The rise
of China is the one of the most discussed topics in geopolitics, but its rise
is no less significant in the smaller corner of the network infrastructure
world. And just as China's rise has ruffled the feathers of established powers
like the U.S. and Japan, the growing global presence of Chinese
telecommunications firms isn't sitting well with the West.
Two of
China's telecom powerhouses, Huawei and ZTE, have run into trouble with U.S. and
European regulators. Both firms make a raft of network and consumer products,
including routers, switches, mobile phones and set-top boxes. In October, the
U.S. House Intelligence Committee declared that both companies posed a security
risk and advised U.S. companies to avoid doing business with them.
The
fear is that the close collaboration between both ZTE and Huawei and the Chinese
government could open up U.S. communications networks to spying. This may sound
paranoid or reminiscent of Cold War-era distrust, but there's reason to be
concerned. China is notorious for its industrial espionage and the linkages
between ZTE and Huawei and China's ruling communist party are opaque. (To be fair, the U.S. is no slouch when it
comes to the espionage game either).
Questions
regarding both firms have bubbled up in Europe as well, although there the
concerns center around price-fixing. The executive arm of the European Union recently concluded that both ZTE and Huawei were guilty
of dumping wireless infrastructure products into Europe at below-market prices
to gain share and disadvantage European firms. A report in Forbes also noted that concerns have spread
into markets typically friendly to Chinese firms, such as India (where a state
agency recommended banning both firms) and Australia (which forbid Huawei from
bidding on the building of a broadband network).
Competitors
have been quick to pounce on the wounded firms. Cisco, for instance, wasted
no time
in bashing both firms publicly and cutting ties with ZTE.
Still,
business marches on and neither company looks likely to be permanently derailed
by their setbacks. ZTE recently gained access to Nagra's set-top
box customers, giving them a broad spectrum of European cable customers to
market to. Moreover, the firm's positions in IPTV middleware and set-top boxes
is likely to strengthen as pay TV growth accelerates in Asian markets.
For its
part, Huawei has just opened up an R&D facility in Helsinki (following a massive investment in the UK) and will be
employing more Europeans in the coming year - facts which will surely weigh on
the minds of European Union regulators as they plot next steps for dealing with
the allegations of market manipulation.
Nonetheless,
for both companies, close association with the Communist party may prove to be
a liability if geopolitical tensions spill over into commercial considerations.
