Commentary: US Senate Intel hearing & implications for Chinese vendorsNarola
What happened The US Senate Intelligence Committee held an open hearing on “Worldwide Threats” yesterday. Among many topics covered was the national security implications of US telcos deploying equipment from Chinese vendors. Huawei and ZTE, in particular. The six witnesses presented a united front on this issue, summarized best by FBI Director Chris Wray’s statement:
“We’re deeply concerned about the risks of allowing any company or entity that is beholden to foreign governments that don’t share our values to gain positions of power inside our telecommunications networks.”
NSA director Admiral Michael Rogers agreed: “You need to look long and hard at companies like this.”
What we think
The US market – still the world’s largest – remains largely closed to Chinese telecommunications equipment vendors. That’s despite multiple forays by the largest player, Huawei. Lack of access to the US market hasn’t stopped Huawei from growing into a giant, with 2017 revenues exceeding US$93B. And that’s part of the problem. If Huawei had a slim chance at US entry 5 years ago, that prospect is now more elusive.
While the US has been a problem, Huawei has succeeded in two similarly hard to tackle markets: Japan, where local suppliers once dominated, and the UK, where national security concerns are in theory similar. Huawei’s UK success may be due to smart politicking, but it was helped by the UK’s relative lack of a domestic telecom equipment market. (Sorry, Marconi). That’s not the case in the US. And the US has more at stake on the security front, given geopolitical rivalries.
With today’s hearing, it’s clear that things are not about to get easier for Huawei and ZTE, in (and around) the US market. Analysts & commentators can debate whether this is fair, but this is unlikely to change the outcome. An important question remains, though: what real tools do US policymakers have in this situation, given interconnected supply chains and Huawei’s already huge position globally?
The below figure compares Huawei’s reported 2017 revenues with several other vendors supplying equipment to telcos. Total company revenues are shown, except for NEC & Fujitsu.
*Data covers most recent 12 month period publicly available.
Also see China Mobile to go (more) global?, or this article at devex: China’s role in the race to connect the next billion