Monday, April 08, 2019

The Huawei Charm Offensive

"That's more than just Huawei. This is just a western bias against China. That goes back culturally."
"The country and the company all need to learn how to tell a better story. This is why I'm now able to talk to you."
"I don't think we trust anybody. We've operated for a long time on the basis you can't trust vendors to have secure equipment."
Huawei spokesman

"There's nobody that does customer centric the way Huawei does customer centric."
"Anybody that breaks those rules is automatically terminated. We've always had to pay more attention than our peers in the industry just to keep the playing field level."
"It's time that we come together as an industry to get working with regulators, to get working with governments to build a common standard to say if you want to play in this space, this is what you have to do."
Leroy Blimegger, global president, assurance and managed services, Huawei

"They've been a little naive perhaps ... all these political shenanigans are not something that they're used to."
"It's the old chestnut that it's impossible to prove a negative. They can say till they're blue in the face, 'We'd never share information with the Chinese government'."
Peter Richardson, research director, Counterpoint Research

Map of Shenzhen

Ren Zhengfei, a former military engineer with the Chinese military, began his now-giant communications/electronics corporation with modest funding soon after Deng Xiaoping had declared Shenzhen, a semi-rural city, open for business on a modified Communist free-enterprise model. The-then fishing village of some 30,000 inhabitants in 1987 has since grown through its status as a special economic zone with freer markets, into a massive metropolis of 12.5-million people. As Shenzhen has grown, so too has Huawei.

In 2017, the Chinese Communist Party brought the National Intelligence Law into service whereby all Chinese organizations and citizens are obligated to support, assist and co-operate with intelligence officials. This is their first order of business; to spy for or along with the CCP. Yet Huawei insists all security protocols are scrupulously adhered to by them. Charging that it is being targeted with anti-China biases by those resentful of its ascent to the top of its game worldwide. As though to stress its bona fides Huawei calls for industry-wide cybersecurity standards.

Since Huawei's chief financial officer, Meng Wanzhou, daughter of the company's founder, was arrested in Vancouver on an extradition request from the U.S. on charges of conspiracy to commit bank fraud, and China responded with great alacrity and even greater recrimination by arresting two Canadian businessmen, upgrading a third's prison sentence to a death sentence for drug running, the suspicion with which Huawei's security is viewed globally has intensified.

Huawei is busy courting contracts for 5G communications upgrades, assuring its potential clients of its security protocols and that the 32-year-old company has never and never would, acquire data on foreign nations through its systems distribution, holding to industry-wide cybersecurity standards. Its reputation has suffered quite a blow with the detention of Ms. Meng and the U.S. charges against the company erupting from manoeuvring to do business with Iran, despite U.S. sanctions.

Close to 50 percent of Huawei's $107-billion in global revenue emanates from business outside China; over a quarter of its revenues derive from contracts in Europe, the Middle East and Africa. North America, minus the U.S., supplied about $7-billion of Huawei's global revenue. It has invested research and development in Canada to the tune of $30 million annually; the third-largest target for R&D spending; 5G innovation centered to a large degree in Ottawa.
A hostess waits to welcome journalists at the Huawei Beijing Executive Briefing Centre in Beijing. Fred Dufour/AFP/Getty Images

Ten percent of its global research budget goes to basic research at Canadian universities. Recently a new report was released in the United Kingdom focusing on its Huawei CyberSecurity Evaluation Centre, set up as an oversight facility to test the company's gear for the presence of vulnerabilities. The report revealed "serious and systemic defects in Huawei's software engineering and cybersecurity competence"; that the U.K. security system could provide only limited technical assurance for the equipment; on the other hand that it "does not believe that the defects identified are a result of Chinese state interference".

Huawei has built over 1,500 networks around the world, built a base station on Mount Everest, its equipment was used in one of the first LTE networks with Telia Sonera in Norway. After three decades of accelerated growth Huawei is the world's largest telecommunications equipment manufacturers. It employs close to 188,000 people, operating in over 170 countries and regions of the world. In 2018 the company sold over 200 million smartphones as the third-largest smartphone provider globally.

The company has offered a lower price point to establish its foothold in emerging markets. Carriers in developed countries understood by 2009 that Huawei gave good service at a competitive price: "4G was the first time Huawei showed it could compete with the best", said Dexter Thillien, telecom analyst at Fitch Solutions based in London. With higher quality on offer, the company was able to compete even in Chinese cities where western company services had dominated. According to Thillien and other analysts, Huawei is in the lead with 5G, thanks to its massive investment in R&D.

Yet many governments nervously view what they see as a lack of transparency over Huawei's ownership structure and its relationship with the Chinese government. Australia and the U.S. have acted on that suspicion by banning Huawei. Parts of Europe seem to be swaying in the same direction, even while Germany, Italy and France seem to be leaning toward the Telus view in Canada to continue its collaboration with Huawei on the basis that the company's equipment is permitted in the periphery but not the core network.

While swearing it has never, would never spy for the Chinese government, that it follows the rule of law wherever it operates and blames suspicion on rogue employees, it isn't convincing everyone who matters. Huawei cannot shake itself free of suspicions that it acts as an arm of the state, its high-tech equipment could contain back doors allowing the Chinese government to conduct espionage or insert code with the potential to shut down an entire network....

A staff member of Huawei uses her mobile phone at the Huawei Digital Transformation Showcase in Shenzhen, China.Wang Zhao/AFP/Getty Images

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