ZTE may not be able to use Google's Android operating system in its mobile devices after the U.S. limited ZTE's access to American suppliers this week, a source familiar with the matter said, potentially adding another drag on U.S. sales for the Chinese firm.
ZTE and the Alphabet unit have been discussing the impact of the U.S. government ban, the source added, but the two companies had not reached a decision about the use of Android by ZTE as of Tuesday morning.
The U.S. Commerce Department on Monday banned American firms from selling parts and software to ZTE for seven years. The move was sparked by ZTE's violation of an agreement that was reached after it was caught illegally shipping U.S. goods to Iran.
A day later, U.S. telecoms regulator the Federal Communications Commission voted 5-0 to advance new rules to bar government programs from buying from companies that pose a security threat to U.S. telecoms networks, a rule that could also hurt U.S. sales of ZTE and China's Huawei Technologies [HWT.UL].
The United States and China have threatened each other with tens of billions of dollars in tariffs in recent weeks, fanning worries of a full-blown trade war that could hurt global supply chains as well as business investment plans.
The proposed new FCC rules are expected to be finalized this year. They would prevent money from the $8.5 billion FCC Universal Service Fund, which includes subsidies for telephone service to poor and rural areas, from being spent on goods or services from companies or countries which pose a "national security threat to the integrity of communications networks or their supply chains."
(Reporting by Paresh Dave and David Shepardson; Additional writing by Diane Bartz and Chris Sanders; editing by Susan Thomas and Rosalba O'Brien)