Untrusted Comms Supply Chain Gear Could Have Broad Impact

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A pending Commerce Department rule requiring telecoms to remove equipment made by companies deemed to be national security risks could potentially impact between 268,000 and 4,533,000 companies, according to new department analysis. Commerce estimated the total annual cost to be between $235 million and $20 billion — or between $210 million and $19 billion, depending on which discount rate is used.

The six countries on Commerce’s list — China, Cuba, Iran, North Korea, Russia and Venezuela — account for more than half of the imports by U.S. companies in multiple computing and electronics sectors. 

The Department of Commerce analysis includes broadcast equipment, such as audio and video transmission gear, too. A manufacturing sampling includes: Wireless, Radio and Television Communications Equipment, Telephone Apparatus, Audio and Video Equipment, Fiber Optic Cable, as well as Broadcast Stations and Telecoms.    

Imports accounted for over 50 percent of the total supply of 6 out of 14 Information and Communications Technology (ICT) sectors, as shown in Table 8 (on page 19 of the report). The sector with the greatest single share of U.S. supply accounted for by imports was Audio and video equipment manufacturing at 91 percent. Among communications equipment, 77 percent of total Broadcast and wireless communication equipment supply, and 60 percent of total Telephone apparatus manufacturing supply in the United States, originated abroad. The data are accurate as of 2018.

The Department created a list of 35 ICT sectors that include industries likely affected by the pending rule from the North American Industrial Classification System. Generally, the Department identified the Telecommunications sector as three subsectors: equipment manufacturers, services providers, and resellers. Equipment manufacturers include telecommunications equipment manufacturers that produce equipment used in telephone, data, broadcasting, and wireless communications networks. Companies in the telecommunications services sector operate and/or provide access to facilities for the transmission of voice and sound, data, text, and video via wired, wireless, and satellite networks. Resellers of telecommunication services purchase network access and capacity from telecommunication service providers and resell telecommunication services to household and business users.

How will the rule affect the U.S. economy? It’s likely to frustrate the industry, according to the Commerce Department. “The restriction of imports from adversarial nations will likely increase production costs of [telecom] firms as they substitute higher priced alternatives for restricted imports,” the department said in the regulatory impact analysis. And even the industry firms that don’t have risky equipment to deal with, “may face higher production costs as they compete for a reduced supply of available inputs.”

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