Huawei contract ban stokes fear of cyber cold war
(Guardian Web Via Acquire Media NewsEdge) Being banned from supplying telecommunications products to one country may be bad luck. But the Chinese company Huawei – the world's second-biggest supplier of telecoms network equipment – this week found itself facing shutouts from both Australia and the US, fuelling concerns about a cyber cold war between east and west.
The company announced this week it had been banned from tendering for contracts in Australia's A$38bn (£24.7bn) National Broadband Network (NBN) because of cybersecurity concerns. Then it emerged that the reason why its joint venture with the US online security company Symantec (which had the 49% stake) was dissolved last November was that the US company feared losing out on information from the US government, according to the New York Times.
For Huawei, it's part of a continuous uphill struggle. "We were informed by the government that there is no role for Huawei in Australia's NBN," said Jeremy Mitchell, a Huawei spokesman in Australia. That will be a blow to the company, which aims to overtake Sweden's Ericsson to be the world's biggest supplier of telecoms infrastructure such as fibre-optic connections and routers.
It is already heading that way: for 2011 its revenues were £20.3bn, compared with Ericsson's 227bn kronor (£21.5bn).
But to take the top spot, it needs contracts in projects such as NBN, which was launched in 2009 and aims to connect 93% of Australian homes and workplaces to optical fibre by 2020, providing superfast broadband services in urban and regional areas. When Huawei sought a A$1bn supply contract for the NBN, the attorney general, Nicola Roxon, blocked the bid – on advice from the Australian Security Intelligence Organisation.
"This is consistent with the government's practice for ensuring the security and resilience of Australia's critical infrastructure more broadly," she said in a statement.
Roxon was backed up by the prime minister, Julia Gillard: "You would expect as a government that we make all of the prudent decisions to make sure that the infrastructure project does what we want it to do, and we've taken one of those decisions," she said.
Certainly, concerns about silent Chinese incursions into western businesses have never been higher. Besides hacker attacks on Google in 2010 – thought to be government-inspired – security companies and the Pentagon have uncovered evidence of infiltration into a number of important US companies, while some using suppliers in China have complained of more subtle theft of intellectual property.
A Huawei source insists that "we take cybersecurity very, very seriously".
But what's wrong with Huawei, an employee-owned business set up in 1987 that has never been accused of such activities?
First, its chief executive, Ren Zhengfei, was formerly a Chinese army officer, fuelling claims that Huawei has a cosy relationship with the Chinese government – something the company denies. Second, no Chinese company can do business without the approval of its government, and Huawei works in such sensitive areas – nothing is more essential to a modern country than its telecoms system – it faces extra hurdles that might not apply to western companies.
The US has fuelled the concerns: in 2008 Congress blocked a planned purchase (along with Mitt Romney's Bain Capital Partners) of the networking company 3Com, and telecoms company TeaLeaf in 2011. Congress has also barred Huawei from selling kit to any US operator, after blocking a sale to Sprint Nextel in 2010. (The Huawei source says: "There's a very concerted campaign around China. We are running into that." Such concerns also help US-based manufacturers, of course – which is where the votes are.)
Against that background, the New York Times says Symantec had become concerned that, as the US government shifted an information-sharing program about cyber threats to the control of the department of homeland security, it would be frozen out. For a company reliant on corporate clients, that could be lethal.
Symantec rebutted the claims on Tuesday, saying it had announced the sale of its 49% stake in November 2011,when its chief executive, Enrique Salem, said: "Symantec achieved the objectives we set four years ago and exit the joint venture with a good return on our investment, increased penetration into China and a growing appliance business."
In Australia, Mitchell said: "While we're obviously disappointed by the decision, Huawei will continue to be open and transparent and work to find ways of providing assurance around the security of our technology." He also pointed out that "Huawei is building NBN-style networks in the UK, New Zealand, Singapore, Malaysia and more". He could have included Qatar, where it's also helping. In fact, 45 of the world's top 50 telecoms operators are customers. Most of the missing five are in the US.
"We have never been told by the Chinese government to do a certain thing. If we would, that would be to our detriment and we would lose the market share that we have," Mitchell said.
In the UK, BT reiterated its confidence in Huawei, and said that it was able to examine source code for products to check for "back doors" or eavesdropping functions.
It said in a statement: "BT's relationship with Huawei and other suppliers is managed strictly in accordance with UK laws and security best practice. BT's network is underpinned by robust security controls and built-in resilience. We continue to work closely with all our suppliers and the government, where appropriate, to ensure that the security of the network is not compromised."
Australia's former foreign minister Alexander Downer, who is an independent director on the board of Huawei's Australian unit, rejected the government's security concerns. "This sort of whole concept of Huawei being involved in cyberwarfare, presumably that would just be based on the fact that the company comes from China. This is just completely absurd," he told ABC Radio.
But even if it is, there are those in the west who are reluctant to put aside their mistrust for now.
But Huawei is likely to have the last laugh. While Ericsson sold its half-share in the loss-making Sony Ericsson mobile phone business in October 2011, Huawei has just ventured into the handheld business – and analysts already expect it to undercut rivals such as Taiwan's HTC. This week's setbacks for Huawei may not be its last, but the company is by no means finished with its ambition.
Household names, just not in Britain
Company from the Shenzhen special economic zone that is pushing to become the world's largest telecoms equipment manufacturer. Second only to Ericsson in size, it is branching into smartphones and has research centres around the world.
Western concerns focus on its chief executive's former links with the Chinese army, the lack of clarity around its operations – and natural defensiveness about letting a company from a communist dictatorship run the most sensitive systems a modern country can have.
Formerly Zhongxing Telecommunication Equipment Corporation, ZTE also comes from Shenzhen and is growing rapidly in the telecoms sector, focusing increasingly on smartphones.
Formed in 1985 by enterprises associated with China's ministry of aerospace, it has provided mobile networks for companies including Vodafone in the UK, Canada's Telus and France Telecom.
It has been accused of helping Iran to get around US sanctions on the importation of systems from Microsoft, Cisco Systems, Oracle and Symantec.
When it bought IBM's PC business in 2005, many in the computing world were shocked – but it was just the beginning of the company's rise.
While IBM got a 18.9% share (since reduced to below 5%), Lenovo was catapulted into the spotlight and is now one of the three largest PC vendors in the world. It has the advantage of being located in the heart of Asia, the largest market where PC sales are showing growth. (In the west they're shrinking.)
It is also pushing into other products such as smart TV and, inevitably, smartphones, where it will be the first to use Intel chips.
(c) 2012 Guardian Newspapers Limited.
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