Australia Takes Middle Road With Huawei
New signals from embattled telecoms equipment giant Huawei indicate the company may be seeking a new “middle road”, as it tries to ease western concerns that its products could be used for spying by Beijing. This subtle but perhaps significant shift is coming in the form of a press release just issued by Huawei, in which it says Australian Prime Minister Julia Gillard encouraged the Chinese company to expand its commercial business in Australia during a trip to China this week. While the announcement itself seems rather bland and pro forma on the surface, it does seem to draw an important distinction that says Huawei is welcome to sell its products to private businesses in Australia even as the government won’t buy such products due to national security concern. That could be good news for Huawei and crosstown rival ZTE (HKEx: 763; Shenzhen: 000063), which worry that their core telecoms networking products could be banned completely from lucrative western markets.
To completely understand this latest development, we need to backtrack about a year when Australia formally banned Huawei from bidding to help build a $38 billion national broadband network being coordinated by the government. (previous post) In that case, Australian officials were quite direct in saying their decision stemmed from concerns that Huawei could install backdoors and other spying channels into its equipment to be used for spying by Beijing.
The national security issue came to a peak last October, when the US government issued a report saying equipment from Huawei and ZTE posed a national security risk. (previous post) The US government went one step further and banned the use of Chinese equipment not only in government networks but also in privately-owned ones operated by domestic telcos like Verizon (NYSE: VZ) and Sprint (NYSE: S).
After the US move, more reports came out saying other major western markets like Canada and Western Europe were considering similar actions due to national security concerns. Against that backdrop, this latest pronouncement by Australia’s prime minister seems like an attempt to clarify the issue.
Specifically, Gillard is quoted saying she welcomes Huawei “to seek opportunities to grow its commercial business in Australia, and to continue to forge partnerships with Australian companies and educational institutions.” (company announcement) What’s not written but heavily implied by such a statement is that the Australian government itself won’t do business with Huawei due to the national security concerns.
If my interpretation is correct, Australia’s newly clarified stance could become a good template for other western countries to follow. Such a template says that sensitive government-owned networks are off-limits to Huawei, ZTE and other Chinese players due to the national security concerns. But in the case of less sensitive government networks like those used in schools, and in most privately-owned networks, Huawei and ZTE should be allowed to bid for business alongside other major global players like Ericsson (Stockholm: ERICb) and Alcatel Lucent (Paris: ALUA).
This kind of stance seems like a good compromise to the more radical US approach, and would be a useful template for other western governments to follow, including the US itself. While the government certainly has the right to decide what equipment it wants to buy, it shouldn’t impose its will on private companies except for in extreme situations. In this case, private telcos like Verizon and Sprint are very sophisticated companies that understand the importance of network security. Thus they should understand the risks of doing business with Huawei or ZTE, and be allowed to make decisions based on their own assessments.
Bottom line: Australia’s clarified stance towards Huawei looks like a good middle road by banning most sales to government but allowing sales to private telcos.
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