Security concerns with Chinese telecom companies

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This post by Andy Greenberg over at Forbes got me thinking about the intersection of legitimate security concerns and trade protectionism in the globalized nature of ICT equipment and networks. Greenberg is commenting on a Washington Post story of US Senator’s investigating a proposed sale of telecommunications networking gear sale by Shenzhen, China-based Huawei to Sprint Nextel.

Concerns about Huawei include a range of topics, “everything from close ties to Iran to IP theft, but focus on the relationship between Huawei and China’s People’s Liberation Army. Huawei chief executive Ren Zhengfei is a former Chinese military officer, and his company is often said to receive preferential treatment from the Communist Party- run government.”

Yet the movement from government/military is very common within Western countries. Mike McConnell, a retired US Navy vice admiral served as Director of the NSA in the 90s before retiring from service the first time. After a decade as Senior Vice President at Booz Allen Hamilton, he returned to government service as Director of National Intelligence in the George W. Bush Administration before returning to Booz Allen.

Is it okay to move from military positions and become a lobbyist but not CEO? While there clearly is a difference between an export-focused commercial telecommunications manufacturer and a domestic-focused military contractor, Zhengfei started Huawei and differences between Chinese and American commercial and military-industrial sectors may not have allowed the same opportunities for the Chinese military technologist.

A Huawei effort to buy 3Com was previously scuttled due to security concerns, specifically the idea of Huawei acquiring some of the antihacking military software 3Com was developing. Concerns aren’t only limited to North America, as a tender from Huawei was rejected by India to be a supplier in regions near the Pakistan border. There seems to be some inconsistencies though, with a Huawei sale of CDMA gear to Cox Communications being allowed.

A lot of obstruction of sales seems to involve cases of Huawei gaining access to advanced networking gear, as the Chinese company seems ultra-competitive in driving costs down but is more challenged in matching the bells and whistles of competitors like Cisco. Since Sprint Nextel also uses CDMA technology (among others), it may simply be a matter of scale.

The Canadian ICT connection comes from Greenberg’s mention that a proposed bid on Nortel assets by Huawei was prevented due to security concerns. The Metro Ethernet unit was eventually eventually sold to Ciena for $769m, significantly more then what Goldberg suggested Huawei was offering ($400m) ten months earlier. Yet one wonders what Nortel creditors might have been able to achieve in the auction if a third player had been added between Ciena and Nokia Siemens.

Clearly Chinese companies can still invest in North American telecommunications — my previous mention of ZTE investing in Public Mobile’s expanding infrastructure comes to mind along with Huawei’s Cox deal. And Zhengfei’s company is obviously doing well for itself in terms of growth and landing international contracts.