US Warns that Chinese Phone Companies are a Threat to National Security

Scene from a Huawei Factory

Image Source: Businessweek.com

 

In an unexpected move, the U.S. House of Representatives’ Intelligence Committee is scheduled to announce today that two Chinese phone companies — Huawei and ZTE — are threats to national security. Both Huawei and ZTE say that the claims are completely unfounded. But panel chairman Mike Rogers disagrees. And he’s looking to ban both companies from doing business in the United States in the future even if he can’t exactly reveal why.  

If you haven’t heard about Huawei and ZTE, it’s not surprising. Their presence in the US market is still small. But for a while now, the writers of GSMNation.com have been heralding them as the harbingers of the dawn of the super-cheap smartphone.

These two companies in particular specialize in phones that are not only available at rock-bottom prices but with specs designed to compete with some mid-range phones that cost hundreds of dollars more.

And thanks in part to their growing market presence, mid to low range smartphone prices have dropped significantly. And Huawei and ZTE — already two of the world’s largest producers of electronics — are enjoying a bigger presence in the United States and in the smartphone industry as more people by their cheap, quality phones.

 

Huawei and ZTE

Image Source: Androidfamily.net

 

But not everyone is as optimistic about the success of their business model. For the US government, the growth of ZTE and Huawei — the fourth and sixth largest phone manufacturers in the world respectively — and their presence in the United States is suspicious and perhaps even a plot by the Chinese government to spy on US citizens and steal their technology.

Around 11 months ago, the U.S. House of Representatives’ Intelligence Committee began an investigation into both ZTE and Huawei to investigate the possible threat. This morning, they are due to release a report of their findings or, perhaps more accurately, their lack of findings.

According to a leaked draft of the report and Rogers’ own statements on television, the committee found no evidence of espionage or technology theft on the part of either company. Or, rather, no evidence they can share with the public. According to Rogers and the draft, there is “classified” information that points to both companies’ culpability.

Rogers also says that both Huawei and ZTE failed to “satisfy its requests” for documents those that detail their formal and regulatory relationships with Chinese authorities. The Committee did not reveal what those documents were, but they did announce that the absence of evidence was no reason for them to allay their suspicions.

On Friday, Rogers appeared on “60 Minutes” to urge US companies interested in buying from Huawei to look elsewhere if they care about “the national security of the United States of America”.

The draft of the Intelligence Committee’s report further emphasizes the danger by stating that neither Huawei nor ZTE can be trusted “to be free of foreign state influence and thus pose a security threat to the United States and to our systems.”

The draft also calls for an inter-agency government group called “The Committee on Foreign Investments in the United States” to review the national security threat that Huawei and ZTE pose.

No mention was made on whether that investigation should have been conducted before Mr. Rogers got on to “60 Minutes” to warn US companies about the companies’ threat to national security.

 

Mr. Charles Ding, US President of Huawei

Image Source: Yahoo.com

 

Huawei and ZTE have both publicly responded to the allegations with shock and dismay. In a public letter, ZTE stated that it:

“ZTE profoundly disagrees with any suggestion that the company is directed or controlled by China’s government. And ZTE categorically rejects any suggestion that ZTE could be importuned by anyone to undermine our customers’ telecom infrastructure networks.”

And in that same open letter, they questioned the nature of the US government’s suspicions. They pointed out correctly that Huawei and ZTE together only account for around 6 percent of US phone sales, amounting to a little less than $30 million per year.

However, companies like Nokia (a Finnish company) and Alcatel (Paris-based) enjoy roughly $14 billion of annual revenue from the United States but are not subjected to the same scrutiny as Huawei and ZTE who are both based in Shenzhen, China.

Neither Huawei nor ZTE mentioned the deflationary effects of their entree into the smartphone market. Or the fact that the companies whose prices must drop as a result dominate the other 94% of the market share have lobbyists who, according to Fox News, have been working with lawmakers to all but completely blocking both Huawei and ZTE’s entrée into the American market.

We’re not exactly sure what the outcome for Huawei and ZTE will be. But in the meantime, it’s sure to be super awkward. At GSMNation.com, we sell both Huawei and ZTE and none of our customers have reported having their birthday photos uploaded to the Chinese government. So we recommend purchasing your cheap, Chinese handset before Huawei and ZTE are deported.