T-Mobile's proposed merger with Sprint may allow China to spy on American citizens and government agencies through Huawei and ZTE, conservative analyst Kevin Currie warned on Monday. The two Shenzhen-based companies are among the candidates to help the two wireless carriers build out the infrastructure for their fifth-generation mobile network which they're positioning as a crucial aspect of their consolidation. While ZTE worked with both carriers in the past, their ties mostly come down to distribution partnerships centered on the Chinese firm's consumer electronics such as smartphones and routers. Huawei is a different story seeing how it's closely working alongside SoftBank, Sprint's parent willing to cede a controlling stake in a combined entity with T-Mobile in exchange for other concessions.
Mr. Currie is describing both firms as national security risks that shouldn't be allowed anywhere near the United States 5G race seeing how crucial of a role is the next generation of wireless connectivity expected to play in the stateside and global economy. The analyst called for the Federal Communications Commission to focus on the Sprint-Huawei link as part of its merger review, asses the potential damage that relation could cause to the U.S. in the long term, and demand the two agree to concessions that would nullify those risks before approving any kind of a tie-up.
The industry watcher is also quick to point out that the possible consequences of Huawei's links to Sprint and its Japanese parent won't be affecting just T-Mobile and Sprint's future subscribers but anyone else who attempts contacting them via voice calls or SMS. "It should concern all of us that two American companies would have these kinds of connections to deeply controversial foreign firms," Mr. Currie concluded. The bottom line of that train of thought is that Huawei and ZTE should be kept away from any kind of 5G deployment in the U.S. moving forward and it's up to the stateside regulators and legislators to ensure that happens, according to the conservative analyst.
A long history of accusations
Both ZTE and Huawei have been defending themselves against allegations they could be used as Beijing's international spying networks for many years now, with their general stance on the matter remaining largely unchanged throughout that time. Both companies repeatedly dismissed those accusations as baseless, claiming their American rivals are just as susceptible to government pressure in terms of information requests. That argument didn't live up to significant scrutiny seeing how Beijing is operating under laws that allow it to force local companies into broad cooperation efforts with little justification, largely due to its strict censorship regulations. And whereas Huawei is technically a privately held firm, albeit one with close ties to Beijing going back to its founder and former People's Liberation Army officer Ren Zhengfei, ZTE is directly controlled by the Chinse government as it's majority-owned by a state company. Earlier this year, ZTE also found itself on the verge of bankruptcy after breaking the terms of a 2017 settlement regarding its violations of U.S. embargoes imposed on Iran and North Korea. While a personal intervention from President Trump ultimately paved the way for another settlement that allowed the technology giant to continue operating, it came at a tremendous cost that's making ZTE's future in the U.S. highly uncertain.
New escalations in 2018
Allegations of violated trade sanctions against Iran are also at the center of a new scandal coming from Canada where authorities arrested Huawei Chief Financial Officer and Zhengfei's daughter Meng Wanzhou on December 1, having done so based on a request from the Department of Justice. The DOJ is suspecting Ms. Meng, a 46-year-old industry veteran that's been with Huawei since its startup days in 1993, of an illegal banking scheme involving a company called Skycom which had hidden ties with the Chinese conglomerate and operated in Iran, breaking stateside embargoes imposed on the Middle Eastern country, according to the details that emerged as part of her Friday bail hearing in Vancouver which has yet to be concluded and is only continuing today. Huawei denied having knowledge of any wrongdoings on the part of its CFO and demanded evidence of the thereof, along with the Chinese government. State-sponsored media in the Far Eastern country are already painting the development as a politically motivated attack against the Chinese economy and a bad-faith move aimed at stifling the world's largest manufacturer of telecom equipment and second-largest smartphone maker. The still-ongoing development is yet another chapter in Huawei's troubled history with the U.S. government which doesn't appear to be coming to an end anytime soon.
Sprint and T-Mobile still unlikely to embrace Huawei and ZTE
Despite the newly published warnings from Mr. Currie, it's unlikely that either Sprint or T-Mobile will be pushing for a 5G partnership with Huawei or ZTE. The main reason for that prediction lies in this year's federal spending bill that contains a provision preventing government agencies from purchasing or licensing technologies created by Huawei and ZTE, or solutions merely associated with the two companies. In other words, the current federal law would lock T-Mobile and Sprint out of lucrative government contracts should the two opt to purchase gear from either Chinese firm, regardless of whether their proposed merger is actually approved.
The second factor making Huawei's collaboration with T-Mobile unlikely is the existing history between the two that recently saw the Bellevue, Washington-based carrier win a trade secret theft lawsuit against the Chinese tech juggernaut after successfully proving some of Huawei's employees made design recreations and even stole parts of its mobile user experience testing robot "Tappy" several years back. Even as AT&T was close to carrying some of Huawei's Android smartphones in early 2018 before being pressured to drop the idea by Washington, T-Mobile showed no intention of working with the Chinese manufacturer ever again following the trade secret theft episode and isn't expected to have a change of heart if it absorbs Sprint seeing how its parent Deutsche Telekom would still have a controlling stake in that combined entity. In the meantime, the U.S. 5G race is heating up and first large-scale deployment efforts are scheduled to start early next year.