A $1.9B FCC fund to replace banned 5G telco gear might be too little

The Federal Communications Commission has opened up a $1.9 billion fund to help smaller, rural US telcos replace the 5G and other gear in their networks that is made by China-based Huawei and ZTE, whose equipment has been banned since the telecom providers bought it.

The Secure and Trusted Communications Networks Reimbursement Program will help service providers remove, replace, and dispose of the equipment, but it’s not likely to cover all their costs. “It’s hard to say what the gap is, but what I’m hearing from the rural wireless carriers and the others impacted by this, it won’t be enough,” said IDC research manager Patrick Filkins.

The fund is open only to carriers with 10 million or fewer subscribers, and that means mostly rural providers who were attracted to the Chinese companies at least in part because of their less expensive product lines.

The government bears some responsibility because of the way it sold the wireless spectrum that the equipment uses. Reverse auctions, in which participants won licenses based on providing the lowest cost services, encouraged them to buy the  Huawei and ZTE gear, which is generally lower priced than that of competitors such as Ericsson, Samsung, and Nokia.

That puts the affected telcos in a tough spot, according to Gartner director analyst Bill Menezes. “You’re going from a low-cost provider to a market with fewer providers, so it’s hard to determine if the pricing’s going to be as competitive as it was before,” he said.

Equipment made by Huawei and ZTE is banned from use on U.S. networks, due to security concerns.

The prospect of widespread 5G coverage in rural areas was a distant one already, in part because larger telecoms with vastly greater financial resources focus on providing coverage in dense urban cores rather than in rural areas. 

Since buying the requisite equipment and deploying 5G networks is likely out of reach for many rural carriers, other paths to 5G might have to be explored, according to Menezes. Teaming up with one of the bigger networks could be step one.

One idea, he said, would be to reduce the smaller providers’ spectrum-licensing costs by getting a good deal from one of the major telcos in exchange for favorable terms in roaming partnership agreements. “The carriers could offer some type of incentive for those networks to upgrade to 5G,” said Menezes.

There are other ways of covering the costs, Filkins said. Some providers are seeking private financing, and new technology, specifically OpenRAN, could help ease the burden, although that may not be an option for every provider at this point. OpenRAN standards could enable carriers to mix and match vendors when buying the components they need for their radio access networks, prompting competition that could lower prices.

“The government has tried to prop up OpenRAN vendors,” Filkins said. “They’re saying the OpenRAN vendors are more cost-beneficial. That may be true, but those standards and that technology aren’t quite market-ready yet.”

The deadline to apply for the FCC funds is Jan. 14, 2022.