Microsoft and the Information Technology Industry Council are lobbying against a potential import ban on Chinese optical transceivers currently under consideration by the FCC. The company is building 35 data centers across the United States with plans for 134 more. Reuters reported that Microsoft has met with the White House Office of Science and Technology Policy and the National Security Council regarding the matter.
Optical transceivers convert electrical signals into light pulses for transmission across fiber optics. Data centers use these modules to connect AI GPUs and server racks because they offer lower latency, require less power, and generate less heat than copper connections. Chinese companies currently supply 66% of the global market, and a ban would reduce the available supply by more than half, potentially worsening existing industry shortages.
Concerns regarding the ban involve the possibility that Beijing could use compromised transceivers to steal data, install malware, or remotely disrupt American data centers. This follows a precedent set by the ban on Huawei from the U.S. telecommunications network. However, unlike the telecommunications hardware industry, the optical transceiver market lacks established domestic competitors. Only two U.S.-based companies, Coherent and Lumentum, produce the necessary hardware, and they currently lack the scale to replace Chinese imports.
“It really threatens to arguably grind (the data center rollout) to a halt,” ITI Executive Vice President of Policy and General Counsel John Miller said. Miller added that AI chips would sit unutilized without the transceivers required to connect them together.
A compromise under consideration by the Trump administration would involve banning only Chinese optical transceivers capable of reaching 3.2 terabits per second. While this technology is currently in existence, production is not expected to expand until 2028 and installation is not anticipated until 2029. This timeline is intended to allow American producers time to increase their output.
