Huawei ban threatens wireless service in rural areas

Mike Kilgore, the chief executive of Nemont, a wireless provider that serves an area larger than Maryland. Kilgore said he had asked for federal guidance before doing business with Huawie. Photo / NYT

Kevin Nelson was recently in the middle of his 3,800-acre farm in northeast Montana, where the landscape stretches out like an ocean, when his tractor broke. He tried to find a cellular signal strong enough to send a photo of the broken part to a repair shop 65 miles away, but failed.

"It's really frustrating," Nelson, 47, said about the poor reception. "We keep being told it's going to improve, it's going to improve."

Now it's not likely to improve anytime soon.

Plans to upgrade the wireless service near Nelson's farm halted abruptly this month when President Donald Trump issued an executive order that banned the purchase of equipment from companies posing a national security threat. That includes gear from Huawei, the Chinese telecommunications giant, a major supplier of equipment to rural wireless companies.

The chief executive of the wireless provider in Nelson's area said that without access to inexpensive Huawei products, his company could not afford to build a planned tower that would serve Nelson's farm.

The Trump administration's ban, its latest move against the company, rippled through the telecommunications industry. Wireless carriers in several countries, including Britain and Japan, said they would no longer sell the company's phones. Google said it would stop providing its Android operating software in new Huawei smartphones, which are popular in Europe and Asia.

But perhaps nowhere will the changes be felt more acutely than in rural America, where wireless service is spotty despite yearslong government efforts to improve coverage. They also add to the economic uncertainty created by the White House's trade war with China. Farmers are fearful of an extended hit to their exports.

Huawei is essential for many wireless carriers that serve sprawling, sparsely populated regions because its gear for transmitting cell signals often costs far less than other options.

The president's ban is forcing carriers like Nemont, which serves Opheim, to scrap expansion plans. In addition, some of the companies already using Huawei equipment fear that they will no longer receive government subsidies meant to help get service to remote areas.

Joseph Franell, the chief executive of Eastern Oregon Telecom, a small carrier that relies on Huawei products, said he was being forced to rethink his business.

"The reason why we are able to serve our customers is because we are mindful of costs," he said. "We don't go out and buy a Lamborghini when you can buy a Ford pickup."

While Huawei sells many types of technology, including smartphones, the vast majority of its revenue comes from sales of equipment that moves data through networks and to devices. Only a few other companies, like Nokia and Ericsson, both based in Europe, sell comparable gear.

U.S. intelligence officials have accused Huawei of being an extension of the Chinese government and say its equipment could be vulnerable to espionage and hacking. Trump also appears to be using Huawei as a bargaining chip in his escalating trade battle with China.

"Huawei is something that is very dangerous," the president said Thursday. "It's possible that Huawei would be included in some kind of trade deal."

A dirt road leading to farm land north of Opheim, Montana. Many small wireless carriers serving rural areas depend on inexpensive equipment from Huawei. Photo / NYT.

Huawei denies that it is a security risk, saying it is an independent business that does not act on behalf of the Chinese government. It says 500 carriers in more than 170 nations use its technology.

"Restricting Huawei from doing business in the U.S. will not make the U.S. more secure or stronger," Huawei said in a statement. "Instead, this will only serve to limit the U.S. to inferior yet more expensive alternatives."

Much of Trump's focus has been on the next generation of wireless technology, known as 5G. But Huawei already provides equipment to about a quarter of the country's smallest wireless carriers. The Rural Wireless Association, a trade group that represents 55 small carriers, estimates that it would cost its members US$800 million to US$1 billion to replace equipment from Huawei and ZTE, China's other maker of networking gear.

Huawei network boxes at a celltower southwest of Opheim, Montana. Local wireless service providers face subsidies being choked off if they continue to use the Chinese company's gear Photo / NYT.

Nemont, based near Opheim, is one of those companies. Its footprint is 14,000 square miles, bigger than Maryland, and requires huge amounts of wires, towers and other costly infrastructure. But the company has only 11,000 paying customers.

Nemont first reached out to Huawei nine years ago, when its members decided to upgrade their cellular network. With subsidies from the federal government, Nemont was prepared to spend about US$4 million on networking equipment like routers and other gear to put on dozens of cell towers across the region.

Even at the time, officials in the Obama administration voiced concerns about Chinese equipment makers and their ability to break into U.S. networks to steal intellectual property or hack into corporate or government networks. Defense Department officials and lawmakers said they were concerned that the Chinese government and military could use the equipment to intercept American communications.

The officials were vague about their concerns over Huawei, then a little-known firm. But Mike Kilgore, the chief executive of Nemont, said he had outlined Nemont's plans to buy Huawei equipment in a letter to Sen. Jon Tester, D-Mont., and asked whether Tester had security concerns.

Kilgore said he was ready to go another route if Huawei's equipment would put customers at risk. "I was begging for them to say, 'No, don't buy it,'" he said.

Tester's office called him and said it didn't see any major concerns with picking Huawei, Kilgore said. A spokesman for Tester said an aide had told Kilgore to contact the FBI and other intelligence officials for advice.

After the call, Kilgore chose Huawei, which offered to customise its equipment and charge 20 per cent to 30 per cent less than competitors.

Nemont has since expanded its high-speed wireless network using almost all Huawei equipment. Kilgore even visited Huawei's headquarters in Shenzhen, China. He is the president of the Rural Wireless Association, the trade group. Huawei has a representative on the group's board without voting rights, one of two board members who don't represent a wireless carrier.

"The other vendors hardly gave us the time of day, and now they have been acquired or are out of business," Kilgore said. "We took a gamble, but we clearly made the right bet."

The technological upgrade changed lives. Kevin Rasmussen was recently in the cab of his tractor using an iPad connected to high-speed internet beaming from a nearby cell tower. The connection worked with software on the iPad to help direct where the tractor poked holes in the soil and dropped seeds and fertilizer.

A celltower southwest of Opheim, Montana. Photo / NYT.

"I can sit up here in my tractor and do my banking, monitor six weather apps and read up on things like trade and Huawei, all on my phone," Rasmussen said. "Rural America needs this so badly."

Nemont had plans to extend that high-speed service. It had leased land in Opheim for a new cell tower that would have delivered a strong signal. That is the tower that would have improved the service on Nelson's farm.

But the company tabled those plans after Trump's executive order.

"We have no idea what we are going to be able to do," Kilgore said. "I'm not getting sleep at night."

Subsidies cut off

Many companies that extend wireless broadband to rural areas, like Nemont, depend on subsidies from the Federal Communications Commission. But Ajit Pai, the commission's chairman, has proposed cutting off that money to carriers using equipment from Huawei or ZTE.

"We believe that it is important that networks are secure not just in urban areas, but in rural areas as well," the agency said in a statement. "There are currently many rural broadband providers that use equipment that does not pose a national security risk."

Kilgore estimated that it would cost US$50 million to replace his Huawei equipment. If that is the only option, he said, he might have to shut down the company, leaving his customers without wireless service.

Rasmussen said that would be a big blow to his farming operation.

"We're getting squeezed on all sides," he said. "The tariffs and trade affect our prices, and now this could affect our ability to farm."

Kilgore has argued, through his work with the Rural Wireless Association, for an exemption to the FCC rule for small rural carriers, or for subsidies to replace the Huawei equipment. A bipartisan group senators recently introduced a bill that would set aside about US$700 million in grants to carriers forced to rip Huawei equipment from their networks.

Kilgore got another glimmer of hope, too. On Monday, he got an email saying Brendan Carr, an FCC commissioner, was heading out to Montana. They will get together in the next week.

"This is a big day," Kilgore said after getting the email. "It's not every day someone from Washington comes to visit."