Chinese Peril: Huawei and ZTE Smartphones

Six top US intelligence chiefs caution against buying ZTE and Huawei phones

• The directors of the CIA, FBI, NSA and several other intelligence agencies express their distrust of Huawei and fellow Chinese telecom company ZTE.
• During a hearing, the intelligence chiefs commended American telecom companies for their resistance to the Chinese companies.
• Huawei has been trying to enter the U.S. market, first through a partnership with AT&T that was ultimately called off.

By Sara Salinas

Chinese esionage: Six top US intelligence chiefs caution against buying ZTE and Huawei phones

FBI Director Christopher Wray (L) and CIA Director Mike Pompeo (2nd L) testify on worldwide threats during a Senate Intelligence Committee hearing on Capitol Hill in Washington, DC, February 13, 2018.

Six top U.S. intelligence chiefs told the Senate Intelligence Committee on Tuesday they would not advise Americans to use products or services from Chinese smartphone maker Huawei.
The six — including the heads of the CIA, FBI, NSA and the director of national intelligence — first expressed their distrust of Huawei and fellow Chinese telecom company ZTE in reference to public servants and state agencies.
When prompted during the hearing, all six indicated they would not recommend private citizens use products from the Chinese companies.
"We're deeply concerned about the risks of allowing any company or entity that is beholden to Chinese government that doesn't share our values to gain positions of power inside our telecommunications networks," FBI Director Chris Wray testified.
"That provides the capacity to exert pressure or control over our telecommunications infrastructure," Wray said.

"It provides the capacity to maliciously modify or steal information. And it provides the capacity to conduct undetected espionage."

Huawei and ZTE smartphones are Chinese espionage's favorite tools.

Huawei has been trying to enter the U.S. market, first through a partnership with AT&T that was ultimately called off. 

At the time, Huawei said its products would still launch on American markets.
Last month, Huawei CEO Richard Yu raged against American carriers, accusing them of depriving customers of choice. 

Reports said U.S. lawmakers urged AT&T to pull out of the deal.
At the hearing, the intelligence chiefs commended American telecom companies for their measured resistance to the Chinese companies.
"This is a challenge I think that is only going to increase, not lessen over time for us," said Adm. Michael Rogers, the NSA's director. 

"You need to look long and hard at companies like this."

Chinese Espionage

US lawmakers urge AT&T to cut commercial ties with Huawei

Reuters

U.S. lawmakers are urging AT&T, the No. 2 wireless carrier, to cut all commercial ties to Chinese phone maker Huawei Technologies and oppose plans by telecom operator China Mobile to enter the U.S. market because of national security concerns, said two congressional aides.
The warning comes after the administration of President Donald Trump took a harder line on policies initiated by his predecessor Barack Obama on issues ranging from Beijing's role in restraining North Korea to Chinese efforts to acquire U.S. strategic industries.
Earlier this month, AT&T was forced to scrap a plan to offer its customers Huawei handsets after members of Congress lobbied against the idea with federal regulators, sources told
Reuters.
The U.S. government has also blocked a string of Chinese acquisitions over national security concerns, including Ant Financial's proposed purchase of U.S. money transfer company MoneyGram International Inc.
The lawmakers are also advising U.S. companies that if they have ties to Huawei or China Mobile, it could hamper their ability to do business with the U.S. government.
One of the commercial ties senators and House members want AT&T to cut is its collaboration with Huawei over standards for the high-speed next generation 5G network, the aides said.
Another is the use of Huawei handsets by AT&T's discount subsidiary Cricket, the aides said.
China Mobile, the world's biggest mobile phone operator, did not respond to requests for comment.
AT&T declined to comment but said that it had made no decisions on 5G suppliers. 

U.S. lawmakers who have in the past expressed concerns about the prospect of the deal between AT&T and Huawei either declined to comment or were not immediately available.
Huawei declined to comment.
National security experts fear that any data from a Huawei device, for example about the location of the phone's user, would be available to Chinese government intelligence services.
In 2012, Huawei and ZTE were the subject of a U.S. investigation into whether their equipment provided an opportunity for foreign espionage and threatened critical U.S. infrastructure.
"The next wave of wireless communication has enormous economic and national security implications. China's participation in setting the standards and selling the equipment raises many national security issues that demand strict and prompt attention," said Michael Wessel, a member of the U.S.-China Economic and Security Review Commission, which was set up by Congress.
U.S. lawmakers do not want China Mobile to be given a license to do business in the United States.

China Mobile applied for the license in 2011, and the application is pending before the Federal Communications Commission.
Huawei and Chinese telecom firms have long struggled to gain a toehold in the U.S. market, partly because of U.S. government pressure on potential U.S. partners.
Two Republican lawmakers, Representatives Michael Conaway and Liz Cheney, introduced a bill this week that bars the U.S. government from using or contracting with Huawei or ZTE, a Chinese telecommunications and equipment and systems company.

Chinese Espionage

Huawei's global ambitions hit by AT&T phone distribution deal's collapse

By Sijia Jiang

HONG KONG -- Huawei Technologies Co Ltd’s planned deal with U.S. carrier AT&T Inc to sell its smartphones in the United States has collapsed at the eleventh hour, people with knowledge of the matter said, in a blow to the Chinese firm’s global ambitions.
A separate person familiar with the discussions said that security concerns had arisen, without elaborating further.
AT&T was pressured to drop the deal after members of the U.S. Senate and House intelligence committees sent a letter on Dec. 20 to the Federal Communications Commission citing concerns about Huawei’s plans to launch consumer products through a major U.S. telecom carrier, online tech news site The Information reported.
Huawei said in a statement to Reuters on Tuesday that its flagship premium smartphone Mate 10 Pro -- Huawei’s challenger to the iPhone -- will not be sold in the United States via a telecoms carrier but only through open channels.
“The U.S. market presents unique challenges for Huawei, and while the HUAWEI Mate 10 Pro will not be sold by U.S. carriers, we remain committed to this market now and in the future,” it said.
Huawei is the world’s third largest smartphone vendor by volume after Samsung Electronics and Apple Inc, but it has a mere 0.5 percent share of the U.S. smartphone market, compared with 39 percent for Apple and 18 percent for Samsung, according to industry tracker Canalys.
In the United States, where telecom carriers dominate the distribution channel by typically providing subsidies and special package deals, Huawei had been unable to make any significant inroads due to national security concerns.
Huawei was poised to announce a partnership with AT&T to distribute its phones in the United States this year, said the people with knowledge of the matter, who declined to be identified as the talks were private. 

AT&T declined to comment.
The flagship Mate 10 Pro that was to be introduced is Huawei’s most high end product to date, equipped with its own AI-powered chips that Huawei says process data much faster than those used by Apple and Samsung. 

It was launched in Europe in October with a price tag of 799 euros ($955).
Huawei’s smartphone chief Richard Yu flagged Huawei’s ambition to become a truly global smartphone brand in 2018 in his New Year address to staff, and also told The Information in an interview in late December that it planned to spend $100 million on marketing to raise brand awareness in the United States.
But the collapse of the deal with AT&T, first reported by the Wall Street Journal, will mean that Huawei will likely struggle to make a hit of its smartphones there.
“This makes it very difficult for Huawei to get significant in the US as the open channels account for only about 10-11 percent of the market,” said Canalys analyst Mo Jia, referring to sales channels outside telecom carriers and vendors’ own stores.
He said Huawei’s proprietary mobile chips may have presented a bigger regulatory hurdle for its U.S. market entry in the current political climate, compared with other Chinese vendors’s entry strategy that relies on U.S. chip suppliers.
“Whatever they have spent on US marketing is a waste now, and the letdown this time may also deter other potential carrier-partners in the future,” Jia said.
In 2012, Huawei and ZTE Corp were the subject of a U.S. investigation that looked into whether the companies’ equipment provided an opportunity for Chinese espionage and threatened critical U.S. infrastructure.