Huawei is the world's largest manufacturer of telecommunications equipment and a leading smartphone brand. The company is also a leader in 5G technology equipment. ZTE also makes telecom equipment and smartphones, but is a much smaller player than Huawei.
FCC Chairman Ajit Pai argued that Huawei and ZTE pose a threat to the security of US communications networks because they must comply with Chinese law, which he says requires companies to comply with requests from the country's intelligence services.  "That means China could force Huawei to spy on US individuals and businesses," he wrote in an op-ed for The Wall Street Journal on Monday.
If a 5G network with Huawei equipment operated near a US military installation or other sensitive site, "Beijing could require the installation of a " back door "to allow secret access to the network, insert malicious software or viruses, and receive all kinds of information ̵
1; without Americans ever knowing it, "Pai added.
The agency will vote on its action next month, that would prohibit US companies receiving money from a $ 8.5 billion annual federal fund from using it to buy equipment or services from companies that Huawei and ZTE.
The United States has already severely restricted the Chinese companies' presence in major US networks.
But dozens of small, rural US networks are currently using Huawei and ZTE equipment, which Pai said "poses an unacceptable risk."
He said the FCC will also consider next month a proposal to remove and replace such equipment. "We will seek public input on how big this 'rip and replace' program must be and how we can best fund it," he said.
US lawmakers have already mulled how they can help small wireless network providers leave the Chinese companies. Last month, the house introduced a bill that would give such operators $ 1 billion to tear Huawei and ZTE equipment from their networks.
Huawei has strongly rejected claims that it poses a national security threat. On Tuesday, a spokesman for Huawei said in a statement that "banning certain vendors based on the country's origin will do nothing to protect the US telecommunications network."
The FCC's proposal will only harm underserved rural US territories and "further expand the digital divide; slow down the pace of economic development," the spokesman said, adding that the company is still open to talking to the US government and policy makers.
The company has also previously stated that because equipment sales to US operators make up only a small fraction of the business, pushing them out of the United States would have no significant impact on the business.
This is in stark contrast to the White House that prevents US companies from selling to Huawei, a move that threatens Huawi's smartphone business by removing access to Google services.
ZTE did not immediately respond to a request for comment. But the company has also previously disputed claims that their products pose a national security threat to the United States.
The company did not distribute regional sales figures in its quarterly revenue report this week, but its business with US network companies fades compared to what it does in its home country. Analysts at brokerage firm Jefferies say that over the past two years, ZTE generated 72% of carrier revenue from China.