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US vs Huawei/ZTE: The Verdict

5:00 AM -- The U.S. House Permanent Select Committee on Intelligence has decided that Chinese telecom equipment vendors Huawei Technologies Co. Ltd. and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) pose a security risk and that U.S. companies should not engage in business with them. (See More Chinese Whispers and Huawei, ZTE Probed by Intelligence Agency.)

That, reports Bloomberg, is the general conclusion of the Intelligence Committee following a probe that saw members of the investigating team visit China and representatives of both Huawei and ZTE give evidence to the Committee (testimony that included some ill-advised claims). (See Huawei, ZTE Get Grilled in US.)

The Committee's main concern, it would seem, is that it's not possible for Huawei and ZTE to operate without influence from the Chinese government, a claim that both vendors have always rejected and which ZTE has once again denied, reports Reuters.

The verdict should come as no surprise to anyone. The tone of the Committee's statements always suggested that the only thing in doubt was just how damning of the Chinese vendors the final conclusions would be.

That's not to say that the Committee's findings have no validity and, for sure, both Huawei and ZTE have been guilty over the years of having indulged in less than creditable business practices, including industrial espionage and bribery. To what extent those two companies engage in those practices any more than their counterparts is another issue altogether -- international business in any industry is far from squeaky clean.

Once the full report is released it'll be interesting to see the full details of the Committee's decision. What's immediately clear, though, is that this provides a greater opportunity for the Chinese vendors' rivals to win business in the critical U.S. market and that any engagement with Huawei and ZTE by U.S. companies hereon in is likely to be public relations suicide.

Of course, the fallout from the Committee's verdict could be far more wide-ranging. China's foreign ministry has already issued a statement about the verdict, urging the U.S. to set aside any prejudices when dealing with Huawei and ZTE, reports Reuters. It's hard to imagine that the Chinese government's reaction will begin and end with a statement.

— Ray Le Maistre, International Managing Editor, Light Reading

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paolo.franzoi 12/5/2012 | 5:19:19 PM
re: US vs Huawei/ZTE: The Verdict

Well, I stated two views in this thread:

1 - The 60 Minutes piece would have the biggest impact on the general US public and;

2 - There were only smaller players that are US companies outside of Cisco (who is only partly a carrier company).


I also answered a question about what it would be like if you treated Telecom Equipment like Defense products.

Now, a bit of my personal history.  I worked at AFC who had a dicey Intellectual Property history.  AFC sued and settled with Marconi.  We had approximately 10 "clones" (aka copies) in China and other places (one in Brazil and one in the US outside of Marconi).  One of my jobs was locating the latest clone at Supercomm so that we could tell them to get the heck out of the US.

But I am not done.  In 97, AFC did $50M in China.  We found out in 98 that we were to be excluded because foreign companies had to have approval for their V5.2 interface and we did not.  Local companies did not have to have that approval and continued to sell.  By the time we got the approval (the first as far as I know approved), we had systems in China with both our cards and clone cards in them.

Much of this information is available or determinable publicly if you want to research it.  To do so, you can look up AFC's legal actions, the shareholder lawsuit against AFC for the stock drop in 6/98, and finally the insider trading involving two engineers (one of whom worked directly for me).

So, my IP rights and open trading views of China are definitely biased.  But I also have issues with the current state of the Chinese currency.  My solution is to allow Huawei, ZTE, and others in with two things.  First, complete disclosure and hacking by the CIA/NSA/DHS of all designs sold into the US market.  In other words, give the US government complete capability of hacking the designs.  Second, tax ALL Chinese imports 100% until the currency is completely floated.  But that is just me.  I also do not think this needs to be fair.  



melao2 12/5/2012 | 5:19:19 PM
re: US vs Huawei/ZTE: The Verdict

Brookseven, so in what state the world is now? 

Are we going to move forward to some sort of cold war again. I mean only the telecom companies from allies can enter the US market?

Because if you remove the chinese, there are only european players, as major players.

US lost Lucent, and Canada lost Nortel.


NEC will invest again in the foreign market, will NEC be eligible for the US market?


Just some thoughts about the whole security debacle. :)

cstoyle 12/5/2012 | 5:19:20 PM
re: US vs Huawei/ZTE: The Verdict

I mean really? Now the federal government decides that telecom networks and equipment is worth saving after years of refusing to do anything to mitigate the fall out from cheaper goods and the disaster of divestiture, trivestiture and quadvestiture, etc., etc? Obviously the car industry was a much more worthwhile industry to save than the telecom one was. Given how much Chinese parts, etc. goes into what little remains of the "US" telecom market this really does seem a little bit like too little too late. I'm just sayin'

Pete Baldwin 12/5/2012 | 5:19:20 PM
re: US vs Huawei/ZTE: The Verdict

Neyo -- no self-censorship; it's more that we're in a busy week with a lot of internal stuff going on (tradeshow participation and the like) and with two editors on the road.

I've glanced at the report but haven't seen anything too surprising or new beyond what's been reported (or what we already knew) -- but again, that's just a very quick glance.

If you find anything in there that's particularly eye-popping, do let us know.

neyo 12/5/2012 | 5:19:21 PM
re: US vs Huawei/ZTE: The Verdict "Once the full report is released it'll be interesting to see the full details of the Committee's decision."
So I believe the report is out. But no news/analysis about it on light reading. Is this some kind of self-censorship?
JTiggy 12/5/2012 | 5:19:21 PM
re: US vs Huawei/ZTE: The Verdict

I am very pleased with the U.S. government for not allowing the Chinese to potentially infiltrate our networks.  As someone stated the first thing  to go in any war would be our ability to use the network to defend out selfs.  But, maybe more importantly not give them the ability to spy and learn the secrets of U.S. Manufacturers on a daily basics. 

jepovic 12/5/2012 | 5:19:26 PM
re: US vs Huawei/ZTE: The Verdict

Lightmonkey has a point. Compared with how insanely much money the US spends on military equipment, where it would be unthinkable to use Chinese suppliers, it seems a bit weird to let Chinese vendors supply the telecomuncations equipment for essential parts of the major networks.

Then again, if the telecom business was run the military industry style, an iPhone would cost about 5 MUSD and mobile phone users would be counted in thousands. Not sure that's the way to go. Also, I doubt that any country can reach any reasonable level of independence in terms of homegrown suppliers for telco equipment, when everyone is so dependent on vast networks of subcontractors.

By the way, I wonder if this decision should worry Apple. They're a pretty obvious target for any retaliation in terms of trade policies.

paolo.franzoi 12/5/2012 | 5:19:27 PM
re: US vs Huawei/ZTE: The Verdict


Telecom equipment would then be like the defense business.  The question one has to ask yourself:  Is it more important that a military truck or a communications system comes from your country or its allies for national security?

Each person can answer that question for themselves.



uguess 12/5/2012 | 5:19:28 PM
re: US vs Huawei/ZTE: The Verdict

That would limit telecommunications company to only supply equipment/services to their own country.  This move of the US government will potentially hurt Cisco and Alcatel-Lucent in the China market.

lightmonkey 12/5/2012 | 5:19:30 PM
re: US vs Huawei/ZTE: The Verdict

I agree seven.


I think the US Govt. is finally waking up to the fact that there is no big US supplier in a key strategic industry.  It's clearly a problem. 

People here talk about protectionism, it's not about that so much.  It's really about the ability of a foreign government to essentially turn off or disrupt the communications infrastructure of the United States.  In any war, the very first thing that's targeted is the communications infrastructure. 

And BTW, the US is not alone here, the Germans came to the same conclusion.





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