Huawei had big plans for the U.S. this year but it all ended up falling apart fairly quickly; instead of celebrating a retail partnership with AT&T that it's been planning for the better part of 2017, the firm was met with yet another stateside defeat after the wireless carrier dropped it due to pressure from Washington that still considers the company a national security threat due to its close ties to Beijing. While the development was far from the first sign of U.S. troubles for Huawei, it's notable due to how badly Huawei has taken it. Its consumer electronics CEO Richard Yu has been ranting about "unfair" treatment of the company for months now, both at major trade shows such as CES and MWC and in every media interview in between. At one point, Huawei's communications chief had to step in to distance the firm from Yu's comments and try to downplay his little meltdowns as good ol' executive passion, albeit with limited success. While one could argue Uncle Sam's paranoia is now preventing an ambitious company and a global technology leader from bringing its products and services to the country and benefitting American consumers, a question still worth asking is whether Huawei truly is the blameless victim of American protectionism it's painting itself to be?
The U.S. and China aren't that different when it comes to networking strategy
To answer that, we first ought to look at why the United States is so opposed to the idea of having the firm run a large-scale business in the country in the first place. While the AT&T episode has been widely reported about and it all comes down to spying accusations, most industry watchers agree that the political efforts to block Huawei from operating in the U.S. have little to do with phones and everything to do with its ambitions to enter the stateside wireless infrastructure market. Right now, the next big thing in the industry is 5G, but Huawei also faced congressional grillings in 2012 when 5G was but a distant idea. Naturally, the fact that a global superpower doesn't want to let a company with ties to one of its main international rivals anywhere near its critical infrastructure is far from unprecedented. Actually, the very reason Huawei managed to grow as much as it did since 1987 is because China had a similar thought – it wanted to stop importing network switches from foreign entities. While Washington isn't that radical and simply wants to limit the wireless equipment used by American companies and agencies to hardware from countries it considers allies, the basic sentiment is the same, and it's hypocritical to cry about the government going against the notion of a free market when it comes to systems that could jeopardize the entire country if compromised.
A nation without its own network infrastructure is like one that lacks its own military, Huawei founder says
Huawei's initial business model was to sell network switches imported from Hong Kong while simultaneously reverse-engineering such solutions, with its business goals hence perfectly aligning with Beijing's networking ambitions in the late 20th century. While China's researchers usually partnered with foreign experts on trying to develop such technologies, Huawei was largely reverse-engineering them on their own, according to 2006 findings of one Peilei Fan. It's unclear when Huawei and Beijing started actively collaborating, with researcher Eric Harwit claiming a firm communication line between the two was established no later than 1994. That year, Huawei's founder Ren Zhengfei met with Jiang Zemin, then-Chinese President and Secretary General of China's Communist Party, having told the political leader that "a nation that did not have its own [telephone network] switching equipment was like one that lacked its own military," Mr. Harwit wrote in his 2007 journal article. The head of China is said to have agreed with him, but Beijing and Huawei have already been collaborating at that point, with the Far Eastern Economic Review (FEER) claiming the country received its first state contract in the early 1990s after the People's Liberation Army commissioned it to deploy a national telecom network it "desperately" sought to "build a modern military." The PLA didn't want to rely on imported equipment because it considered doing so a national security risk, as per the same source. If that sounds familiar, that's because it's pretty much the same reason that U.S. intelligence communities have been citing as the justification for opposing Huawei's U.S. entry even if they lack firm evidence of the company doing anything wrong. It appears the East and the West aren't that different after all, at least when it comes to buying critical telecom infrastructure from one another, so why is Huawei crying foul play in the U.S. while enjoying its near-monopoly back home? Simple – hypocrisy.
As to how Huawei managed to win lucrative PLA contracts over state-run Zhongxing Telecom, later known as Zhongxing New Telecommunications Equipment and today's ZTE, nobody ever managed to get to the bottom of that story, with most speculation on the matter coming down to one thing – the fact that Ren used to be a deputy director of the PLA's engineering corp. Regardless, Huawei's status of a national telecom champion was undisputed starting from the second half of the 1990s, with Beijing being open about the fact that the company enjoyed its support, both in terms of loans and contracts. By 1999, Huawei was by far the most profitable telecom company in China, boasting a bottom line of $182 million on nearly $1 billion of revenue. In the meantime, the company started its international expansion, having won its first foreign contract in 1997, a year before it was contracted by IBM for consulting and unspecified network management services, Bloomberg reported more than a decade later. Huawei ended up launching four R&D institutes in the U.S. in 2001 and was generating $552 million from overseas sales in 2002, as per its own disclosure (archived page, original removed between July 9 and October 11 of 2016). After fifteen years of importing network equipment and relying on foreign tech for its critical communications infrastructure, China finally got what it wanted in the early 21st century – its very own telecom giant. Technically not state-run, but domestic, and if later criticism is to be believed, the difference between the two isn't that significant, which is an idea that Huawei has been fighting for twenty years now with limited success, and rightfully so.
Why "collective ownership" doesn't really mean anything when you use it as "proof" you aren't a state puppet
The latter point is particularly important given how Huawei still refers to itself as a "collective" and not a privately owned company, which is misleading at best and alarmingly suspicious at worst. The specifics of its ownership structure remain largely undisclosed, which is one of the main reasons why the U.S. has been repeatedly criticizing it for a lack of transparency; the easiest way to find where one's loyalties lie is to look at who owns them, yet Huawei remains reluctant to discuss such matters. In 2014, the company allowed Financial Times to go through some of its books in an effort to prove it's truly owned by its employees, yet the inspection only confirmed that its workers aren't actually controlling the firm even though they're eligible for some cash bonuses based on their holdings and annual profits. While this may sound similar to stock options in the West, it isn't because if you leave Huawei, you also lose all shares of the company, and you can't own any stake in the firm if you aren't a Chinese national and an employee in the first place. So, who really owns and controls Huawei? Well, weren't you paying attention? Employees do… some employees… kind of… at least so long as they stay with the company and agree to participate in its controlled and never-ending game of would-be capitalism because they aren't allowed to go play outside. Confused? So is every U.S. official that ever tried to make sense of this ownership mess. Even if Huawei isn't being controlled by Beijing, it's sure doing its best to hide whomever or whatever is behind it.
Huawei's ownership structure is significantly less transparent than even that of ZTE, which is a publicly traded company whose majority stake is held by the People's Republic of China. This lack of clarity is notable because the state-owned firm had far fewer issues with selling its devices through U.S. carriers than Huawei did until now. ZTE is still likely done with smartphones in the U.S., though not over spying concerns but what's being described as a systematic lack of respect for the American institutions overseeing its operations. Hmm, where have we heard that before?
The case of Cisco, or how a patent infringement settlement doesn't mean "not guilty"
The skepticism about Huawei's trustworthiness isn't exclusive to the government, as numerous U.S. companies also clashed with the Chinese tech giant in the past, most notably due to accusations of intellectual property theft. The first such case was recorded in 2003 when Cisco sued the firm for misappropriating its router source code. The dispute was settled out of court a year later, with Huawei SVP Charles Ding reflecting on the case in 2012 by boldly concluding no infringement was ever found. Cisco SVP General Counsel Mark Chandler didn't take well to that statement, to say the least, having effectively said Ding is lying while publicizing certain parts of the settlement corroborating his claim and calling for the Chinese firm to publish the full neutral expert opinion on the matter that prompted it to settle, with the implication being that the report clearly proves IP theft. Unsurprisingly, Huawei never responded to his request but at least it never tried downplaying the affair as a misunderstanding again and has learned its lesson. Well, for that year, at least.
That time when T-Mobile agreed to sell Huawei phones but ended up filing a trade secret theft lawsuit instead
While you could write off such an incident to a one-time slip-up, an oops-didn't-mean-to-steal-your-legally-protected-code mistake that we were all surely guilty of at some point, a similar move saw Huawei burn bridges with the only U.S. carrier that was willing to sell its phones in the past several years back – T-Mobile. The Bellevue, Washington-based telecom giant sued the firm in 2014 over trade secret theft, having accused it of stealing designs and even components of its touchscreen testing robot "Tappy." While the plaintiff never managed to prove malicious intent, it won the lawsuit last year, with Huawei being found guilty of trade secret theft and ordered to pay $4.8 million in damages. It's difficult to argue there's not a pattern to be observed here, and that's not even accounting for Huawei's IP infringement clashes in other parts of the world such as the Unwired Planet dispute in the United Kingdom that saw the telecom equipment maker win a FRAND injunction against the Chinese company last year.
Given its history of such disputes, the T-Mobile episode appears to be a case of Huawei shooting itself in the foot and destroying its relations with the one U.S. carrier that seems like a perfect fit for its products, with T-Mobile's whole shtick being about surpassing consumer expectations in courageous defiance of other telecoms. What better way to do so than with aggressively priced flagships that are exclusive to your network? If only T-Mobile could find a partner capable of delivering such devices while also not sending unauthorized employees to take pictures of its protected technologies with the goal of reverse-engineering them to develop rivaling solutions while thinking no one's looking, Legere would surely be thrilled.
At least Huawei's product practices are sound, except not really
Disregarding Huawei's decades-long efforts to obfuscate its ownership structure and the firm's many infringement disputes, the company's general product practices were also criticized on numerous occasions, most recently after the revelation that the OEM was soliciting fake reviews of the Mate 10 Pro flagship, asking consumers to leave them on Best Buy's online storefront. Following public backlash, Huawei attributed the development to "an internal miscommunication," yet Best Buy is now understood to be done with the company entirely. Another year, another bridge burned. Some twelve months back, the company was caught falsely advertising all P10 models as featuring UFS 2.1 memory while also selling models with significantly slower UFS 2.0 and even eMMC 5.1 storage. Huawei first avoided the allegations, then said it was "arrogant" to do so, then also went back on that mea culpa response and claimed it didn't cheap out on its Android flagship lineup but simply opted to use worse-than-advertised storage in some devices in an effort to — wait for it — diversify its supply chain and make it more reliable. Too bad no one told its marketing department that "reliability" is what they should have been aiming for that year. While none of these product controversies are any reason for the U.S. to block the firm from doing business in the country and are mostly just ammunition for consumer protection groups and bodies, they do cast doubts over Huawei's repeated claims that it's being treated unfairly by the government and lawmakers given how the tech giant itself appears to have a rather distorted understanding of the concept of fair play.
Huawei simply can't win because it all comes down to "what if" scenarios
Likewise, the last decade revealed a largely unanimous, bipartisan opposition to Huawei's stateside business ambitions on the part of legislators and two radically different administrations. In 2012, Ding testified in front of the House Intelligence Committee about a month before Cisco's top attorney accused him of lying about the aforementioned source code infringement dispute. On that occasion, he said that even if Beijing asked Huawei to provide it with information on some U.S. customer(s), complying with such a request would be "corporate suicide." Huawei's more recent statements on the matter suggest it's still sticking with that stance, which is rather curious given how it implies that a Chinese company that decides to defy its authoritarian government, a government that's now literally moving to start rating the "trustworthiness" of its citizens, would, in fact, not be committing "corporate suicide."
At the end of the day, while Huawei's U.S. story is a lengthy and complicated one, the consistent opposition it's been facing from stateside lawmakers and regulators for nearly a decade now comes down to one relatively simple notion: it's not that Washington is absolutely certain Huawei is actively spying for China given how it can't even figure out who formally owns the company, it's that there's no reason to believe Huawei would be able to refuse to spy for China if asked to. With the advent of 5G and the increasingly important role telecommunications are playing in every aspect of our lives, allowing Huawei to do large-scale business in the U.S. is a risk that the government simply doesn't want to even consider, and it's not like the firm gave it a lot of reasons to doubt its decision given the countless slip-ups it made and dubious practices it resorted to in recent times.
Ultimately, and as evidenced by the actions of several different American administrations, intelligence communities, and lawmakers from all sides of the political spectrum, Washington doesn't want to enable Huawei because it doesn't want to see the tech giant being forced to choose between the U.S. and China given how a Shenzhen-based company simply can't afford to refuse Beijing, regardless of who owns it and how sincere its global expansion plans are. Cynics would say that even if everything previously claimed about Huawei is true, it ultimately doesn't matter who's allowed to spy on you as an individual consumer — Washington or Beijing — but the U.S. government unsurprisingly isn't basing its domestic and foreign policies based on such stances.