Huawei, a Chinese technology company, has the world’s second largest smartphone brand. Its smartphone sales have surpassed Apple and is only behind Samsung. ((See Thuy Ong, Huawei has surpassed Apple as the world’s second largest smartphone brand, Verge (Sept. 6, 2017), https://www.theverge.com/2017/9/6/16259810/huawei-apple-global-smartphone-sales.)) But Huawei is not only a smartphone manufacturer—it is a giant telecommunication company with business spreading across almost every corner of the industry, including smartphones, routers, cell towers, phone chips, etc.
Huawei has been exploring the overseas market for a long time. Currently, approximately 70% of its revenue comes from the overseas market. ((Id.)) Surprisingly, of that 70% of revenue, only 4% comes from the U.S. market. ((Id.)) To put things into perspective, the U.S. market represents at least half of the market share of the world’s telecommunication industry.
Huawei has been knocking on the door of the U.S. market for many years. Unfortunately, even today, that door remains shut largely due to politics.
In 2008, Huawei, together with Bain Capital, a Boston-based private equity firm, proposed to purchase a 16.5% stake in 3Com for $ 2.2 billion and further to obtain board representation. ((See Huawei-3Com deal finally collapses, Financial Times (Mar 20, 2008), https://www.ft.com/content/c2091814-f6b5-11dc-bda1-000077b07658.)) This proposed deal immediately caught the eyes of Washington because 3Com is a supplier to the U.S. Army. The proposal was abandoned in the end because the buyers did not think that they would be able to address the national securities concerns raised by the Committee on Foreign Investment in the United States (CFIUS). ((Id.))
In 2010, Motorola offered to sell its telecom network equipment business, and Huawei was outbid by Nokia Siemens and lost the auction. ((See Roger Cheng and Shayndi Raice, Huawei, Motorola Strike a Truce in Dueling Lawsuits Over Patents, WSJ (Apr. 14, 2011) https://www.wsj.com/articles/SB10001424052748703551304576260584071937622.)) This loss was significant to Huawei, because Motorola’s offer was regarded as a great pathway for other telecommunications giants who were eager to enter the U.S. market. Although Motorola is not the telecommunication giant it used to be, its heritage was still invaluable for its competitors. After that, Huawei sued in a U.S. federal court to temporarily block certain technology transfers from Motorola to Nokia Siemens because those technology involved some of Huawei’s intellectual properties. ((Id.)) Huawei won the case in the end, but it did not change the fact that Nokia Siemens became a much stronger competitor to Huawei, especially in the U.S. market.
Huawei did not give up its acquisition efforts in the U.S. market. Huawei proposed to acquire another U.S. telecommunications company, 3Leaf, in 2011. ((See Huawei backs away from 3Leaf acquisition, Reuters (Feb. 19, 2011), https://www.reuters.com/article/us-huawei-3leaf/huawei-backs-away-from-3leaf-acquisition-idUSTRE71I38920110219.)) What happened in the 2008 Huawei-3Com deal almost repeated. The parties regrettably abandoned the deal because they did not think there was a reasonable chance for the proposed deal to get regulatory approval by the U.S. government.
This time, the U.S. government conducted a more in-depth investigation and issued a report addressing its concerns about the implications of the proposed deal on national security. The 2012 report determined that Huawei’s equipment could be used for spying or crippling the U.S. telecommunications network. ((See Stu Woo et.al, Huawei, Seen as Possible Spy Threat, Boomed Despite U.S. Warnings, Wall Street Journal (Jan. 8, 2018), https://www.wsj.com/articles/huawei-long-seen-as-spy-threat-rolled-over-u-s-road-bumps-1515453829.)) The U.S. government was also concerned about the origin of Huawei since Huawei’s founder, Ren Zhengfei, was a former engineer for the Chinese Army. ((Id.)) However, despite his work experience, there is no evidence that Huawei’s growth was supported by the Chinese army. Ren started his smartphone resale business at the age of 43 in 1987, after he had already left the army, and with talented business acumen, Ren was able to grow Huawei into a global business it is today. ((Id.))
Despite the U.S. government’s hostility, many other countries in the world opened their doors to Huawei, embracing its advanced technology and efficient customer service. Today, in Europe, Huawei’s customers include Britain’s Vodafone Group PLC, France’s Orange SA, and Germany’s Deutsche Telekom AG. ((Id.)) These European countries also expressed national security concerns when Huawei was initially entering their market, but have worked with Huawei to resolve them. For example, prior to entering the U.K. market, Huawei opened a lab near Oxford, England, and hired British security experts to physically disassemble Huawei equipment to inspect whether any spying devices existed. ((Stu Woo and Dan Strumpf, US, Britain in cybersecurity divide over Chinese tech firm Huawei, Fox News (Feb. 25, 2018), http://www.foxnews.com/tech/2018/02/25/us-britain-in-cybersecurity-divide-over-chinese-tech-firm-huawei.html.)) The work of the lab was closely monitored by a board with senior British intelligence and government officials. The board in the end came to the conclusion that Huawei products posed no threat to U.K’s national security. ((Id.))
Although some smaller U.S. telecommunications companies are using Huawei products, the Government’s 2012 report essentially made Huawei an unattractive partner for most major U.S. telecommunication companies. For example, most recently, in January 2018, AT&T abandoned a proposed deal to sell Huawei smartphones through its channels in the U.S. ((See Zachary Torrey, Collapse of Huawei-AT&T Deal a Double Blow to China, Diplomat (Jan. 16, 2018), https://thediplomat.com/2018/01/collapse-of-huawei-att-deal-a-double-blow-to-china/.)) The question remains as to whether Huawei really imposes risk to the national security of the U.S., and it remains unclear whether there is any chance that Huawei will be able to break into the U.S. market in the future.