The trouble with China's Huawei

@CNNMoneyTech March 27, 2012: 2:39 PM ET
Huawei is a telecom giant, but it's struggling to crack the U.S. market.

Huawei is a telecom giant, but it's struggling to crack the U.S. market.

NEW YORK (CNNMoney) -- More bad news for Chinese telecom giant Huawei this week is raising questions about the company's ability to do business with the West.

Huawei, which is second only to Sweden's Ericsson in telecom equipment sales, was blocked on Monday from bidding on a $36 billion Australian national broadband contract.

The Australian government is working to connect virtually the entire country to a high-speed fiber-optic broadband network, and Huawei wanted to supply the project with much of the necessary infrastructure equipment. The government-run National Broadband Network Co. wanted to consider Huawei, but the Australian Security Intelligence Organization recommended that the Chinese company not be allowed to bid for security reasons, Australia's Financial Review reported.

Getting barred from foreign contracts is becoming a frequent problem for the Shenzhen, China-based company.

Also this week, the New York Times reported that a cybersecurity joint venture between Huawei and security firm Symantec (SYMC, Fortune 500) ended in November because of Symantec's concerns that its relationship with Huawei would prevent it from getting a sensitive U.S. government security contract. Symantec did not immediately respond to a request for comment, and a spokesman for Huawei denied the Times' account.

The setbacks for Huawei are just more links in a long chain of defeats in Western countries -- particularly in the United States.

U.S. lawmakers and regulators have blocked Huawei from three proposed acquisitions and many more partnerships over the past decade, including a bid for 3Com and a supply deal with Sprint, both of which contract with the U.S. military. 3Com was eventually purchased by Hewlett-Packard (HPQ, Fortune 500).

Huawei has no problems getting contracts in many places around the globe. The company does business in 140 countries and serves 500 operators, including 45 of the 50 largest global telecom companies.

But it can't count Verizon (VZ, Fortune 500), AT&T (T, Fortune 500), Sprint (S, Fortune 500) or T-Mobile USA among its customers. Or the American government.

Huawei faces three key obstacles, all of them geo-political in nature.

First, Huawei's CEO is Ren Zhengfei, once a civil engineer for the People's Liberation Army. The most advanced, persistent cyberattacks emanate from China, and the U.S. government believes many are sponsored by the Chinese government. Those attacks have captured intellectual property from U.S.-based corporations and secrets from the U.S. military.

Second, Huawei -- like all companies based in the Communist country -- has ties with the Chinese government.

Finally, the company has historically been willing to supply Iran with networking equipment, which Iran reportedly used to track its citizens. Huawei has since said it would scale back its relationship with Iran.

Huawei says it is being unfairly treated and mischaracterized.

"Huawei recognizes that there are geopolitial tensions; however, Huawei is a private company owned by its employees, financed by major commercial banks," said Bill Plummer, a spokesman for the company. "We would encourage anyone who wants to learn about the company to engage in facts."

Over the past year, Huawei has become increasingly vocal about what it sees as misinformation spread about the company. Most notably, Huawei released an open letter last February detailing its relationships with governments both in China and around the world.

The company constantly points to the many countries that it does do business in, including the United Kingdom, as examples of its integrity and focus on security.

There's a big incentive to keep haggling, pushing and persuading. The United States is a $30 billion telecom market -- and growing. As mobile traffic soars and 4G networks roll out, there's a huge need for infrastructure spending.

But with Australia's big "N-O" to Huawei and recent revelations about why Symantec was so eager to dump it as a partner, it's clear Huawei still has a lot of convincing to do. To top of page

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