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