A Huawei political minefield

For those of us who spend our lives in the bubble of the international telecoms industry it was not exactly a massive surprise to see the news that Chinese vendor Huawei would be blocked from bidding for work on the $38 billion National Broadband Network (NBN).

Rumours had swirled for months that Huawei would be blocked from the NBN on the back of security concerns and this was finally confirmed on March 25th in the local press – although the government itself did not issue a definitive confirmation of the decision in its own statement.

Although Huawei had been privately aware that it had been blocked from the NBN since late last year, with its local management being advised of the fact by key officials in Canberra, the breaking of the news still caused a massive stir in the Australian market, with the development being reported on mainstream TV news programs.

Following Uncle Sam

Given the fact that no Australian government ever wants to have more than a cigarette paper of distance between its own trade and foreign policies and those of its big brother in Washington DC, the NBN block on Huawei was inevitable given the company's still parlous position in the US market.

For a variety of security and trade related reasons the US government – across both administrative and legislative branches – continues to have major concerns about Huawei and has blocked the company from competing for many projects in the country.

As a result, it would have been hugely embarrassing for the Americans if Australia – its staunchest international ally – had allowed Huawei to bid on a state sponsored project like the NBN because it would have significantly advanced Huawei's international credibility and left the US as something of an outlier in its continued opposition to the company.

Indeed, news reports have made it quite clear that the US political and intelligence forces have lobbied Canberra hard to block Huawei from the NBN project and the Australian government, faced with choosing between its long running US alliance and its burgeoning partnership with China, plumped for the former over the latter.

The real questions now are these; how big a price will Australia pay in terms of trade implications with China for so publicly humiliating Huawei and, more importantly, where does Huawei go from here?

Will revenge be a dish best served cold?

From the perspective of trade implications there is little doubt that the Chinese will be furious at this public humiliation of one of their flagship technology companies – one which is already doing business in well over 100 countries around the world.

China is one of Australia's biggest trading partners, with the middle kingdom importing tens of billions of dollars worth of Australian minerals every year to fuel its staggering growth – and those in the Australian minerals export industry are certainly unimpressed with this latest turn of events.

Local mining investors, including the increasingly eccentric but nonetheless hugely successful Clive Palmer, have long urged the Australian government to be more welcoming of Chinese investment in the local market and there has already been some serious disquiet over the implications of blocking Huawei from the NBN.

Of course, the Chinese are not going to suddenly stop buying Australian coal, bauxite and whatever else it is that Rio Tinto et al dig out of the ground – their need for these resources is too great – but they might easily decide to become less welcoming of Australian investment in other areas of the Chinese market.

After all, it could hardly be an unfair position for the Chinese government to say to Australia, “If you don't allow Huawei to bid for NBN contracts then why should we allow your educational institutions to expand into our market and teach our students?”

A question of influence

Huawei Australia has already brought some significant political muscle to the table in its bid to be fully accepted into the Australian market, most notably with the addition of former Foreign Minister Alexander Downer – a genuine local blue blood – as well as former Premier of Victoria John Brumby to their local board.

At this stage though it is doubtful whether Huawei Australia could have swayed the government even if their local board contained former Prime Minister's Kevin Rudd, John Howard, Paul Keating and Bob Hawke with cricketing legend Shane Warne operating as PR adviser and pop singer Kylie Minogue providing backing vocals – the die is seemingly cast against the company for geo-political reasons.

Therefore, it seems fruitless at this point for Huawei to bring more political patronage to the table – it has already embarked on heavy lobbying of both government and opposition members of parliament – the firm will need to take an entirely different tactic and one which the Chinese are traditionally strong; displaying patience and taking a longer term view.

The firm will simply have to keep on working with its key clients in the Anglo-sphere such a BT in the UK, Chorus in New Zealand, Bell Canada in Canada as well as SingTel Optus in Australia and hope for a gradual change in the positioning of the Australian government.

This is obviously a far from satisfactory prospect but probably the best on offer right now for the company given the seeming futility of hoping for a successful inter-governmental level intervention from the Chinese government.

The ludicrous spy myth

As I have argued for several years now – and Alexander Downer himself has stated in recent weeks – the argument that Huawei is some sort of quasi-intelligence gathering arm of the Beijing government is so ludicrous that it should scarcely be tolerated in serious company.

As anyone in the global telecoms industry appreciates it would only take one instance of the firm being found to have somehow compromised the security integrity of a foreign customer – and Lord knows there sure are already plenty of people out there looking for evidence of such an instance – and Huawei would be instantly dead in the water.

Would Huawei, a company already generating billions of dollars from international clients and whose future can only be secured via a huge international presence, seriously put all that at risk for the sake of helping out the Beijing intelligence services? One strike and they would be out of the game forever.

Moreover, with the Beijing government acutely aware that the future of the country as a global technology player relies heavily on ensuring that the likes of Huawei and ZTE become established and well trusted forces in the international market – it is hard to imagine that they would be willing to put that at risk by asking the firms to betray their foreign customers.

Perhaps what sticks in the craw so badly about the current imbroglio is hearing the US security establishment disparage Huawei as being effectively a tool of the Beijing government when it is less than a decade since the US government forced its own telecoms industry, in the form of local carriers, to release highly sensitive customer information in its post-9/11 security crackdown.

Don't think for a second that the Chinese don't appreciate the irony of that.

Tony Brown is a senior analyst with Informa Telecoms & Media. He is a key member of the Broadband and Internet Intelligence Centre team, covering the broadband and Internet markets of the Asia Pacific region.