UK Intelligence and European Commission Look at Huawei More Closely - IBM as a Partner

British Telcom (BT) has been declining to comment on whether it had received any requests from US officials to stop doing business with Huawei.

Nonetheless, on Friday, a United Kingdom Parliament committee said that it is performing an investigation about  Huawei's business in the UK after governments from Australia and Canada expressed concerns.

The UK Parliament's intelligence and security committee is examining the relationship between Huawei and the UK firm BT.  They are  "reviewing the whole presence of Huawei in regard to our critical national infrastructure and whether that should give rise for concern" according to an article in the Guardian.  Recently, Huawei had announced their intentions of spending almost $2 billion in the UK, including moving into a new 140k square foot building in Reading and plans to increase employment from around eight hundred to about fifteen hundred.  Victor Zhang, chief executive of Huawei Technologies UK, has stated “This move marks the beginning of an exciting new period of development for Huawei in the UK.”  However, this was before the investigation announcement from the intelligence and security committee. 

In March, The Australian Financial Review wrote that Huawei had been banned as a supplier for the $37.4 billion Australia Broadband Network after concerns were raised about the potential security implications.  Huawei, as one would suspect, has been calling this political. 

On the European front, European Trade Commissioner Karel De Gucht has been collecting evidence for a potential anti-dumping or anti-subsidy case against both Huawei and ZTE over subsidies.  The European Commission has suspicions that these two companies have been receiving   receive illegal state subsidies to undercut rivals in Europe. 

Huawei and ZTE are the world’s second and fifth largest manufacturers of wireless telecommunications gear.  Huawei has    many of the biggest telecommunications companies in Europe as it customers.  They include BT and Vodafone in the UK,   Telefónica of Spain, and Everything Everywhere, a partnership between France Télécom and Deutsche Telekom in Britain.  Huawei had European sales of over $3.7 billion last year. They employ about seven thousand people in Europe. 

Huawei spokesperson Roland Sladek   has started, “Europe is almost like a second home market for us.”  Their reception in this is becoming a little chillier.

ZTE is another story.  Cisco terminated a technology relationship with ZTE  in July.  They also  terminated their sales partnership with ZTE  in early October   after an investigation showed  that ZTE had sold Cisco branded networking gear  to Iran.  Iran is under ban from the US government  from  receiving this and other  technologies  from US firms.

IBM as a Key Huawei Partner

An  October 10 Wall Street Journal article,  "Huawei's Ally, IBM", discusses   how IBM has been working closely with Huawei since 1997.  This has included teaching management techniques (R&D, supply chain and financial management),  packaging its technology into Huawei products, a 2000 initiative to jointly develop networking gear, and most recently, advising Huawei on its expansion into selling smartphones and tablets.  Consumer products such as smartphones contributed 21% of Huawei's $32.4 billion in revenues last year. Huawei  announced a strategic partnership with IBM Global Business Services in February. Without IBM, "We could not have had the Huawei of today" stated Charles Ding, Huawei senior vice president for the US. Other companies Huawei has hired as consultants include Accenture, Boston Consulting Group, PrecewaterhouseCoopers, Mercer, and Hay Group.

To read more about Huawei -
 http://kensek.blogspot.com/2012/10/us-intelligence-report-dont-trust-huawei.html

US Intelligence Report – Don’t Trust Huawei

After hearings with Huawei representatives, and apparently satisfied  with neither the cooperation they   not received nor the answers, a senate committee released their sixty page “Investigative Report on the U.S. National Security.  Issues Posed by Chinese Telecommunications Companies Huawei and ZTE” on October 8.

In brief, "The investigation concludes that the risks associated with Huawei’s and ZTE’s provision of equipment to U.S. critical infrastructure could undermine core U.S. national-security interests "

"If I were an American company today, and I'll tell you this as the chairman of the House Permanent Select Committee on Intelligence, and you are looking at 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," Mike Rogers said on 60 Minutes.

One issue with this, of course, is that it reduces the companies that a customer will have bid on a proposal. Another is that in a "nuetral" world, Huawei may have the best solution from a technology perspective. US companies still compete globally. Long term, Huawei competitors are losing out when Huawei surpasses them in innovation. Other country's governments may not be as vocal with respect to suggesting Huawei not be used for major  network infrastructure projects. 

The Intelligence Report's Major Recommendations

1. The United States should view with suspicion the continued penetration of the U.S. telecommunications market by Chinese telecommunications companies.  (a)  The United States Intelligence Community (IC) must remain vigilant and focused on this threat.  The IC should actively seek to keep cleared private sector actors as informed of the threat as possible.  (b) The Committee on Foreign Investment in the United States (CFIUS) must block acquisitions, takeovers, or mergers involving Huawei and ZTE given the threat to U.S. national security interests.  Legislative proposals seeking to expand CFIUS to include purchasing agreements should receive thorough consideration by relevant Congressional committees.  (c) U.S. government systems, particularly sensitive systems, should not include Huawei or ZTE equipment, including component parts.  Similarly, government contractors – particularly those working on contracts for sensitive U.S. programs – should exclude ZTE or Huawei equipment in their systems.
2. Private-sector entities in the United States are strongly encouraged to consider the long-term security risks associated with doing business with either ZTE or Huawei for equipment or services.  U.S. network providers and systems developers are strongly encouraged to seek other vendors for their projects.  Based on available classified and unclassified information, Huawei and ZTE cannot be trusted to be free of foreign state influence and thus pose a security threat to the United States and to our systems
3. Committees of jurisdiction within the U.S. Congress and enforcement agencies within the Executive Branch should investigate the unfair trade practices of the Chinese telecommunications sector, paying particular attention to China’s continued financial support for key companies
4. Chinese companies should quickly become more open and transparent, including listing on a western stock exchange with advanced transparency requirements, offering more consistent review by independent third party evaluators of their financial information and cyber-security processes, complying with U.S. legal standards of information and evidentiary production, and obeying all intellectual-property laws and standards.  Huawei, in particular, must become more transparent and responsive to U.S. legal obligations.
5. Committees of jurisdiction in the U.S. Congress should consider potential legislation to better address the risk posed by telecommunications companies with nation-state ties or otherwise not clearly trusted to build critical infrastructure.  Such legislation could include increasing information sharing among private sector entities, and an expanded role for the CFIUS process to include purchasing agreements. 

“60 Minutes” aired a story on Huawei on October 7.  They were able to only speak to a “company representative” in the US.  They flew a crew to China to try to meet with company officers, but were unsuccessful in their attempts to meet with anyone.  The complete transcript is available at http://www.cbsnews.com/8301-18560_162-57527441/huawei-probed-for-security-espionage-risk/?tag=contentMain;cbsCarousel

Where's Andy Rooney when you need him! 

One comment by Network World - 60 Minutes torpedoes Huawei in less than 15 minutes.  http://www.networkworld.com/community/node/81554

In March, Symantec completed the sale of Symantec’s 49 percent stake in Huawei Symantec Technologies Co., Ltd. (Huawei Symantec) to Huawei for USD $530 million.  The sale liquidated Symantec’s ownership interest in the joint venture and gave Huawei sole proprietorship over all elements of the joint venture entity.  There were “fears” that the relationship could potentially negatively impact business with the US government. 

 http://www.symantec.com/about/news/release/article.jsp?prid=20120330_01

Cisco filed an intellectual property lawsuit against Huawei Technologies, Co., LTD and its subsidiaries, Huawei America, Inc. and FutureWei Technologies, Inc. in January 2003.  It was settled in 2004.  "The completion of this lawsuit marks a victory for the protection of intellectual property rights," said Mark Chandler, Vice President and General Counsel, Cisco Systems.  "Innovation is the lifeblood of the industry, and protecting our intellectual property is of paramount importance to Cisco.  We are pleased to conclude the litigation as a result of the steps that were taken to address our concerns." 

 http://newsroom.cisco.com/dlls/2004/hd_072804.html

To view the complete Investigative Report on the U.S. National Security.  Issues Posed by Chinese Telecommunications Companies Huawei and ZTE -

http://intelligence.house.gov/sites/intelligence.house.gov/files/documents/Huawei-ZTE%20Investigative%20Report%20%28FINAL%29.pdf

  

 US companies will be picking their partners carefully  in the telecommunications and security sectors for a while.  http://kensek.blogspot.com/2012/08/sometimes-you-have-to-pick-your.html

To read more about Huawei:
  http://kensek.blogspot.com/2012/10/uk-and-european-commission-to-look-at.html