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In an announcement Friday, the U.S. Federal Communications Commission (FCC) designated Chinese network equipment makers Huawei and ZTE as the initial “companies that pose a national security risk” to the United States and, therefore, ineligible to supply equipment or services under the $8.5 billion Universal Service Fund (USF).

In the same announcement, the FCC said it has adopted a further notice of proposed rulemaking requiring U.S. wireless carriers that receive USF funds “to remove and replace existing equipment and services” acquired from both Huawei and ZTE. The new notice also seeks comment on how carriers are to pay for dumping the Chinese-made equipment.

The FCC took action against the two companies today, citing an “even greater” risk that secret “backdoors” into the nation’s next generation (5G) of communications networks will allow a “hostile foreign power to “engage in espionage, inject malware, or steal Americans’ data.” The agency also said that Huawei and ZTE “have close ties to the Chinese government and military apparatus and are subject to Chinese laws requiring them to assist with espionage, a threat recognized by other federal agencies and the governments of other nations.”

Huawei was quick to issue its own statement on the FCC action, claiming that it was “based on selective information, innuendo, and mistaken assumptions.” The company also said that the FCC’s decision “will have profound negative effects on connectivity for Americans in rural and underserved areas across the United States.”

The root of the problem lies in a requirement of Chinese law that Chinese companies must, if asked, cooperate with the government in gathering intelligence, although government officials claim the companies must follow local laws to the letter. And there is evidence that a China-based hacking group did work in concert with a government agency.

Huawei is urging the FCC to refrain from finalizing Friday’s order, claiming: “The FCC’s process for labeling Huawei a security threat violates bedrock principles of due process and is based on nothing more than irrational speculation and innuendo.”

The company is unlikely to get its wish.

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