Huawei, besieged in U.S., now under the Verizon microscope in Canada

In politics, it's a losing battle to be on the wrong end of the argument over national security, and it's an argument Huawei Technologies Co. Ltd. can't seem to win. Troubles persist for the Canadian operations of Chinese telco Huawei, the world’s largest manufacturer of telecommunications equipment, with revenues of more than $35 billion last year. The latest negative for the company is related to major American telco Verizon Communications Inc.'s consideration of acquiring Wind Mobile, which uses Huawei's network equipment. The Globe and Mail reported this month that Verizon had outlined preliminary plans for acquiring Wind that included possibly removing Huawei's equipment from Wind’s network at a cost of up to $100 million. Separately, citing anonymous sources, the same newspaper reported last month that national security concerns surrounding Wind Mobile's use of Huawei equipment, as well as Wind's majority Russian investors, were causing a delay in the government’s approval of its transfer of ownership of Wind to Amsterdam-based VimpelCom Ltd. Iain Grant, a telecom analyst with research firm the SeaBoard Group, said in a phone interview that Wind is small potatoes compared to BCE Inc., and Telus Corp. which also use Huawei network equipment, as well as regional player SaskTel. Still, that doesn't stop the concerns about Huawei, and a Verizon offer to remove it from Wind's network may be helpful in presentations to government, he said. “It’s certainly something they might want to offer, if they’re trying to convince the government it’s a good idea,” Grant said. “But if you are a government concerned about security, why would you worry about the eighth player in a marketplace with a market share of less than one per cent, when both Bell and Telus have Huawei equipment at the core of their networks?” In the past few years, Huawei, based in Shenzhen, China, has been on the receiving end of political blows from western lawmakers. A few years ago, Australia banned it from bidding on its National Broadband Network project, and last year, a critical report by the U.S. House of Representatives intelligence committee put the company on the defensive after the committee said the company was capable of using its network technologies for spying. Grant said that, if Verizon decides to go ahead with a purchase of Wind Mobile (which Globalive Wireless Management Corp. controls and in which VimpelCom has a 65 per cent share), the American telco would be looking at a large investment in Canada—somewhere around $7 billion—covering acquisitions, spectrum licensing through an auction, and network builds. In other words, the cost of ripping out the Huawei equipment would be a drop in the bucket, he said. Huawei's network switches and routers are such key pieces of equipment in network infrastructure that any company selling them needs to meet higher security standards than other equipment manufacturers, David Skillicorn, a professor in the school of computing at Queen’s University, said in a phone interview. “A network switch sees all of the traffic that flows through the organization—every file moved around, every piece of email, everything,” he said. “So if it’s possible to get at that switch, then the whole organization, essentially, has been gutted from an information point of view.” The U.S. House intelligence committee report, released last October, encouraged American companies “to take into account the long-term security risks associated with doing business with either ZTE or Huawei for equipment or services,” referring to ZTE Corp., another Chinese telecom supplier. The report said computer network breaches have originated from China with the backing or direct involvement of the Chinese government, and suggested the state can exert influence over the boards and management of private sector companies based in China due to their corporate structures. Skillicorn said that it’s Chinese companies’ closeness to government that raises the concerns about Huawei. “Nobody’s terribly concerned that the Swedish government is secretly telling Ericsson what to put into its switches,” he said. “There’s no such thing in China as a company with an arm’s length relationship to the government.” The intelligence committee report recommended that U.S. government networks, especially sensitive systems, not use Huawei or ZTE equipment or component parts, and concluded “that the risks associated with Huawei’s and ZTE’s provision of equipment to U.S. critical infrastructure could undermine core U.S. national security interests.” Small surprise, then, that Huawei has expressed some frustration about the discussion in the United States. Company spokesman Scott Sykes told Forbes in March that it is now “very difficult” for Huawei to generate revenue growth in the country, “considering the situation our company currently faces in the U.S.” Edward Mcfadden, a spokesman for Verizon, confirmed in an email to The Wire Report that the company, as well as its Verizon Wireless partnership, don't have any Huawei equipment. “We are very focused on the security of our networks and the security of the information which our customers send over our networks,” he said. Scott Bradley, vice-president of corporate and government affairs at Huawei Canada, said the company would not “speculate on speculation” related to Verizon. Bradley, in a phone interview, added that the suggestion that the application for a transfer of ownership of Wind to VimpelCom was delayed due to security concerns surrounding Huawei was “groundless,” and that the company works “openly and transparently” with the government and its customers. “They know exactly what we’re doing here in Canada,” he said. “We anticipate there are no issues with regards to why Wind would not continue to use our network as we go forward.” Wind has also emphasized the security of its network as concerns about Huawei are raised. Last month, Wind spokeswoman Alexandra Maxwell also told the Wire Report in an email that there has never been a security breach, “hacking, spying or otherwise,” on its network, and that Wind's “core network is ring-fenced with firewalls from Juniper Networks (a top tier, groundbreaking North American company with security products being one of their key strengths). Like all of the other major mobile operators in this market, WIND uses equipment from more than a dozen (best of class) suppliers in our core network.” Bradley added that Huawei has been in Canada for five years, and in that time, there's never been an issue with its equipment. While it won’t happen overnight, he said, the company is committed to building a brand in Canada. Over time, as people become more comfortable with the trade relationship between Canada and China, they will think differently about the company, he said. “Every step we take has to be a step in the right direction, and that’s the approach that the company is taking,” Bradley said. Huawei has encountered opposition in Canada before. In March, Bloomberg reported on comments from International Trade Minister Ed Fast, who said Huawei was banned from bidding on government telecommunications contracts. The comment followed an earlier statement from the Prime Minister's Office that said the company may be blocked from bidding on a new service contract for a secure government telecom network. The Wire Report contacted the office of Minister Fast for clarification, and questions were referred to the Department of Shared Services, which did not directly say whether Huawei can bid on government telecom contracts. Shared Services spokesman Ted Francis said in an emailed statement that the department doesn’t comment “on any particular equipment supplier” and that all bidders have to meet the same requirements. “At no time did we believe, nor did we feel it was reasonable to believe, that we would be … one of the companies asked to bid for the government email contract,” Bradley said. Chris Parsons, a network expert and doctoral candidate at the University of Victoria, said in a phone interview that the U.S. intelligence committee report, though an important one, was politicized. “That kind of report is very helpful in trying to advance American companies’ interests, or companies’ interests who are friendly to the United States,” he said. Huawei's main competing vendors for mobile wireless services, particularly fourth-generation network equipment, are Ericsson, based in Stockholm, and Alcatel-Lucent SA, in Paris. National security agencies in the United States and Australia have also released warnings about Huawei, leading to questions about the use of the Chinese company's equipment in centralized infrastructure, Parsons said, but in China, the same arguments are made about Ericsson and Cisco Systems Inc., based in San Francisco. Parsons said western intelligence agencies may have identified errors in Huawei's equipment that could be exploited and that aren’t being patched, which is "more realistic as to the nature of the concerns." The security discussion pops up periodically on a mailing list for network operators who run important networks around the world, he said, and they do not show the kind of data leakages that critics fear, Parsons said. Jeffrey Carr, founder and CEO of the U.S. cyber security company Taia Global Inc., said in a phone interview that it would be very difficult to detect a breach by a network vendor, and it’s better to be safe than sorry. While the question of how big a risk the equipment poses isn’t easy to answer, if an alternative to Huawei equipment exists, he recommends it. At the same time, it’s a mistake to forget that countries like France and the United States do as much intelligence gathering and online monitoring as China, he said, and that many western companies manufacture their equipment in China, such as American company Dell Inc., which is based in Round Rock, Texas. “Who’s to say there aren’t security risks associated with Dell servers for the same reason?” he said. “We don’t really talk about that. So we are a little bit hypocritical when it comes to painting Huawei as something that’s uniquely negative.” —With reporting by Anja Karadeglija at akarad@thewirereport.ca and editing by Simon Doyle at sdoyle@thewirereport.ca

Huawei, besieged in U.S., now under the Verizon microscope in Canada

News | July 15, 2013

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Huawei, besieged in U.S., now under the Verizon microscope in Canada

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