In a recent development, US cellular network Sprint Nextel (news, site) has allegedly cancelled potential deals with two Chinese companies over fears of a security breach. China’s ZTE and Huawei, both major suppliers of telecommunication equipment, were on the verge of making a multi-billion dollar deal with Sprint for the upgrading of its nationwide cellular network. However, advice from various entities from the federal government seems to have spooked Sprint into trashing the bids in favor of other suppliers.
Potential Breach of Security
The Department of Defense has expressed concern of foreign companies’ links with possibly hostile governments and militaries. In the case of ZTE and Huawei, this potentially leads to security hazards if using the companies’ equipment for a nationwide cellular network. In particular, these can theoretically be used to intercept or disrupt communications. While the DoD hasn’t singled out ZTE and Huawei, they maintain watchful of any Chinese movement in the telecommunications industry.“[The] DoD is very concerned about China’s emerging cyber capabilities and any potential vulnerability within or threat to DoD networks,” they announced in a statement.
The Department of Commerce has also exercised its clout over the issue. Secretary Gary Locke allegedly made a call to Sprint CEO Dan Hesse and voiced out the same government concern (although details of the conversation were not disclosed). Soon after, Sprint kicked ZTE and Huawei off the bidding table, and is now in serious talks with the other bidders, namely Alcatel-Lucent, Ericsson and Samsung.
A Decision Based on Business Merits and Not Security
Sprint maintains that security concerns weren’t the only reason it booted the Chinese companies out of their multi-billion dollar bidding. Instead, there are also concerns with ZTE and Huawei’s technical capability with regard to completing a project of such a scale. Both Chinese companies insist that their products and services are top-tier, having been servicing big companies in the European and Asian regions.
Huawei has partnered with a US-based consortium, in order to allay concerns about their technology being used for espionage.Meanwhile, ZTE is negotiating with US officials for reconsideration. The company plans to setup a local plant, so that government can monitor the hardware and software being developed. ZTE is also willing to share source codes, in order to help quell fears of espionage.
“We are under unfair scrutiny,” says Cheng Lixin, ZTE’s CEO for North America. “[The] central challenge facing us in the American market is how to make us known to them.”ZTE is the world’s sixth largest telecommunications equipment supplier, which hardly makes for an incapable bidder for a cellular network. However, it is not as well-known in the American consumer market.
Legal Basis to Crowding Out Offshoring and Outsourcing
The US Senate recently started measures that might contribute to tighter regulations in the telecommunications and information industry. Just this year, the National Defense Authorization Act included provisions that give the DoD the authority to prevent American companies from employing suppliers or contractors that might put national security at risk.
Meanwhile, letters had been issued by certain senators in August and October, warning the Obama administration and the FCC of a potential security breach with Chinese companies supplying sensitive telecoms infrastructure. One of these cited “significant influence by the Chinese military, which may create an opportunity for manipulation of switches, routers, or software embedded in American telecommunications networks so that communications can be disrupted, intercepted, tampered with or purposely monitored.”
Security concerns do seem to be valid, especially if these involve a critical aspect of the information infrastructure -- in this case a cellular network. However, borderline paranoia will tend to be stifling to innovation and meaningful partnership. There is high demand in the US for an upgrade of mobile telecommunication infrastructure. After all, Internet access is increasingly moving from fixed to wireless. Meanwhile, Chinese firms are certainly capable of delivering quality service at low costs. There has to be a balance between security and business sense.