Rip-and-Replace Continues to Feel Funding Shortfall, FCC Says

WASHINGTON, July 2, 2024 – Another nine companies have finished swapping out communications equipment from Huawei and ZTE since January, the Federal Communications Commission said in a new report to Congress, bringing the total to 14.

The Secure and Trusted Communications Networks Act of 2019 authorized the agency to reimburse providers for replacing gear from the two Chinese companies, which are considered security risks by U.S. lawmakers. 

Failure to replace that equipment would bar companies from participating in the FCC’s $8.1 billion Universal Service Fund subsidy program, which many rural networks rely on. Receipt of funds under the program came with a one-year mandatory deadline to achieve full replacement, though the agency may and has granted extensions to those deadlines.

The tight deadline has become a problem for the 122 applicants who have received some money under the program, known as “rip-and-replace.” Despite a $1.9 billion allocation from Congress, the FCC estimated the program was looking at a $3 billion shortfall.

The FCC's report, released Monday, said nearly 40% of recipients have told the agency they could not finish the replacement work without full funding, more than double the number that said so when the FCC submitted its last report in January. The FCC has granted 70 deadline extensions at least in part because of the lack of money, up from just 11 in January.

Those extension requests have been continuing to come in, with Florida provider Hotwire Communications asking the commission on July 1 to push its deadline back another six months to February 2025.

Companies are also feeling supply chain constraints and labor shortages, the report said, compounding the situation.

The agency has so far approved 23,830 reimbursement claims amounting to nearly $700 million. Applicants have received 39.5% of the approved cost of their reimbursement requests because of the funding shortfall.

“Several recipients have recently informed the FCC that they foresee significant consequences that could result from the lack of full funding, including having to shut down their networks or withdraw from the program,” FCC Chairwoman Jessica Rosenworcel wrote in a May letter to Congress. 

She said rural areas were especially vulnerable.

“Because Reimbursement Program recipients serve many rural and remote areas of the country where they may be the only mobile broadband service provider, a shutdown of all or part of their networks could eliminate the only provider in some regions.”

A bill that would fund rip and replace, among other things, with money from FCC spectrum auctions has repeatedly been scuttled in the Senate because of partisan disagreements over spectrum policy.