How the FCC’s ‘rip and replace’ program may help kill some small carriers

ORLANDO – Chris Townson is a NASCAR fan. He understands the strategies drivers use to get ahead. And he also knows the pitfalls that drivers may encounter as they race around the track.

As Townson tells it, one big difficulty drivers face is deciding when to head to the pit stop. If they pit at the wrong time, they might lose a winning position – through no fault of their own – if race officials put up a caution flag for other drivers.

“It’s a matter of timing,” he explained.

The same, Townson said, has been true of his experience in the FCC’s “rip and replace” program. The effort, formalized this year, is designed to reimburse small carriers like DTC Communications, the Tennessee-based operator that Townson leads, so they can tear out network equipment from Chinese vendors like Huawei and ZTE that the US government has deemed insecure. The program’s goal is to finance the replacement of that equipment with gear from “trusted” vendors. The program today has $1.9 billion in funding from Congress, and the agency is expected to begin accepting reimbursement applications in the coming months.

“It’s exciting. It’s a little daunting,” said John Nettles, president of Alabama-based Pine Belt Communications, another carrier with Chinese equipment in its network. Pine Belt Communications hasn’t started removing any of its Chinese equipment yet, but is planning to select vendors to do so as part of the FCC’s “rip and replace” program (officially dubbed the “Secure and Trusted Communications Networks Reimbursement Program”) in the coming months.

However – as with almost any government-orchestrated broadband program – there are plenty of concerns that the FCC’s reimbursement efforts could do more harm than good.

A confluence of factors

“Who can I trust?” Townson wondered, explaining that DTC is working to select a “rip and replace” vendor for its ZTE-supplied fixed wireless network across eastern Tennessee. Should that equipment support open RAN technologies? Should it come from an American manufacturer, or will a Swedish one be OK?

It’s a valid question: After all, DTC purchased ZTE’s 3G equipment in 2014 partly with government financing. At the time, there were some rumblings in Washington about the potential threat posed by equipment from Chinese vendors, but there were no restrictions on the sale of that equipment to US-based companies like DTC.

In fact, as Townson explained here at the WIA’s Connect (X) trade show, DTC’s selection of ZTE as its vendor was partly driven by the US government’s own penny-pinching broadband programs. He said DTC participated in one of the government’s reverse auctions for broadband service, whereby companies like DTC submit bids to build coverage in rural areas. Similar to the FCC’s recent Rural Digital Opportunity Fund, the company with the lowest bid often wins, thus forcing that winning company to find the cheapest equipment possible to provide profitable service.

In DTC’s case, that equipment came from China’s ZTE. According to a number of US government officials, Chinese suppliers like Huawei and ZTE were able to dramatically undercut rival vendors’ pricing thanks to financing provided by the Chinese government. Beijing’s ultimate goal, according to US officials, was to get Chinese-made equipment into international telecom networks to facilitate global espionage. That’s why Congress appropriated $1.9 billion this year to tear out such equipment.

The lesson, according to Townson: “Don’t do programs that do the lowest cost,” he said. “You get what you pay for.”

Also: “It’s all timing,” he reiterated.

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