The FCC is drafting a proposal that would expand its list of equipment and services covered by the Secure Networks Act to include imports of new-model optical transceivers manufactured in China, according to a TrendForce report. Although the specifics are still unknown, such as what exactly constitutes a Chinese company and what is considered a "new model," this import block could have far-reaching implications. It's likely to impact hyperscaler AI companies, which are investing heavily in optical interconnect technologies, seen by many as the next battleground in the race for advancing AI performance, latency, and efficiency.
That's thought to be the core reason behind this potential blockade. With Chinese optical module manufacturers thought to make up around 56% of the global manufacturing capacity for this key technology in 2026, the U.S. administration wants to decouple U.S. reliance on this supply chain and strengthen its alternatives: Both domestic and international.
The long tail of this decision, however, could see the FCC refuse to authorize Chinese networking hardware entirely, following a ban on all foreign-manufactured routers in late 2025, and a ban on all advanced foreign-produced robotics in July this year.
Shifting bottlenecks
The story of the AI industry's rapid buildout in recent years has arguably been one of ever-changing bottlenecks and attempts to circumvent them. There are general GPU, CPU, and memory shortages that we've all had to contend with. But there have also been utility difficulties faced by hyperscaler companies, from power, to water, and local-infrasturcture.
There have also been more international key material bottlenecks, like shortages of glass cloth, of specialized PCB drill bits, and power inverters. Raw material shortages like helium, aluminum, and copper.
But those bottlenecks have also been felt within the servers within the data centers, too. And copper is a key feature there, because as modern data centers become ever more powerful, the new bottlenecks are the wires between them, more so than the raw speed of the processors or memory chips.
That's where optical interconnects come in. Designed to replace the simplicity, relative resistance, and physical limitations of copper wiring with lasers, optical interconnects can increase bandwidth, reduce latency, and reduce power consumption of existing networking hardware dramatically.
Although many of the world's largest optical interconnect developers, including TSMC, Intel, Samsung Foundry and Global Foundry, have different methods for the ways they plan to produce next-generation versions of these important networking interconnects, the underlying shift is much the same. Replace the bottleneck of copper wiring with optical communication lines and bring them as close to the processor as possible.
Within a few years, effectively integrating an optical networking interface into the chip itself, making latency all but disappear over distances up to several miles. That would allow for components to be located wherever they were best placed within a system, no longer needing to be near other components to reduce latency. That also allows for easy scaling up and out after deployment, as components from various servers could be co-opted as required. Multiple data center campuses within a few miles of one another could collaborate on particularly demanding workloads, too.
But at the moment China has a firm grasp on this emerging key technology, and the U.S. appears ready to respond with a heavy hand.
The ban and its impact
The FCC has banned the import of other products of specific types and from specific manufacturers before, but if it were to ban the import of optical transceivers, that would be the first time it had enacted such a measure. The term "new models" suggests such a ban would include the latest in interconnect technologies, including co-packaged optics (CPO) and near-packaged optics (NPO) integrated into network switches.
Although the U.S. may opt to deploy a transitional ban that only blocks the sale of new optical transceiver designs, leaving existing designs and contracts intact and saleable, it would still present a problematic disruption for American AI companies wanting to build cutting-edge data centers. China's optical module manufacturing, packaging, and testing are all key elements of the global optical interconnect supply chain, especially since a key raw material, indium phosphide, relies heavily on China's indium supply, with it controlling some 70% of the global market.
China restricted the export of indium in 2024, causing a reduction in global sales of the key material.
Even if the materials required can be sourced elsewhere, though, there's no suggestion U.S. manufacturing can scale up anywhere near quick-enough to respond, or indeed, at all. Key U.S. optical transceiver manufacturers, Coherant and Lumentum, are already running at capacity and are still around 30% overbought by their customers. A $2 billion investment from Nvidia will help, but the leaders there don't believe they'll be able to service the increasing demands of a hungry AI industry. Let alone if Chinese supplies are cut.
Nothing happens in a vacuum, except chip production
All of this assumes, too, that the Chinese authorities won't respond - and they certainly have a history of doing so. When America has restricted access to cutting-edge chips and chip design software, China has cut off raw material access. When the U.S. banned imports of Chinese hardware, China doubled down on investing in its domestic market and sources, as well as fighting to build friendly relations with other countries and markets.
That has already been happening in the optical interconnect space. In 2025, Chinese manufacturers only accounted for 16% of the global production capacity of electro-absorption modulated lasers (EMLs) and continuous-wave (CW) lasers. But in 2028, that capacity is expected to reach almost 28%. Will that additional production capacity go to help accelerate China's own domestic AI efforts, or will it end up being sold to major AI companies in Western markets?
It may be possible for Chinese suppliers and Western buyers to circumvent any new optical transceiver restrictions. Almost all the major bans and blockades from the Trump administration have included carve-outs for specific deals that can be struck — often seemingly at the whims of whatever official is involved in the deal-making. But they're there, and it may be that a phone call to the right person allows the right materials through, making any potential ban just the price of doing business.
But if not, it has the potential to put the brakes on the next phase of rapid AI infrastructure build-out that is making data centers more capable, campuses more efficient, and hinting at a future where even in consumer devices, the specific placement of components within them may no longer be constrained by the limitations of copper.
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