Jeff Kagan: Why Huawei, ZTE Are a National Security Threat

Jeff Kagan  |

President Donald Trump just upped the ante and signed an executive order banning from the US market, wireless and telecom network equipment from Chinese companies including Huawei and ZTE  (ZTCOF)  (ZTCOY). The US Government says the reasons are privacy invasion and security threat. I recently flew to Washington DC for a meeting with Joy Tan, senior VP of Huawei to discuss the matter.

Tan says she does not understand the US position on this matter. While I enjoyed the meeting, it did not answer the questions I had either. However, because of this meeting, I could see both sides of the argument more clearly.

Huawei is one of the world’s largest and most powerful wireless network and handset companies. Their success is staggering in countries all over the globe. They will continue to grow in countries other than the USA. However, this country is a huge opportunity for them, and they don’t want to let it slip through their fingers, again.

Does China based Huawei and ZTE threaten US privacy, security?

This is the story. The US government says companies like Huawei and ZTE offer discounts for their network gear, and this is paid for by the Chinese government. They use this to make cost effective offers that other countries cannot refuse to upgrade their wireless networks to 5G.

The US government officials say this is done so China can spy on the communications in the countries where they have network gear. The companies say this isn’t so.

So, what’s the truth? The problem is, there is no way anyone I speak with knows for sure whether this threat is real or imagined. And that’s the problem.

Erring on the side of security, the US government says US networks should take a hands-off approach with regards to Huawei, ZTE and other Chinese companies.

After this executive order was signed by President Trump, in a statement Huawei says they are ready and willing to engage with the US government and come up with effective measures to ensure product security.

They say restricting Huawei from doing business in the US will not make the US more secure or stronger. They said instead this would only serve to limit the US to inferior yet more expensive alternatives, leaving the US lagging behind in 5G deployment.

Qualcomm and Huawei are global leaders in 5G wireless

However, there are other top-level competitors in this space including US based Qualcomm  (QCOM), as well as Ericsson  (ERIC) and many others. In fact, the top two players in the 5G network space are Qualcomm and Huawei.

That means there are plenty of competitors US networks can choose from with Qualcomm at the top of the list. So, finding competitive suppliers is not a problem to networks.

Bottom line, while this is a definite blow to Huawei, I think it will have no impact or even affect the US marketplace.

U.S.A. has many 5G competitors like Qualcomm and Ericsson

The problem is, China does not look at privacy with the same eyes we do. They watch their people much more closely. In fact, in China I don’t think there would be as much push-back against companies like Facebook with the way they impede on our privacy and use our information.

China monitors their own people with cameras and by following their communications, whether by wireless, wire line, social networks, email, texts and every other way.

So, they may not see any problem with expanding this way to other countries.

That’s one point. Another is the US government is also warning other countries of this threat. They are saying this creates a national security threat to any country who uses this network gear.

And because of this threat, the US government also warns that its relationship with countries who use this gear could be impacted.

So, this problem is increasingly getting more serious with every month that passes. And the problem is, I see no solution in sight.

Huawei will remain in the 5G wireless market in countries all over the world. They just want to profit from the US market as well. And they don’t want to be kept out of other countries.

Remember, if US companies want to do business in China, they must share their technology secrets with them. That is an incredible violation of the privacy rights and security of companies from all over the world.

China doesn’t see it that way. They see it as a cost of doing business. The same may apply to privacy and security. They may simply not look at this matter the same way the rest of the world does. It may be that simple and that complex.

That’s why many times US companies refuse to do business over there. The cost with regards to loss of privacy and their technology is often much too high.

China makes no secret of their intention and their ability to squeeze companies who want to do business in their country. That’s OK since companies can make the decision before they enter the marketplace over there.

So, it is quite possible they may not see this as any kind of threat. At least not from the same perspective we do. They may see this as just the way they do things in their country.

With all that said, I still don’t know whether Huawei and ZTE telecom gear is watched by the Chinese government. And that’s why I believe the US government is erring on the side of safety and security and banning their gear with regards to 5G.

Unfortunately, I don’t see any solution to this issue. Fortunately, US wireless networks, large and small have other companies like Qualcomm, Ericsson and others to meet their 5G upgrade needs. That means wireless will move to 5G in America without a hitch.


Jeff Kagan is an Equities.com columnist. Kagan is a Wireless Analyst, Telecom Analyst, Industry Analyst, speaker and consultant. He follows wireless, wire line, telecom, Internet, cable TV, IPTV, Cloud, Mobile Pay, FinTech and communications technology. Email him at jeff@jeffKAGAN.com. His web site is www.jeffKAGAN.com. Follow him on Twitter @jeffkagan.

DISCLOSURE: The views and opinions expressed in this article are those of the author, and do not represent the views of equities.com.


The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
ERIC Ericsson 9.55 0.09 0.95 4,507,653 Trade
QCOM QUALCOMM Incorporated 69.11 0.39 0.57 9,411,062 Trade
ZTCOF Zte Corp. 2.58 -0.04 -1.42 9,950
ZTCOY Zte Corp. ADR 5.09 -0.08 -1.55 11,340

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