Doing business with one of the world’s largest telecom equipment vendors is about to get a little trickier. Today Congress released a report that warns U.S. companies they could jeopardize American security by working with China-based Huawei. Last night CBS’s 60 Minutes aired a scathing story on the Chinese conglomerate, focusing on the company’s alleged intellectual property theft and its close relationship with the Chinese government.
Today’s report comes after the House Intelligence Committee capped off a year-long investigation by questioning senior executives from both Huawei and ZTE in public hearings on Capitol Hill. Members of Congress asked both companies how they would respond if the Chinese government told them to use their networks to intercept American communications. Speaking through interpreters, the executives from both companies said that they would refuse to compromise their networks in this way.
But members of the House Intelligence Committee believe that if the Chinese government actually asked Huawei for information, the company would have to comply. Their belief is echoed by Jim Lewis, a former State Department official who spoke to CBS’s Steve Kroft for last night’s 60 Minutes report. “In China a company is a chia pet,” he said. “The state tells them what to do and they do it.”
In response to the Congressional investigation, both ZTE and Huawei have reportedly issued statements to China’s Caixin Newsletter. ZTE said that any further investigation would prove ZTE is a “law-abiding company and a trustworthy business partner to its American clients.” Huawei reportedly said it would welcome further investigation as long as it was “public and justified.” The House Intelligence Committee says that based on the overwhelming response to its report, it will probably continue investigating the companies.
Bill Plummer, Huawei’s VP for external affairs, characterized Huawei as an international conglomerate that just happens to be headquartered in China. “Huawei is not going to jeopardize its commercial success for any government, period,” he told 60 Minutes.
But the U.S. government is not taking any chances. Lewis told CBS that when Sprint Nextel was evaluating bids for its LTE network, the company got a call about Huawei from the State Department. Sprint Nextel ended up working with Ericsson, Samsung and Alcatel-Lucent, and Huawei ended up launching a massive U.S. public relations campaign. It’s probably no coincidence that media reports of a possible Huawei IPO surfaced late last week, just ahead of the House Intelligence Committee report.
With roughly 90% of U.S. mobile subscribers covered by the four largest carriers, the U.S. government can keep a close eye on major network equipment deals by staying in close contact with a short list of network operators. But with Huawei winning contracts to deploy cutting-edge technology around the world, American operators are sure to feel pressure to look closely at the Chinese company’s solutions. Congressman Mike Rogers (R-MI) of the House Intelligence Committee addressed this issue on 60 Minutes, offering this advice to U.S. companies that are talking to Huawei. “I would find another vendor, if you care about your intellectual property, if you care about your consumers’ privacy and you care about the national security of the United States of America.”
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