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WATCH THIS SPACE: Proposed $700M Fix for Installed Foreign-Telecom Could Compound Fraud Related to Universal-Service-Fund Projects

Posted  May 31, 2019

Congress, the President, and the FCC are moving to restrict and phase out foreign-made telecommunications components seen as national security risks. While the president’s executive order of May 15, 2019 prohibits U.S. companies from buying foreign telecom, we have a huge problem: our systems already have large quantities of this equipment installed – antennas, radios, electronics, routers, services, etc. The Commerce Department is allowing U.S. companies 90-days to wrap up their business with the banned foreign companies and re-up their supply chains, but the clock is ticking. The proposed fix, $700M under the bipartisan 5G Leadership Act of 2019, could help, but will this fund fall prey to the fraud that already plagues massive U.S. programs meant to provide telecom service to all Americans?

Chinese telecom company Huawei, which supplies U.S. systems, is most prominently under attack for having a cozy relationship with the Chinese government and military. Huawei’s perceived vulnerability to security exploitation raises concerns about hacking, foreign surveillance, and risks to infrastructure, financial systems, transportation, and healthcare systems. In the push for commercial implementation of 5G networks, security and supply chain risks are particularly acute.

As it turns out, much of the existing insecure equipment was installed with assistance from the FCC’s massive Universal Service Fund (USF), which aims to provide telephone and internet access to all persons throughout the United States. The USF disburses billions of dollars every year and has been plagued by fraud in its various sub-programs.

One USF program, the Connect America Fund (previously known as the High-Cost Support program), subsidizes telecommunications services in high-cost rural and remote areas. Larger telecom companies generally don’t build in such low-profit areas and don’t use Huawei equipment. Smaller rural carriers take on these projects and fulfill them with hundreds of millions of dollars in subsidies from USF. They tend to use foreign-made equipment because it is half the price (or less). In addition to the Connect America Fund, foreign equipment and its potential security problems could also infect systems in other USF programs: E-Rate (schools and libraries), Lifeline (phones and internet), and Rural Health Care (telehealth and telemedicine).

But now, in addition to the executive order, the National Defense Authorization Act of 2019 prevents loans or grants to companies that do business with Huawei or ZTE, including presumably USF-funded projects. The FCC has proposed yet a separate ban on the use of Universal Service Fund monies for insecure foreign telecom equipment.

This leaves rural carriers in a bind. Future needs that would normally draw on foreign products to existing systems, such as new parts, network expansion, and upgrades for software mean that they risk losing USF funding. The proposed solution under the 5G Leadership Act would throw $700M to small carriers to rip out and replace Huawei and similar equipment.

Of great concern is that the USF programs and their huge funding levels have been the victims of repeated fraud. Reported fraud includes cheating in competitive bidding processes, bribing or providing lavish gifts to obtain the contracts, lying about the existence or need of subscribers or recipients of the subsidies, and over-ordering and then mothballing taxpayer-funded goods.  The fraud is pervasive enough that in February 2019 the FCC voted to create a new fraud division focused on USF fraud, waste and abuse.

As with any fraud in a government program or government contract, if a person or company wrongfully obtains or fraudulently implements a contract or arrangement using federal or state USF funds, they potentially could be held responsible under the federal and/or state False Claims Acts. The hidden nature of such frauds often requires whistleblowers to expose them and prevent further harms.

Will the proposed $700M fix for insecure supply chain risks introduced through USF programs be a further magnet for fraud that rips off taxpayers?  WATCH THIS SPACE.


If you know about fraud in Universal Service Fund programs, including Connect America (High Cost Support), E-Rate, Lifeline, or Rural HealthCare, contact us confidentially to determine whether you have a whistleblower case.


Tagged in: Bribery and Bid-Rigging, Contract Non-Compliance, Education Fraud, Falsifying Invoices, FCA Federal, FCA State, Government Procurement Fraud, Government Programs Fraud, Pricing Fraud,