Huawei, ZTE Suffer More Setbacks 华为、中兴料将在西方市场遭遇更多挫折

By newsdoug on March 27, 2012

Huawei thwarted again in Australia China’s export superstars Huawei and ZTE (HKEx: 763; Shenzhen: 000063) continue to face new obstacles in their quest for global legitimacy, with the former receiving a major setback in Australia as the latter comes under fire for dealings in the problematic Iranian market. Those developments reflect the uphill battle that both companies face in the eyes of western leaders, many of whom believe the these 2 telecoms equipment giants are little more than spying arms of Beijing. In the latest of a steady stream of setbacks for Huawei, Australia has officially disqualified the company from bidding for contracts to build a new $38 billion high-speed broadband network over security concerns. (English article) A frustrated Huawei disclosed the rejection, but top-level Australian officials, when questioned on the matter, were quite direct about their security concerns surrounding construction of a new National Broadband Network that aims to connect more than 90 percent of the country’s homes and offices with fiber optic cable by 2020. Australia’s Attorney-General Nicola Roxon said outright that the decision was consistent with the country’s national security policy, and Prime Minister Julia Gillard, when questioned by reporters at an unrelated event, called the decision a “prudent” one. This latest rejection comes just five months after Huawei was disqualified from another bid to help upgrade emergency telecoms networks in the US. (previous post) In that case no reason was given, but the clear implication was that security concerns were a major factor. If I were advising Huawei, I would tell it to steer clear of bids for this kind of government-backed network construction in sensitive western markets like Australia and the US, as conservative politicians will inevitably politicize the issue, scaring away even open-minded leaders who might otherwise be willing to offer Huawei and ZTE some contracts. Instead, I would advise them to focus on bids to help build networks for private telcos, as the government has much less control over such initiatives that tend to be less sensitive and more commercial. Of course, even private sector bids can be difficult, as ZTE learned about a year ago when its bid was rejected to help build new 4G wireless networks for Sprint (NYSE: S), the third-biggest US wireless carrier. (previous post) In a separate but similar new development for ZTE, that company has come under new fire after western media reported it sold a powerful surveillance system to Iran, which has been subject to numerous sanctions from the US and Europe where leaders suspect its atomic energy program is really designed to create nuclear weapons. (English article) Huawei was subject to similar criticism last year, prompting it to say it would curtail its activities in Iran, and now ZTE has responded to this latest report with similar comments. Both companies need to seriously consider hiring more public relations and strategy specialists to avoid these kinds of issues, as such consultants probably would have advised them to avoid both the US and Australian network-building bids, and also to suspend their Iranian activities and put out statements on the matter on their own initiative before being “caught” and forced to sound defensive. Huawei has made moves in that direction by hiring well connected former government and corporate officials to speak on its behalf in markets like the US, Australia and Britain. In fact, one such official, Australia’s former foreign minster Alexander Downer, who now serves on the board of Huawei’s Australia unit, spoke out after the latest rejection, calling his country’s security concerns “absurd.” Persistence and more sophisticated PR may ultimately work for both companies over the longer term. But in the meantime look for both Huawei and ZTE to face repeated rebuffs in their attempts to sell telecoms equipment in the US, Australia and even Europe — where they have posted a few successes — over at least the next couple of years.

Bottom line: The latest setbacks for Huawei and ZTE reflect high skepticism towards the pair in many western markets, with the distrust likely to halt any major new deals for the next 2 years.

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