Security Strategies

Curing America's China Syndrome

I was at the CES show in Vegas earlier this month when a C-level executive from one of the largest Tier 1 service providers in the US sat down next to me and started talking about an issue that he feels is absolutely critical to today's communications industry.

It wasn't spectrum allocation, Domain 2.0 or unfair competition from OTT companies.

Instead, he wanted to talk about how the US government's attempts to prevent US operators from buying telecom gear from Chinese manufacturers are not only wrong-headed, but also bad for both the communications industry and the US economy itself.

I'm not going to reveal the identity of the service provider executive in this column because I have a full-length interview with him coming up next month, February (and who doesn't like a surprise, eh?).

But I can tell you there are few people who have served not only the communications industry, but the US, with as much distinction. So if he says America is wrong on this China thing, then by gosh it's time to reconsider our position.

But first, to recap. The Sino-America comms kerfuffle kicked off back in 2012, when the US House Permanent Select Committee on Intelligence issued a report citing Chinese technology suppliers as a security risk and recommending that US network operators not do business with them -- a recommendation backed up by the implicit threat to withhold massive government contracts from any service provider that ignored the advice. (See US vs Huawei/ZTE: The Verdict.)

As I've said previously, anyone who has actually read the report knows there was zero evidence to back up the Committee's supposition and suspicion.

Further, its entire position actually makes no logical sense. As a Huawei Technologies Co. Ltd. executive told me recently: "If the Chinese government wanted to spy on the US, [Huawei's] equipment is literally the last place they would do it because that's the first place everyone is going to look."

He's right, of course. The Chinese government isn't stupid and using Chinese hardware as a backdoor to spy on the US would be like telling all its spies to wear "Hey, I'm a spy!" t-shirts to make it easier to spot them.

(Note: Security experts have told me a much more likely approach would be for the Chinese to install backdoors into silicon being manufactured in China for use in telecom equipment manufactured and sold by US equipment manufacturers. If you don't know where your equipment supplier gets its silicon from, you should ask. Don't just assume it is "Made in America," since at least two leading telecom manufacturers now use some Chinese silicon, according to the industry grapevine).

Other countries have already reached the same conclusion. In the UK, for example, the Government Communications Headquarters (GCHQ) controls an Oversight Board advisory committee that monitors Huawei technology, which is used by national incumbent operator BT Group plc (NYSE: BT; London: BTA), the country's largest mobile operator EE and others in the UK. In March 2015, an annual report issued by the committee for the National Security Adviser found that "any risks to UK national security from Huawei's involvement in the UK's critical networks have been sufficiently mitigated."

So when can we expect equipment from Chinese manufacturers to be installed in US networks? Turns out it already is.

As Light Reading exclusively revealed on Monday, Sprint Corp. (NYSE: S) still has Huawei wireless network equipment in its network, despite promising the US government in 2013 that it would phase it out. (See Surprise! Sprint Still Has Huawei in Its Network.)

Further, a reliable industry source told me last week that Level 3 Communications Inc. (NYSE: LVLT) still has Huawei optical gear in its core network. And as we reported last year, Huawei has been steadily making inroads into the US via sales to rural carriers. (See Huawei Working Hard for Rural Success and Huawei Opens Back Door Into US.)

Further, there are numerous signs that both Huawei and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) are gearing up for new business in the US. (See Are Huawei & ZTE About to Feel a Thaw in the Comms Cold War?)

Still, these are still baby steps, taken in stealth mode (by a ninja baby, if you will).

For service providers to get the full benefits of free market competition, they need to be able to buy low-cost, high-quality Chinese communications solutions from companies such as Huawei and ZTE without fear of retribution from the US government.

That's not going to happen under the current administration, and even when the new one rolls in at the end of the year there are still no guarantees. Clinton is most likely to give consideration to removing the current restrictions. The fact that Bloomberg has a brain obviously sets him apart from the political field, and means he could act as an agent of change, should he decide to enter the race. None of the Republicans would do a damn thing (and if Trump gets in, the US is effectively done, anyway... think Germany 1933).

What really bothers me about the current situation is how incredibly un-American our government's behavior is. We're supposed to be the leaders of the free world, the ones who embrace competition and win battles on our merits (things like hard work and innovation and having an incredibly poor work/life balance). But the current US government's policy on China is nothing more than blatant, arrogant, short-sighted protectionism.

I like to think we're better than this. And keep in mind this isn't just about communications and building the best network at the best price for American consumers. It actually goes to the heart of the bigger issue of US-Chinese relations, a relationship that is likely to determine the long-term future of the United States.

— Stephen Saunders, Founder and CEO, Light Reading

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Joe Stanganelli 2/25/2016 | 12:44:38 AM
Points of information I don't know enough about the issue to take a strong stance.  I suspect there are non-publicized political reasons that are really at play here and that the real reasons have little to do with fear of cyberespionage.

Simply to be fair, in any case.

1) Game theory. Let's say I'm 1) smart and 2) a spy, and so I decide to look and act like a spy -- knowing you know that I'm looking and acting like a spy and therefore I couldn't possibly be a spy because I couldn't possibly be that incompetent a spy because you also know me to be smart.

Likely in this case?  I doubt it.  But China has been known to be brazen in its espionage and enjoying the fruits therefrom.  So it's an interesting point, at least.  (At least, it interests me.)

2) "Security experts have told me a much more likely approach would be for the Chinese to install backdoors into silicon being manufactured in China for use in telecom equipment manufactured and sold by US equipment manufacturers."

Interestingly, this has already happened at least once.  (Link)  The only question is whether it was malicious.
Joe Stanganelli 2/25/2016 | 12:27:41 AM
Re: terrible post Well, there was a time a few years ago for a while when China (as part of it's "Five-Year Plan") was kicking the US's butt in terms of IPv6 adoption.

But I'm not sure that's what you're looking for.
eemail 2/24/2016 | 11:49:00 PM
Re: terrible post responding to your arguments:

1) show me the statistics that demonstrate US leads China in cyberwarfare against china and US partners. i can show you several reports and documentaries and lawsuits filed in US courts against Chinese entities, citizens all showing clear culpability in using cyberattacks by China and or China linked entities to steal US and international intellectual property

2) we are not disputing the level of intellect within huawei but the entire world knows that China is great at copying others, contrary to western countries. Pls show me a single tech invention from China last few years that China took leadership in. Most of what China does is replicate and steal from western countries...that's a global fact..and thats the reason why Donald Trump is rising in the presidential polls, because americans feel abused and taken advantage of by China...perhaps time for you to change course a bit???

3) i dont understand this argument. Dell was public for 2 decades before going private and i am sure they will not be private for more than few years. the process of going public/private/public is quite common in a free market. and let me educate you a bit: Dell will be owned by debt holders and private equity investors and unlike in China, we have a very strong and transparent financial reporting system that allows us to see quarterly who owns what... the whole world knows Huawei and China economy as a whole functions at the drumbeat of the govt...no wonder why so many bad things happening

kq4ym 2/10/2016 | 10:08:35 AM
Re: Garbage article If one takes agreement with the "zero evidence to back up the Committee's supposition and suspicion." it would be appropriate to look past our predjudices and seek what may in the long run be good for the industry and consumers. As pointed out if China were to be spying it would not be in the most likely place to be found.
Scott Raynovich 2/4/2016 | 6:21:13 PM
The Onion? Is this an article from The Onion?
NorCalSurfer77 2/2/2016 | 11:30:22 AM
Re: If you like Huawei so much..... know - I would state Huawei is "working" technology, that may be "good" but not really "great".   If you know their products intimately, which I had the pleasure of in both transport and access, you will find a "working" product that is sometimes "good".   

As mentioned - SPs love technology at a steal - "50% less than ALU or CSCO or JNPR, sure!!".  Huawei, if anything, has afforded the commoditization of network gear.  Maybe that's awesome, but maybe that's why the networking tech world is so darn boring and painful these days.


mendyk 2/2/2016 | 11:10:57 AM
Re: If you like Huawei so much..... NorCal -- Based on your premise, how is Huawei's approach different from other suppliers and manufacturers from developing countries? Yet there are no meaningful bans on most other cheap goods and services that are now integral to the US economy. If there were, Wal-Mart shelves would be pretty bare. US-based companies long ago lost the appetite and the will to compete in the manufacturing realm. Even the companies that continue to succeed in the tech sector are moving away from making boxes.
CSO,spok47666 2/2/2016 | 2:31:37 AM
Re: Garbage article ROTFL

every each time someone put on perspective relationship between west and east there is also a lot of righteous people that rise up against the evil.

the article is balanced and even representing a personal opinion of the author I would say deserve at least to be read with open eyes. All I have seen here are empty, irrational comments withouth any fact behind.


CSO,spok47666 2/2/2016 | 2:26:44 AM
Re: If you like Huawei so much..... Again you should know before claim.

"Does Huawei operate within the same ethics as companies based in North America are required to by law in their business practises?  No.  Hauwei's domination globally has built on a history "win at all costs". " 

Seriously? coming from USA? where tech compay has used any legal and not so legal means to stop competition?

If win at all cost means selling good products at the right price, isn't this the meaning of competition in a free market? If huawei has been able to produce egineering and services in a competitive manner isn't this to be appreciate?

If the telco market is divided into Chinese and European companies may be the responsability is not of huawei but of not so well managed USA companies that were not able to scale quality, competitiveness, innovation and service to customer

Or you really think that BT, Vofafone, Telefonica, Deutch Telekom, Telecom Italia, Belgacom are a bunch of tecnology ignorant and so prone to be easy manipulated?
CSO,spok47666 2/2/2016 | 2:14:09 AM
Re: terrible post change China with Japan, computers with cars and it sound like a couple of decade agos again... again western claim Eastern to copy, stole IP, claim for trade barrier and so on....

Just a few points:

about cyberattacks: a private company can't be held resposible for government's country behaviour otherwise, using the same metric, USA should be banned by all markets. the truth is that cyberwarfare comes both form east and west, and USA is leading in this area. It would be against Huawei or ZTE interest to support those activities, since are always under the spotlight and tight contol. It will be simply foolish and would led to lose the market.

about Intellectual property: every major technological western vendor use china as a supplier, and estabilsh there R&D center. On the other end Chinese tech vendors also use westerns as suppliers to build their goods. in a open free market this is a common, sound, approach and so huawei buy technology also from USA, helping USA economy in that sense. Huawei also hold a great number of patents, even in USA, Intellectual Property is a common issue even for chinese companies.

about being a private company: being private does not means being a state sponsored, otherwise we could state Dell is owed\sponsored\controlled by USA government? Huawei publish its financial report and it is subject to international auditing even if could avoid to do that. I would suggest you to see why Dell leaved the stock market.

sometimes would be better to put subtantials fact instead of empty claims. But this require, I suppose, to be able to substantiate the argument....
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