Monday, October 15, 2012

Mixed response to Huawei & ZTE 'security threat'

Coming days after the 2012 Budapest Conference on Cyberspace wrapped up with little consensus [see: tvnewswatch: Cyberspace conference ends with little consensus], a US congressional report was released suggesting that American firms should avoid doing business with two Chinese telecoms companies citing national security grounds. While there are few details laid out in the report citing actual evidence, the House of Representatives' Intelligence Committee have said they fear that China could use equipment made by the two companies to spy on certain communications and threaten vital systems through computerised links.

Military links

Both Huawei and ZTE are said to have close links with the Chinese government and its military and the congressional panel say have not been satisfied by statements from the companies concerned [Sky / BBC].

The report [PDF] highlights the interconnectivity of US critical infrastructure systems and warns of the heightened threat of cyber-espionage and predatory disruption or destruction of US networks if telecommunications networks are built by companies with known ties to the Chinese state, a country known to aggressively steal valuable trade secrets and other sensitive data from American companies [USHR]. But while the United States are taking a stance against companies they believe pose a national security threat, other countries have been far less proactive.

UK presence

In the UK, Huawei has established a significant and influential presence. The company, which began operating in Britain in 2001, said it has invested over £150 million and created 650 jobs resulting in deals with almost every major company in the UK's telecoms industry.

Huawei's technology has been used in broadband distribution equipment used by BT. TalkTalk, another major client, uses Huawei technology to run HomeSafe, a system to monitor Internet use by its customers in order to offer content filtering and the blocking of adult and other "unsuitable" content.

Huawei also produces set-top boxes for YouView, the new digital service backed by several UK Internet service providers and broadcasters, including the BBC. And much of EE's commercial 4G network will be powered by Huawei technology [BBC].

WiFi bid rejected

In June this year Virgin Media won the contract to roll out WiFi infrastructure across London's Underground network [Guardian]. According to reports the British government is said to have rejected Huawei's bid to provide £50 million worth of technology as a gift between Olympic nations because of national security concerns. Huawei had been been tipped as one of the hot contenders for the bid as far back as February 2011 [FT] despite the fact that US concerns over the firm had already been raised [FT]. 

Long time concerns

In fact such concerns date back to 2008 which saw Huawei having to abandon a planned purchase of a 16.5% in 3Com, a US computer networking company, after the transaction encountered opposition in Washington on national security grounds [FT].
see also: tvnewswatch: 2011 cyber talks fail to reach concensus

In 2000, China's Huawei Technologies Co., a company tied closely to the PLA, was accused by Washington of helping Iraq upgrade its military communications system despite Chinese denials. The company also signed an agreement with the Taleban to install 12,000 fixed-line telephones in Kandahar. Meanwhile, another southern Chinese telecom firm, ZTE, agreed to install 5,000 telephone lines in Kabul. The deal stalled until Pakistan could provide guarantees for the project [Ref. Dragon on Terrorism: Assessing China's Tactical Gains and Strategic Losses - Mohan Malik PDF / Amazon]. see also: tvnewswatch: Chinas divided loyalties

UK unconcerned

But despite US concerns, and even some concerns in British Intelligence circles, the British government and many companies in the UK seem undaunted about dealing with Huawei, ZTE and other Chinese tech companies.

Derek Smith, a cybersecurity spokesman for the Cabinet Office, told the BBC that "The picture here in the UK is different." Huawei's UK clients too have been quick to justify their business deals with the Chinese companies. "Huawei has been a partner of ours for a number of years, as it has been for most of the British telecommunications industry, and we will continue working with it," a spokesman for TalkTalk told the BBC. "Any British company working with Huawei has been given clearance to do so by the necessary authorities."

Others reevaluate position

But beyond Britain's shores other countries are beginning to question their relationship with the Chinese tech firms. A few days after the congressional report was published the infrastructure giant Cisco ended its business deals with ZTE after its own internal investigation concluded that the Chinese company had sold Cisco products to Iran, in breach of trade sanctions.

In Canada, the government has invoked a "national security exception" for hiring firms to build a secure communications network, allowing it to block those seen as a security risk. However it did not single out Huawei or ZTE, but many have speculated the move was motivated by the US stance. Meanwhile Australia, which is in the process of developing a US $37.4 billion national broadband network, has already banned Huawei from winning the lucrative contract.

Europe's position remains unclear, though a trade spokesman told the BBC that the EU had "taken note" of the US report, but insisted, "This is an issue between the US authorities and the companies involved."

China defends its corner

For their part the two Chinese companies have come out fighting, vehemently denying accusation of complicity in cyber-espionage or posing any security threat. ZTE in particular has suggested the outcome of the report was predetermined and insists its equipment is "safe and poses no risk". The press statement from the company also suggests that if the US are seriously concerned about the threat posed by Huawei and ZTE, the recommendations put forward by the report should "be extended to include every company making equipment  in China." [Slashgear]

In a statement  released by Huawei the company says they cooperated in an "open and transparent manner" and said the committee "ignored our proven track record of network security in the United States."

China's state media was scathing of the report. Xinhua said the report was "based on a groundless excuse, rendering its argument far from convincing and compromising Washington's reputation and credibility."

"China bashing"

Meanwhile Bill Plummer, Huawei's top spokesman in the United States, told Xinhua he thought the report was, "Little more than an exercise in China-bashing and misguided protectionism." Another Huawei spokesman told Xinhua the "final report was full of rumours and speculations" and accused the US of attempting to restrain Chinese ICT enterprises from expanding their market in the US.

Meanwhile Wang Jiangyu, Deputy Director of Center for Asian Legal Studies, told Xinhua that such "demonizing" of Chinese enterprises could be contagious and have damaging consequences. "Although the report is not a judicial decision or a legislation, which is legally-binding, it may still cast a shadow on the overseas development of Chinese enterprises," Wang is quoted as saying.

"What's even worse is that the judgement may spread to the other countries all over the world, where people, companies and governments may no longer do business with these Chinese companies."


There is already evidence of such concerns manifesting themselves. In India there have been a flurry of reports suggesting Huawei may pose a risk to the country's defences [Independent]

Meanwhile Britain is now said to be asking questions with an inquiry by an influential group of MPs said to be looking into a how a £2.5 billion contract was struck between Huawei and BT [Daily Mail].

Whether the fears over Huawei and other Chinese tech firms are well founded in truth, the effects of any embargo against them could have far reaching consequences. Huawei, in particular, have established a significant hold in the market place, in some cases only second to key players like Ericsson [Economist]. With revenues in excess of $32 billion in 2011, a rise of 12% from 2010, the financial stakes are certainly high. So too are the security risk if there is any substance in Washington's concerns.

tvnewswatch, London, UK

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