Huawei, ZTE pose threat to U.S. security, says government report

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A U.S. House of Representatives' Intelligence Committee report found that Chinese telecom vendors ZTE and Huawei pose a security risk to the United States because their equipment could be used for espionage.

According to Reuters, the House report recommends the U.S. block acquisitions and mergers involving the two firms and also recommends that the U.S. government and U.S. companies avoid using equipment from the two Chinese companies. It's unclear if the report is just referring to network equipment or if it also means wireless devices. Both ZTE and Huawei have had minimal success securing network infrastructure contracts from Tier 1 carriers in the U.S. market. However, both companies' handsets have had success in the U.S. market. ZTE devices accounted for 5.4 percent of global shipments in the second quarter, and Huawei's devices accounted for 3 percent, according to ABI Research.

According to Reuters, the U.S. panel's draft report said that both Huawei and ZTE failed to provide detailed information about their relationship and regulatory interactions with Chinese authorities. In addition, the document also said that the panel received "credible allegations from unnamed industry experts and current and former Huawei employees suggesting Huawei, in particular, may be guilty of bribery and corruption, discriminatory behavior and copyright infringement."

The committee plans to refer its report to the Justice Department and the Department of Homeland Security.

Huawei and ZTE have repeatedly denied that they would allow the Chinese government to use their equipment for surveillance. Both companies said they cooperated with the committee on this report and have responded to requests for information.

Huawei spokesman William Plummer told the Wall Street Journal that the national security concerns are "baseless" and said that implying that "Huawei is somehow uniquely vulnerable to cyber-mischief ignores technical and commercial realities, recklessly threatens American jobs and innovation, does nothing to protect national security."

ZTE, which is a publicly traded company, also denied the charges. David Dai Shu, the company's director of global public affairs, told the Journal that "ZTE has set an unprecedented standard for cooperation by any Chinese company with a congressional investigation." He also added, "ZTE equipment is safe."

Just last week the Wall Street Journal and Reuters reported that privately held Huawei was reaching out to investment banks to explore the possibility of an initial public offering. The move was seen as a way for the company to become more transparent and assuage security concerns. 

Separately, Cisco Systems is reported to have terminated a long-standing reseller agreement with ZTE following allegations that ZTE resold Cisco equipment to Iran, in violation of U.S. laws.

ZTE spokesman Shu said that the company is concerned with Cisco's decision and is cooperating with the U.S. government about the probe to Iran. 

For more:
- see this WSJ report (sub. req.)
- see this BusinessWeek article
- see this Reuters article
- see Huawei's statement

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