Light Reading

US Gets Worried About Huawei

Jeff Baumgartner
LR Mobile News Analysis
Jeff Baumgartner
8/20/2010
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Huawei Technologies Co. Ltd. 's push into the US hit another rough patch this week when eight senators called on the Obama administration to investigate whether national security would be compromised if the China-based supplier sold gear to Sprint Corp. (NYSE: S), which has contracts with domestic military and government agencies.

The group, led by Sens. Jon Kyl (R-AZ) and Christopher Bond (R-MO), fired off a letter on Aug. 18 expressing concern "that Huawei's position as a supplier of Sprint Nextel could create substantial risk for U.S. companies and possibly undermine U.S. national security."

Their reaction comes about six weeks after the Financial Times reported that Huawei was bidding for a big wireless contract with Sprint.

The senators said they were alarmed about reports that the supplier sold gear to Saddam Hussein's regime in Iraq and had previously supplied the Taliban. They also worried that Huawei has become a "leading presence in Iran, especially with military industries" and that, based on current US sanctions on Iran, "Huawei should be prohibited from doing business with the US government."

They labeled Huawei's purported relationship with China's People's Liberation Army (PLA) as "most troubling," noting Huawei founder and CEO Ren Zhengfei previously served as a PLA officer.

"At worst, Huawei's becoming a major supplier of Sprint Nextel could present a case of a company, acting at the direction of and funded by the Chinese military, talking a critical place in the supply chain of the US military, law enforcement, and private sector."

Concerns such as these are growing increasingly commonplace for Huawei and fellow China-based supplier ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) as they continue to push international growth strategies. Sales by those vendors to India had been blocked over similar concerns, but on Friday, the Indian government ended that temporary ban after the companies reportedly agreed on several conditions, including the handing over of certain network source codes. (We'll have more details on the situation in India soon.) (See Huawei Confident of Indian Import Resolution.)

In the US, the senators outlined a list of questions for the proposed investigation, including whether the government had any unclassified info regarding Huawei's affiliation, if any, with the PLA. They also want to know what contracts the Department of Defense (DoD) has with Sprint, and if it would present a national security threat if Huawei "gained a measure of control over a US contractor involved in sensitive US government contracts."

Huawei's image in the US has already taken some hits regarding allegations of intellectual property theft, most recently with Motorola Inc. (NYSE: MOT) and, before that, with Cisco Systems Inc. (Nasdaq: CSCO). (See Moto Accuses Huawei of Theft, The Trouble With Huawei..., Huawei in Spying Flap, and Cisco & Huawei Extend Stay.)



Huawei released a statement in response to the concerns spelled out by the senators, noting disappointment that "old mischaracterizations about the company still linger." Here's the full statement, supplied to Light Reading on Friday:

Huawei is disappointed to learn that old mischaracterizations about the company still linger and we want to reiterate some of the facts. The truth is Huawei is an employee-owned private company. Government or military organizations do not hold any shares, or control the company in any form.

As a leading global telecommunications solutions provider, Huawei abides by and respects third-party intellectual property rights (IPR) and strives for continuous innovation to maintain our leadership position. Huawei has not been found in violation of IPR infringement by any court in any country nor has Huawei been found to have acquired inappropriately any third-party proprietary information.

Huawei has a comprehensive trade compliance organization, policies and operation system, and strictly complies with all the laws, regulations, and related trade compliance regulations established by the UN and all the countries where we operate including the U.S. This also applies to Iran, where our business operation is similar to other western vendors in the market.

We are deeply committed to long-term investment in North America, and will continue to contribute to this market by providing innovative communications network solutions and services to address our customers’ challenges and needs. Huawei strives to be open, transparent and is committed to cooperate fully with all stakeholders to advance the U.S. telecommunications industry.



Although Huawei's position at Sprint is coming under fire, the vendor has had some success penetrating the US cable industry, mostly notably a confirmed wireless equipment agreement with Cox Communications Inc. and a purported one with Comcast Corp. (Nasdaq: CMCSA, CMCSK) related to IP Multimedia Subsystem (IMS) equipment. It's also been able to sell set-tops and optical gear into Suddenlink Communications . (See Cox, Huawei Make Wireless Connection , Huawei DTAs Break In at Suddenlink , and Huawei, Ericsson Get a Piece of Comcast's IMS Action .)

— Jeff Baumgartner, Site Editor, Light Reading Cable

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paolo.franzoi
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paolo.franzoi,
User Rank: Light Beer
12/5/2012 | 4:26:04 PM
re: US Gets Worried About Huawei


 


There is a big difference between Motorola with an R&D group in China and a company run by a former Senior Officer in the PLA.  Get it?


As to the Iran bit, that has nothing to do with the Senators who you complained about.  That is a different issue dealing with the capabilities of the platforms to monitor citizens.  Of course, all governments do it so I think that one is silly.  Plus Israel will be blowing up parts of Iran soon so that should for a great deal of equipment sales to replace bombed things.


seven


 

paolo.franzoi
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paolo.franzoi,
User Rank: Light Beer
12/5/2012 | 4:26:04 PM
re: US Gets Worried About Huawei


 


Okay, maybe you have not figured it out.  If you can inject some code into a communications system, you might be able to spy on others.  This is called Hacking...its been in the news.  So handing over a chunk of your communications infrastructure to a company that has ties with a unfriendly foreign government is a potential risk to National Security.  Yes reverse these things and say US equipment into China and the same thing is true.


There are some industries considered so critical that they do not outsource them to what are considered unfriendly major powers.  Main Battle Tank and Jet Fighters would be an example.


Production is also not design.  Yes, there is a risk for parts made in China.  It is less than parts designed in China by a company with ties to the PLA.


seven


 

Paladin
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Paladin,
User Rank: Light Beer
12/5/2012 | 4:26:04 PM
re: US Gets Worried About Huawei


Did you miss the recent lawsuit filed in US court just this week against Nokie-Siemens Networks by an Iranian dissident for providing technology to the Iranian government to monitor cell phone traffic?  Did you miss the fact that Ericsson and Alcatel-Lucent both do business with Iran?  Why yes they do!  The world is a small place and merely a little googlesearching shows that things are never quite as simple as they seem.


So what is motivating the recent (CDS) China Derangement Syndrome suffered by this suddenly wary group of Senators?  Surely the potential loss of business for those companies mentioned above in a clearly protectionism based market wouldn't be a factor?  And when are those election$ coming (again)?  Leverage? what leverage?


It needs to be noted that each of the vendors mentioned above have R&D and manufacturing in China along with multiple U.S. communications carriers who also do business with China.  So we provide communications infrastructure for China's own carriers like China Mobile, etc.  It also needs to be noted that the Iphone we all love and that little Blackberry hiding in the Presidents coat pocket were made in....China. 


Perhaps the esteemed Senators should have included each of those companies mentioned above doing business with Iran in the request they made or did they mysteriously and purposefully neglect to do a little reasearch into the matter?


Oh to be a fly on the wall in the room when that one (Senate letter rationale) was gemmed up....

Paladin
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Paladin,
User Rank: Light Beer
12/5/2012 | 4:26:04 PM
re: US Gets Worried About Huawei
Perhaps the subtle notice that the other vendors each have R&D along with manufacturing in China escaped notice? Also that they each do business with Iran also seems to go unnoticed. Why is that?
Stefan Sip
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Stefan Sip,
User Rank: Light Beer
12/5/2012 | 4:26:03 PM
re: US Gets Worried About Huawei


Politicians from both sides digust me.  They are no more qualified to run the country than civics teachers in high school.  If you (e.g. American public) have no confidence in your elected officials, then their statements on Huawei should have no more or less influence on your personal views of Huawei.


I contend that the operators who listen to the Huawei’s pitch have largely made up their minds on whether they are going to buy Huawei or not.  That is to say customers who have similar beliefs as “seven” would not buy Huawei regardless of what proof are out there to indicate otherwise.  There are also customers like “Paladin” who are more open and willing to take the good and bad of Huawei or new entrants. Luckily for Huawei, there are more Paladins than sevens out there.  Perhaps not, but the need for lower cost solutions to compete in the market place is so strong that despite Huawei’s issues, customers are willing to take the risk.  So far, the risk has paid off, since Huawei has largely delivered and have not caused embarrassment to its large customer base.


If you look at Huawei’s track record, it started in China and developing countries by fundamentally reducing the cost of telecommunications.  For most consumers, Huawei has been good to their lives.  Base stations that used to cost $200K are now $20K.  Huawei had a hand in this by disrupting the incumbent suppliers of telecom.  


Now comes Sprint.  Sprint is clearly struggling on multiple levels.  Huawei’s technology and willingness to break into a tier-1 in North America provides the perfect storm for Sprint to take a chance on.  Now it is up to the paper pushers and suits to lift their collective skirts and grow some balls to make the right decision.  Otherwise, just ask the government to fund their network transformation if they are not allowed to buy a more competitive solution.

Paladin
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Paladin,
User Rank: Light Beer
12/5/2012 | 4:26:02 PM
re: US Gets Worried About Huawei
If the President of Motorola happened to have served in the US military does that mean he still is beholden to them in his capacity in the private sector or does that collusion only apply if someone was formerly in a military service other than the US military? As to monitoring capability I guess I don't need to mention DOJ requirements for lawful intercept ala CALEA? Hmmm weird isn't it??
paolo.franzoi
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paolo.franzoi,
User Rank: Light Beer
12/5/2012 | 4:26:01 PM
re: US Gets Worried About Huawei


Paladin,


As I have said in other threads, I assume the NSA and CIA hack Cisco and Juniper equipment (Mot maybe as well) and use it to spy on China.  Heck, maybe that is how they know about the Iran thing.  That is why China wants its own companies in its infrastructure.


seven


 

Photon_Got_Mad
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Photon_Got_Mad,
User Rank: Light Beer
12/5/2012 | 4:25:59 PM
re: US Gets Worried About Huawei


Seven:


If you argue that US companies are spying on China and China should allow these CIA sponsored firms to do business inside China but the US govenment should block similar business activities of Chinese companies doing business in the US (assuming they are spying on US), where is the fair trade in your mind? If you believe the freedpom of business and trade, where is your fundation of such an argument?


Let's use another example, if every country is spying on each other, if your argument on Huawei makes sense, you are really saying US should expel all diplomats from China but China should not expel any US diplomats.


Your thoughts are ridiculous, to say the least!!!


 


 

paolo.franzoi
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paolo.franzoi,
User Rank: Light Beer
12/5/2012 | 4:25:59 PM
re: US Gets Worried About Huawei


 


Actually, China funded Huawei to the tune of $6B a year to block out Western companies.  There are also issues if you are a Western Supplier with the MITI that do not occur if you are a Chinese company.  So, yes actually China HAS done this.  They just were nicely subtle about it.


Before you all express surprise and shock, the product that I used to work on was copied and stolen by about a dozen companies inside China.  One day we were told that we no longer met the requirements of import to China and all the local theives took the business over.  It took about 18 months to work through the morass of beauracracy, and by then the customers had switched their business to the local vendors exclusively.


seven


 

boozon
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boozon,
User Rank: Light Beer
12/5/2012 | 4:25:59 PM
re: US Gets Worried About Huawei


It's good that China didn't reciprocate and let Nortel doing business when it was run by Bill Owens, previously admiral in the US Navy.

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