Under Chairman Ajit Pai, the U.S. Federal Communications Commission made itself a tool of the Trump administration’s assault on economic relations with China. One part of this was an attempt to expel China Telecom (Americas) from the U.S. market. The FCC issued an order to China Telecom of the Americas (CTA) in April asking the company “to show cause why the Commission should not initiate a proceeding to revoke and terminate China Telecom Americas’ domestic and international” authorizations to conduct business in the United States. IGP has filed comments in that proceeding opposing this expulsion.

By commenting in this proceeding, we want to call attention to the irrationality of this proceeding. It is not only procedurally unfair, it constitutes a turn away from the policy of a global, open internet and open market competition in telecommunications.

After the World Trade Organization (WTO) Basic Telecom Agreement of 1997, the FCC determined in its Foreign Participation Order that it served the public interest to adopt rules to open the U.S. market to competition from foreign companies. In that proceeding the Commission wrote:

“The Commission found its new ‘open entry’ standard, in conjunction with enhanced safeguards and WTO Members’ commitments, would produce significant consumer benefits through lower prices for existing services and greater service innovation, as well as one-stop shopping resulting from newly-found efficiencies.  In addition, the Commission found that the “open entry” standard would better achieve the original goals of the Foreign Carrier Entry Order:  (1) to promote effective competition in the U.S. telecommunications services market; (2) to prevent anticompetitive conduct in the provision of international services or facilities; and (3) to encourage foreign governments to open their telecommunications markets.”[1]

Free trade in services, competition, and the WTO Agreement on Basic Telecommunications, according to FCC reports, have resulted in declining international calling prices, increased competition, privatization and liberalization in the rest of the world, and the opening of foreign countries, including China to some extent, to more foreign participation.

Trade liberalization was essential in paving the way for the global development of the internet which, despite barriers and censorship within China, continues to support the growth of U.S. information services firms and make independent sources of information available to Chinese citizens who know how to find it.

With the proposed withdrawal of China Telecom America’s (CTA) section 214 authorizations and International Signaling Point Codes (ISPCs), the Commission is not just taking a step against China, it also risks reversing the economic and social gains of a free and open internet. Its basic argument is that the presence of a foreign telecom service provider in the U.S. constitutes a threat per se, regardless of any behaviors or actions by the provider. This is a line of argument that throws us back to the late 19th century post, telegraph and telephone monopolies. And it fails to recognize that liberalization and integration of the world’s two largest economies actually enhances international security by fostering peaceful trade and mutual dependencies.

As an organization with substantial expertise in cybersecurity and its relationship to telecommunications, IGP finds the national security rationale advanced for this action to be completely lacking in merit. The FCC “Order to Show Cause” asks CTA to “provid[e] evidence that it is not subject to the exploitation, influence, and control of the Chinese government, and of its ongoing qualifications to hold domestic and international section 214 authorizations and to hold ISPCs, thereby demonstrating that the public convenience and necessity would be served by its retention of the authorizations and assignments.”

Whoever wrote this needs to be informed about basic logic, namely that it is not possible to prove a negative. If the FCC or the Executive branch believe that CTA has participated in or contributed to Chinese government espionage or sabotage, it should adduce such evidence and ask CTA to dispute or disprove it. Yet no such evidence is provided in the FCC International Bureau documents. This appears to be a retaliatory action motivated by political and military tensions between the U.S. and China, and unrelated to any behavior or risks associated with CTA’s presence in the US market; CTA is just a handy target. But it is the wrong target.

IGP understands the threat of Chinese government-sponsored cyber espionage and supports strong measures to defend against it and counter it in targeted ways. We have studied numerous cybersecurity incidents attributed to Chinese actors, including the OPM breach, APT40 intrusions on private industry, the Marriott Hotels breach, Gh0stNet, and others. In none of these cases is there any evidence that Chinese cyber-espionage relied on the presence of China Telecom in the US market. Chinese cyber espionage is not conducted by CTA and does not depend in any way on CTA’s section 214 authorizations or on its possession of ISPC assignments. The FCC International Bureau Order does not even attempt to provide evidence of such linkages.

One FCC Commissioner has claimed that “China Telecom Americas’ operations appear to provide opportunities for Chinese state-sponsored actors to disrupt and misroute U.S. communications traffic.” However, due to design flaws in the BGP routing protocol, any globally interconnected operator could, accidentally or deliberately, misroute internet traffic.  A section 214 authorization or ISPC in the US would not be necessary for that to happen. Carriers can protect against misrouting by adopting certain procedures in the management of their routing. CTA has actually followed industry-led efforts to adopt norms developed by the Internet Society, known as Mutually Agreed Norms for Routing Security (MANRS), to prevent such problems.

With these actions singling out a telecom provider solely due to its national origin, the US is backpedaling on its WTO commitments and undermining a highly successful trade policy. These actions could trigger a chain reaction, as similar “national security” arguments could be made against the presence of Apple, U.S. telecom companies, or Microsoft in the China or other BRICS countries markets. It should be noted that in the period leading up to the WTO agreement, the Chinese government sought to insulate its domestic telecommunications market from foreign access based on a belief that it would be a “national security threat.”[2] Economists and trade policy analysts rejected these arguments as protectionist, and they were right. With these FCC actions, the United States has come full circle, imitating mercantilist policies of the PRC and repudiating successful liberalization efforts that have produced major benefits for consumers and businesses.

While those aching for a power struggle with China will no doubt cheer the FCC on, we fail to see how U.S. citizens or businesses benefit from this action. It will not encourage the further opening of China’s markets to US providers – indeed it is not framed as a trade measure but is (falsely) presented as a national security measure. It will have no impact on the threat of cyber-espionage by Chinese state actors, which use generally available internet access and software vulnerabilities to facilitate their work. It will encourage a zero-sum game in which nation-states seek to create nationally-bounded internets elsewhere in the world. It is part of a protectionist, paranoid approach that will only heighten diplomatic and political tensions between the US and China, reduce competition and decrease opportunities for growth and innovation.

Communism is best combatted through the promotion of competitive, free markets and the free flow of information. This effort moves us in the opposite direction.

 

[1] In the Matter of Rules and Policies on Foreign Participation in the U.S. Telecommunications Market, IB Docket No. 97-142 Sept 19, 2000.

[2] M Mueller, Z Tan, China in the information age: Telecommunications and the dilemmas of reform. CSIS, 1997

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