless networks, these are not things that can easily be done within a short timeframe. The folks who are participating in the program strategically didn't put that invoice in until the absolute last day to buy themselves time.
The FCC has received several extension requests. They've granted one to a company called Stealth Communications who has fiber in New York City. There are several more pending. We're waiting for the FCC to work on granting those. As part of our advocacy work that we do through the Rural Wireless Association, we've asked the FCC to really monitor what's going on with the processing of the invoices.
EY has been, until most recently, really understaffed. I think they were overwhelmed by the number of invoices that they were getting. Nothing along the lines of what they anticipated. There's been huge delays associated with processing invoices, getting money into the hands of people so that they can finish the project. There is a letter-perfect standard that the bean counters at EY are using to ensure that there's not waste, fraud, and abuse in the program.
It's almost like they've over-rotated on that to the point that the delays associated with processing the invoices are causing all kinds of problems to the carriers who are trying to complete the work. A lot of these carriers did not have money lying around to do this and then seek reimbursement for doing it. They're very dependent on the money and the cash coming back to them once they've submitted the invoices.
But we're seeing invoice processing taking over in some instances 150 to 300 days. It's also causing a ton of delay for what is supposed to be a hugely national security issue. We saw when the Chinese balloons were floating over the country and we were trying to figure out what they are doing. Uniquely if you look at that path, it follows where a lot of this equipment is, particularly the Huawei equipment.
Was that trying to pick up on data that they're trying to collect? Some of these networks are close to military bases, so we've got to have more attention paid to the program, a faster way to process the invoices. And the FCC has to be more diligent and maybe a bit more lenient in trying to get the project done with the fund administrator. It's our understanding that one of the consultants that we work with said at the rate that we're going, it is going to take 17 years before this problem is solved if they don't put more attention on it.
Not even more attention in the sense of the fund administrator staffing up and working through these issues but we need the rest of the funding to come through. That can only be done by Congress. Now let me tell you about-- I know you haven't asked me this question but a huge wrinkle that we just heard about is this program can only fund 3G and 4G replacement of networks. Well, 3G is off the table. Nobody's going to put in a 3G network. We're really talking about it's to do 4G. Guess where we are? We're at 5G. Guess who's not making just 4G equipment anymore?
There's not going to be equipment down the road to do 4G, so Congress is going to have to look at adjusting what equipment is eligible, and to the extent that they can just change the law to say, "Yes, you can use your funding. You don't get any more new funding than what you already asked for except for what we can try to allocate because we have that $3.5 billion shortfall." We think it's wise to let you spend it on 5G, because that's where we are folks. We're at 5G. We're not at 4G anymore. And right now, we've just heard from one of the members of RWA that if I don't purchase this 4G equipment now, in the next six months, I can't get it. It's not going to be available.
Johnston: Wow, wow, wow. Lots to lots to talk about there. In the meantime, you've got these shrinking wireless networks, I would imagine, in rural America. You've got, in some cases these are the only networks or the only source of communication folks have, and these networks are shrinking because as I understand it, and correct me if I'm wrong, but you got in some instances where the rip has happened for whatever reason, maybe they weren't getting support anymore because Huawei's no longer supporting it, but the replace hasn't happened for a lot of the reasons you've talked about. To me that means you've got shrinking wireless networks, shrinking coverage in rural America. Is that a fair statement?
Bennet: That is a fair statement because when you only have so many dollars, you can only replace so much equipment. That is exactly true. They’re hoping that they'll get more money so they can put back up the network equipment that they had to take down that they haven't been able to replace. Some of those cell sites that are further out in rural and remote areas are just gone.
And that means nobody can make a 911 call. If you need help, nobody's going to be able to come to your rescue. It's not just the people who are served by that particular network. You have to remember other carriers' customers are roaming on these networks. Verizon, AT&T, T-Mobile customers aren't going to be able to access networks that don't exist.
Johnston: That's a good point. That's a very good point. I think in some instances when you look at the revenue profile of some of these rural wireless operators, sometimes more than 50% of the revenue is coming from roaming. Is that true? To your point, it's not just the rural customers who are getting impacted here.
Bennet: That is true and to the extent that the large carriers' customers aren't able to roam on them, they will lose roaming revenue, which just complicates the problem or compounds it because now they don't have the rip and replace funding.
Johnston: Costs keep going up so I can only imagine how difficult of an environment this is for these folks. You've got labor costs going up, equipment costs going up, and you've got all these delays and uncertainties around funding. That just seems like an untenable situation for these folks.
Bennet: I used to say they're stuck between a rock and a hard place, but now it's a rock and a hard place with a sledgehammer coming down on you. [laughs]
Johnston: On the financing side, it's like interest rates have gone up a lot so your financing costs have gone up significantly since this whole thing started when money was free. Even getting access to money is getting harder with credit tightening from banks and so forth.
Bennet: Not to mention the time they should be spending on the work to get the new networks deployed and the old networks ripped out they're spending going back and forth with the fund administrator nitpicking on invoices.
Johnston: What I struggle with, Carri, is if you look at the bipartisan support to bridge the digital divide through the Infrastructure Investment and Jobs Act, it looked like it was pretty solid, $42.5 billion to bridge the digital divide, so there seems to be bipartisan acknowledgment and support that coverage in rural America is a top priority, certainly on the broadband to the home side of things. Wireless certainly should be included in that as well. Why do you think this is just taking— Maybe it's just the bigger issues in Congress.
Bennet: I think anytime you're asking for more money to be spent on something, you have the hawks in Congress watching every penny and we saw that with the avoidance of the government shutdown. We have certain members of Congress who just don't want to spend any more money and they don't understand this. It's odd because the Secure Networks Act passed bicameral, bipartisan support but to pass something and say how important it is and then not fully fund it? That's untenable. This program is being held hostage to other things that are going on in Congress related to funding. I think we had a bipartisan bill introduced by Senator Deb Fisher and Senator Hickenlooper to fully fund this. It tried to get attached to the NDAA, the National Defense Authorization Act, which is a good piece of legislation to get things through.
It makes sense that it would be attached to that but some of the other members of Congress want to see the funding come through the Spectrum Reauthorization Bill and they have issues that they have tied to the Spectrum Reauthorization Bill that are not quite as bipartisan, so trying to attach it to that is a bit unfortunate. Then we have this bigger overall possibility of having it included in the overall fiscal year 2024 budget, but you can see all the political issues with that.
Now I will say Congress came together on Saturday, and they got that done for 45 days. They kicked the can out down the road. The next 45 days could be really instrumental to this program and so I really appreciate the opportunity to talk to you, Jeff, and get it out there that this is something that Congress really needs to pay attention to.
For this to be a national security issue, the way the Secure Networks Act bill was passed and put into play, it needs to be prioritized. The funding needs to be prioritized and the work that the government is doing to implement the program needs to be speeded up.
Johnston: Well, I think what really hit home here with me, Carri, is when you talked about the path that that Chinese balloon took, and then how it mapped out to where existing Chinese, terrestrial networks are. That's pretty scary in and of itself and I would think that would be a huge wake-up call to Congress and to others to recognize the sheer gravity of the security risk that we're dealing with here.
Bennet: Those networks have not been shut down yet, because you can't shut these networks down till you build the new networks and you migrate the customer base over. So it's a huge problem.
Johnston: I'm just curious, Carri, where do you think this ranks in terms of a priority? I saw the House Energy and Commerce Committee had sent a letter just identifying this as a huge security risk, and it needs to get addressed, but here we go, we've been at this for a long time now, and I feel like we're just spinning our wheels. Do you think this is a top priority for congress? Do they recognize what we're dealing with here?
Bennet: I don't know that they fully recognize it because I think if they fully recognize it, they would have done something about it. It's a question that I don't even know how to respond to because they've all said it was a priority, they've all put the Secure Networks Act together. It got passed. They partially funded it. Nobody knew we were going to get through a pandemic, and the prices were going to rise, and everything was going to spin out of control. They have the power to fix it. They just need to pull together and do it.
I know it sounds like a lot of money when we're talking about the NDAA, this is small potatoes when it comes to the funding for other Department of Defense projects, military, all of that, so it seems to me that it should be a no-brainer, and I just don't understand why it's not.
Johnston: Oh, I couldn't agree more.
Bennet: I wish I had an answer. I wish I could say, "There's one person, and it's all that person's fault," but it takes a village to pass legislation, including the appropriations.
Johnston: $3.5 billion, sure, it's a lot of money, but in the grand scheme of things to address the national security risk, it's peanuts. It really is.
Bennet: Yes. Exactly.
Johnston: We've covered a lot here, Carri. This has been great. Before we wrap it up, I just want to give you a chance to emphasize anything that we talked about, or if there's questions I didn't ask, or areas you want to just touch on as we wrap it up, the stage is yours.
Bennet: I appreciate the platform. I think I spoke my mind, so I don't have anything really further to add except, get it done, and get it done, don't wait any longer. Get it done by the end of the year. If nothing else, put the funding into the budget and let us get our work done, and let's light a fire under the FCC and EY to get these things processed because it's not the carriers that are holding it up. It's the system and the process.
Johnston: Amen. Well said. The carriers that I've spoken to, they're all patriots. They want to do the right thing. They want to make sure that they're doing their part to address any national security concerns, so I know they're ready, and willing, and able and want to do the right thing to make sure their networks are safe and secure. I know they're very frustrated because they can't do their part because of what's happening in Washington, so yes, things need to get moving here.
Bennet: Thank you for the opportunity, Jeff.
Johnston: All right, thanks for being on, Carri. Appreciate it. Great seeing you.
A special thanks goes out to Carri for taking time out of her day to share some great insight. Carri made a compelling argument for why Congress needs to move quickly on ensuring they address the $3.5 billion funding shortfall in the Secure Networks Act. The way I see it we have a huge national security risk that was in plain sight when the Chinese surveillance balloon followed a path of U.S. networks running non-compliant Chinese made equipment. We also have a massive safety issue in rural America with these shrinking wireless networks and people not being able to make 911 calls. Then we have these poor, rural operators who are bearing the brunt of this operationally and financially to no fault of their own. Hopefully Congress hears these issues, appreciates the severity of them, and does the right thing by addressing the funding shortfall ASAP.
Hey, thanks for joining us today and watch out for our next episode of the All Day Digital podcast.
Disclaimer: The information provided in this podcast is not intended to be investment, tax, or legal advice and should not be relied upon by listeners for such purposes. The information contained in this podcast has been compiled from what CoBank regards as reliable sources. However, CoBank does not make any representation or warranty regarding the content, and disclaims any responsibility for the information, materials, third-party opinions, and data included in this podcast. In no event will CoBank be liable for any decision made or actions taken by any person or persons relying on the information contained in this podcast.