Major infrastructure vendors have been watching Huawei over their shoulders for a few years now, and now they are beginning to see its backside as the Chinese vendor steals some big European contracts historically reserved for the likes of Alcatel-Lucent (NYSE:ALU), Ericsson (NASDAQ:ERIC) and Nokia Siemens Networks. But will Huawei ever crack the U.S. market in a big way beyond Leap, Clearwire and Cox Communications?
U.S. regulators are wringing their hands over what to do with Huawei as it swoops in to make acquisitions in the U.S. and offer operators the same aggressive pricing and SingleRAN platform that has garnered the vendor some significant contracts in Europe. Most recently, a group of Republican senators asked the Obama administration to take a closer look at whether a potential deal between Sprint Nextel (NYSE:S) and Chinese vendor Huawei will compromise national security. They are concerned about the vendor's rumored ties with the People's Liberation Army and Iranian government.
Huawei has consistently denied these claims, and has been battling these issues for years now. But it's becoming obvious the vendor is willing to make some dramatic concessions to gain new business and provide more transparency into its private business structure.
A prime example of Huawei's flexibility is the company's actions in India, a country that represents a goldmine for mobile services and also is suspicious of Chinese companies given its long-standing border dispute with China. Last week, Huawei indicated it is willing to accept new Indian regulations that require telecom equipment suppliers to provide the government with access to source code and engineering designs for their equipment, according to Reuters.
The new rules call for vendors to allow designated government agencies to inspect their equipment, software, design and development, manufacturing facilities and supply chains. Vendors also have to agree to submit all software to a security threat check at the time of procurement and at other specified times afterward. Vendors would face fines and be blacklisted if a security breach is detected.
While Huawei said it welcomed the new security rules and would cooperate closely with the government on the new regulations (especially since it has some $300 million in contracts with Indian operators on hold because of the security concerns), Ericsson is protesting them. The Swedish company sent a strongly worded letter on the topic to India's Department of Telecommunications, according to published reports. An Ericsson spokesman told Reuters that some of the clauses in the rules are "unprecedented."
If Huawei is willing to be subject to these strict rules in India (and Ericsson isn't) won't it be just as accommodating with U.S. regulators? Of course, this is more than a national security concern. You have to believe that vendors with a lot to lose in the U.S. market have some heavy lobbying efforts in play.
It used to be that a vendor like Huawei had little chance of securing a huge contract with U.S. operators as American carriers tended to favor their existing vendors. But cut-throat competition means operators have to find ways to cut operating costs with equipment like a single radio access network for operating two or three generations of wireless networks. For Sprint, it appears that the carrier's need for cheaper solutions--namely a lower cost of ownership over the years to come--outweighs the baggage Huawei brings. You have to believe that Sprint knew a potential deal with Huawei would bring this type of political complexity. But it just can't ignore the vendor. --Lynnette