The Federal Communications Commission said Monday that China’s Huawei and ZTE Corporation (OTC:ZTCOY) threaten the integrity of communications networks and communications supply chains in the United States.

What Happened

FCC Commissioner, Brendan Carr, released a statement prohibiting U.S. firms from using or purchasing Huawei or ZTE equipment if they receive FCC subsidies that promote universal access under the Universal Service Fund.

Carr said, “We cannot treat Huawei and ZTE as anything less than a threat to our collective security.” 

Carr explained the rationale behind the latest FCC move by saying, “Communist China intends to surveil persons within our borders and engage in large-scale, industrial espionage.”

The commissioner said prohibiting subsidized Huawei and ZTE equipment from U.S. networks was necessary to address this type of national security threat. 

Why It Matters

The restrictions on the U.S. telecommunications firms mean that they will no longer be able to tap the $ 8.3 billion in subsidies for purchasing Huawei and ZTE equipment.

The FCC is considering removing Chinese equipment from the U.S. networks with Commissioner Geoffrey Starks demanding funding from the Congress to remove the same. 

Last month, the FCC issued show-cause orders to the U.S. arms of China Telecom Corporation and China Unicom, both Chinese state-owned entities. The two companies then urged the regulator not to shut their operations in the United States.

Price Action

On Monday, ZTE OTC shares closed 2.34% at $5.85.