HUAWEI: TECH GIANT OR TROJAN HORSE?
“When a thing ceases to be a subject of controversy, it ceases to be a subject of interest.” — William Hazlitt
Over the past few years, Huawei has found itself in the spotlight again and again, as its name was dragged through myriad different controversies. From the allegations regarding cybersecurity to its associations with Iranian based firms, from the very public arrest of CFO Meng Wanzhou to its exclusion from the 5G networks of several countries, Huawei has been in the news for all the wrong reasons.
What has the world’s largest telecom supplier done to make it the subject of so many controversies?
Huawei came into existence in 1987. During this period, the Chinese government started investing in the telecommunication infrastructure so as to develop this sector. Ren Zhengfei, a former deputy from the People’s Liberation Army, sought to create local substitutes for foreign technologies. At the beginning, Huawei was founded with about $5,000 in initial capital.
At that point, startups in China were practically unheard of. Most companies were state-run. This meant Huawei had a difficult battle trying to establish itself in the Chinese market. At first, Huawei would import telecom switches from a company in Hong Kong. Later on, they invested in their own R&D division and started manufacturing their own products.
“History has determined the existence of Huawei. If China did not open up, Huawei would not exist; if private companies would not be allowed, Huawei would not exist. If fit perfectly the bill of what was needed at that time for China’s entrepreneur to give the push towards what would become one of the biggest telecom companies in the world.” — Professor De Cremer, National University of Singapore
Soon after, Huawei got a contract from the People’s Liberation Army to create their telecommunication network. According to Ren Zhengfei, “A nation that did not have its own switching equipment was like one that lacked its own military”. A major turning point for Huawei came in 1996 when the Chinese government restricted foreign access and focussed instead on home-grown telecom providers.
Once their position in the Chinese markets had been cemented, Huawei turned its attention to foreign expansion.
In 1999, the company expanded to India and opened up an R&D centre in Bangalore. In 2003, it partnered with 3Com, thus entering into the router market. In 2005, it signed a Global Framework Agreement with Vodafone and a contract with British Telecom. 2005 also marked the first year for Huawei when its foreign sales exceeded its domestic sales.
Huawei entered the US market in 2007, in a partnership with Symantec Corporation, for the provision of data storage and security solutions. Soon after, it also entered into the Australian, Canadian and European markets.
In 2010, Huawei was included in the Global Fortune 500 list.
Since then, Huawei’s yearly revenue and sales have followed a steady upward trend. It became the largest telecom manufacturer in the world in 2012, and the second-largest smartphone manufacturer, after Apple, in 2018.
Even though the company is so successful, there have been increasing concerns regarding cybersecurity. Apart from that, there have been several instances of intellectual property theft and concerns regarding espionage.
Most of these concerns have been centred around the suspicion that the Chinese government is using Huawei and its telecom network to spy on the US and other countries. In response to these allegations, Ren Zhengfei has said that he would “rather shut down Huawei than a spy for Chinese authorities”.
CONCERNS REGARDING SECURITY
Huawei’s connections to the Chinese Communist Party and the government have long been the subject of concern. In the US, the first conscious moves against Huawei came when the partnership of Bain Capital with Huawei fell through due to security concerns. In India, the Department of Telecommunication has always viewed Huawei with suspicions, especially in the cancellation of a contract with BSNL, and the extra level of scrutiny that always follows the import of telecom equipment from Chinese companies.
In 2012, the US House Intelligence Committee completed an investigation into Huawei and ZTE, before concluding that they were a “national security threat”. Canada, too, decided to exclude Huawei from the plan to build a secure communication network for the government.
Most other countries have taken conscious steps to exclude Huawei from their communication networks or to restrict its involvement in the domestic markets.
Although Huawei has fervently denied all the accusations levelled at it for years, it is especially hard to take them at face value, owing to the recent National Intelligence Law that was passed by the Chinese parliament. According to this law, “All organisations and citizens shall support, cooperate with, and collaborate in national intelligence work”. This means, even if Huawei did not want to share data with the Chinese government, they were lawfully bound to do the government’s bidding.
Tensions have been present between Huawei and the Western countries for a couple of decades now. The United States trade war against China has led to rapid escalation and the worsening of diplomatic relations. Huawei is bearing the wrath of the United States as a representative for China.
In 2018, the Federal Communications Commission of the US forbade the buying of telecommunication equipment from companies like Huawei with government subsidies. Soon after, US President Donald Trump passed the National Defence Authorisation Act for 2019. This act directly bans the use of any hardware manufactured by Huawei and ZTE for government purposes.
In 2019, Vodafone Italy realised that there were several security concerns in the network that Huawei had created for them. These security blips could essentially allow external access and spying on the data usage of customers on that network.
President Trump soon stepped up the offensive attack against Huawei and restricted US companies from participating in business deals with Huawei. Only those companies with prior approval would be allowed to do so. Soon after, Google excluded Huawei from the usage of its Android operating system in the smartphones manufactured by them. Intel, Xilinx and Qualcomm also followed suit and stopped doing business with Huawei.
ENTRÉE INTO 5G SPECTRUM
Huawei has grown to be a leader in 5G equipment, with “over 3,000 patent applications for the technology”.
While most Western companies were developing 2G, 3G and 4G technologies, China realised the potential of 5G as a “strategic emerging industry”. The early start combined with the strategic growth plans and capital infusion from the China Development Bank gave Huawei the edge that it needed to beat international competitors. As of 2019, Huawei, ZTE, Ericsson and Nokia were the forerunners in the 5G race. These four companies accounted for over 60% of the overall market share.
The 5G network is very different from all its predecessors in the sense that it relies largely on wireless technologies and virtual software. 5G networks make use of edge computing instead of the centralised architecture system that was prevalent previously. These factors combine to make 5G technology very prone to cyber-attacks and spying.
“With the widespread adoption of network virtualisation — which means less and less specialised hardware is deployed in carrier networks — it is possible that malicious actors could gain visibility and control over 5G networks through a single point of entry,” said Russ Mohr, an engineer at MobileIron.
The exposure associated with the launch of 5G networks brings the issue of cybersecurity and data privacy to the forefront. This means the level of regulation and vetting of potential players has gotten amplified.
The concerns about Huawei’s intentions and the long list of allegations and controversies that it has collected over the years casts the company in a doubtful and suspicious light. From the accusations over stealing Cisco’s proprietary source code to its involvement in the hacking attack on the Canadian firm Nortel Networks, Huawei’s operations have fallen into the morally grey area time and time again.
The Five Eyes international intelligence alliance, comprising of US, UK, Canada, Australia and New Zealand, have all declared that the Huawei 5G network brings with it “significant security risks”.
Between 2018 and 2020, several countries have banned Huawei’s participation in the creation of the 5G network. Leading the pack is the US.
“We’re not going to be doing business with Huawei,” said US President Donald Trump.
Following closely in Australia, New Zealand, Canada, Singapore and India. Other countries in the European Union like Germany, France and Italy have not issued a complete ban, but are slowly reducing their dependence on Chinese technology.
The gradually worsening reputation in the international markets is going to place an immense strain of Huawei’s future.
MENG WANZHOU EXTRADITION
On December 1, 2018, Meng Wanzhou, the Chief Financial Officer of Huawei, stopped in Vancouver, Canada, on her way to Mexico. Here, she was detained by the Canadian police on US’s request.
The charges against Wanzhou are centred around the relationship that Huawei has with the Iranian company Skycom. The United States has imposed certain sanctions against Iran. It is, therefore, illegal for banks to transfer any money from Iran and enter it into the international banking system.
Now, the fact that Huawei had dealings with Skycom in the past, and that Meng Wanzhou had served on its board of directors is common news. However, in 2013, while in a fundraising meeting with several banks in the US, Wanzhou and Huawei had said that they no longer had any connections with Skycom.
“Huawei has sold all its shares in Skycom, and I also quit my position on the Skycom board,” said Meng.
It was later revealed that the company Huawei sold its shares to, was also owned by Huawei. According to Reuters, “Skycom employees seemed even to have Huawei email addresses and badges”.
The criminal investigation into this matter, and into the role of Meng Wanzhou began in 2017, and the arrest warrant against her was issued soon after. US authorities claim that Huawei was aware of the investigation and that Wanzhou avoided travelling through the US henceforth in order to avoid detention.
Finally, the US managed to detain Wanzhou with help from Canada.
China, however, was not one to take this attack lying down.
On December 10, 2018, Chinese authorities arrested two Canadians, Michael Kovrig and Michael Spavor, for “allegedly stealing state secrets”. This is not all, the Chinese authorities also adopted an extremely harsh stance towards any Canadians charged with anything minor in China. For instance, Robert Lloyd Schellenberg, who was arrested of drug trafficking, was immediately given the death penalty after a very short trial.
Both Canadian Prime Minister Justin Trudeau and US President Donald Trump have refused to relent to China’s pressures. Wanzhou was formally charged on several counts of conspiracy and bank fraud. She is currently still residing in Vancouver, British Columbia, where she faces trial for extradition to the United States.
The latest developments, in this case, come in the form of Wanzhou’s lawyers accusing Canada of illegally detaining her. These charges were overruled when, on May 27, the British Columbian Supreme Court ruled on the “double criminality” charge against Wanzhou, thus confirming her crimes in Canada, and opening the doors to allow for extradition.
The road ahead for Huawei is rocky, to say the least. The rest of the world views Huawei, not as a separate entity, but as a very intricate part of the Chinese economy.
“Huawei’s reputation and brand image have certainly been negatively affected by its association with China,” said Quing Wang, Warwick University.
As of now, although Huawei is taking a beating in the international markets, its revenue stream still remains uninterrupted. In fact, over 60% of its revenue came from international sources.
Whether it is possible to detangle itself from this image or repair the smears to its reputation or not, will only be clear with time. Huawei hopes that the relationship with the US will get better with time, and until then, the company is focusing on servicing its other customers.
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