Business, Finance & Economics

China's Telecommunications Giant Huawei Under Scrutiny

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Huawei VP Corporate Media Affairs Scott Sykes. (Photo: Mary Kay Magistad)

China's telecommunications giant Huawei has its sights set on global domination — in a good way, it insists.

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It is already the world leader in 4G technology, and #3 in smartphone sales. But while much of the world is embracing Huawei, the US market is wary. Last fall, a Congressional report said US networks and entities shouldn't buy equipment from Huawei and fellow Chinese telecommunications company ZTE, because of security concerns.

Huawei says they're just plain wrong. But this is about perceptions — and the recent spate of unrelated Chinese hacker attacks haven't helped.

Huawei has a story it would like to tell — of a scrappy little telecommunications company started 25 years ago by a laid-off army engineer that's grown into a leader in its field.

"Our vision is that in the future, information will explode, so we want to build as big a pipe as we can," said Zhang Linbo, a guide at Huawei's Exhibition Center at the company's headquarters in Shenzhen. "We have already established our leading position in this area, like in IP network, fixed network, and wireless network, we are ranking in the top three. No other company can do this."

That's not even going into the consumer devices Huawei started making more recently —laptops, tablets, mobile phones, and USB dongles.

Just this week, Huawei announced it's teaming up with Microsoft in Africa to offer a $150 smartphone, using Windows software.

And for Americans despairing of getting a consistent mobile phone signal, Huawei says it provides what it calls "no edge" networks — with overlapping circles of coverage, so there aren't dropouts.

When I suggested to the Zhang Linbo that Huawei should talk to AT&T, he responded that the company has been, but that there are "political" issues.

Those political issues played out in the House Intelligence Committee last autumn. Congressman Mike Rogers co-chaired a House Intelligence Committee investigation into whether Huawei, and fellow Chinese telecommunications company ZTE, pose a potential security threat to the United States.

"We've heard reports about backdoors and unexplained beaconing from the equipment sold by both companies," said Rogers at the hearing. "Our sources overseas have told us there is reason to question whether the companies are tied to the Chinese government or whether their equipment is what it appears. Certainly, there are vulnerabilities built into the equipment that appear to be there by design."

The Committee's report didn't cite any hard evidence that Huawei or ZTE had been spying, but speculated that they might in the future, if the Chinese government leans on them. So the report recommended that US government agencies and American businesses not use Huawei or ZTE equipment, lest it one day be used to spy, steal sensitive information, or shut down entire systems.

Duncan Clark, chairman of the Beijing-based hi-tech consultancy group BDA, found the argument far from convincing.

"I think it was a very unwise report, in that it's cutting off to the US to access to one of the world's largest providers of telecommunications and IT equipment," Clark said.

He added that Huawei's technology is some of the best, fastest and most competitively priced on the market. And the US could use all that because it's been steadily falling behind the international standard.

According to Clark, part of the problem is that the telecom industry in the US is an old boys' network. But he points out that if it's a connection with China that raises concerns about security, Cisco and others telecommunications companies get many of their components from China, too.

Still, at least some security experts say Huawei's code is much easier to break into than Cisco's — and there's the suspicion that if the Chinese government asked, Huawei couldn't say no.

Such arguments clearly frustrate Scott Sykes, Huawei's vice president for corporate media affairs.

"We have an impeccable track record in terms of security," he said. "Nobody disputes this fact. We've been business for 25 years. We are in 140 countries. We are a $32 billion company."

Sykes said if customers didn't trust Huawei's products, "it would just be impossible to get to that point."

And with two-thirds of Huawei's revenue coming from outside of China last year, Sykes says it would be corporate suicide to act in a way that would lose international customers' trust.

Huawei wants people to see it as an international company, and it's trying to be more transparent, even though it's still a private company, and the reclusive founder, Ren Zhengfei, still doesn't give interviews. But, increasingly others in the company do, to dispel what they say are false impressions, for instance, in terms of company ownership.

"Zero percent is owned by the Chinese government," said Scott Sykes, adding that the company is not working with Chinese military intelligence. And while, yes, it has a Communist Party Committee, so do many foreign companies of any size in China, including Walmart. It's part of the cost of doing business, and the committee doesn't interfere in business decisions.

But that doesn't mean they couldn't — goes the counterargument — a compelling enough one that Australia and Canada, have blocked Huawei from some contracts, and India's been wary. Britain, on the other hand, has gone ahead, building a network with Huawei, after doing its own security tests.

"In some ways, I think Huawei is much more sophisticated than China (the government)," said BDA Chairman Duncan Clark. "Huawei's problem is that it's bumping up against the glass ceiling that China itself imposes through its foreign policy, or through the perception it creates around the world. The resistance to Chinese products or Chinese companies is something Huawei is powerless to change."

The recent spate of Chinese hacker attacks on US media certainly hasn't helped. On top of all this, the US International Trade Commission now has two cases pending against Huawei for patent infringement.

If Huawei is found guilty, the products with patent issues would be banned for sale in the US, and that could affect any or all of Huawei's consumer product line.

Still, Huawei doesn't give up easily. It's big in the world, and wants to be big in America. But for all the allure of faster, cheaper, more reliable telecom networks, and cool phones and pads and dongles, there's at least as much ambivalence about whether this is all a hi-tech Trojan horse.

Huawei is left with the unenviable task of proving a negative.

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