Huawei could reorganize to win Sprint deal

Must compromise to appease US and Indian security

By Wireless Watch, 12th July 2010

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Huawei is looking increasingly ready to make compromises to allay the security concerns of various governments. The Chinese supplier denies all allegations that it is closely connected to its country's intelligence services, but is nevertheless running into clearance obstacles in several key markets. The Indian government has vetoed some large deals that would have gone to Huawei, and now it may need to restructure in order to win its first significant foothold in the US.

Huawei is reported to be bidding for its biggest deal yet in the US, where it has a few smaller contracts, such as part of Clearwire's network, but no footprint in tier one cellcos. The London Financial Times said Sprint was close to signing the Chinese supplier for unspecified mobile equipment, but this would require clearance from US security authorities.

In contrast to Europe, where Huawei has gained market share recently with few government obstacles, the US has treated the supplier with suspicion. As in India, a desire to protect native businesses from the onslaught of the Chinese giants may be a factor, but the official reason is security concerns. In 2008, Huawei was blocked from acquiring 3Com on these grounds, but the stakes are far higher now. Not only could the vendor's cost efficiencies and LTE technology get it new operator business, but it is rumored to be interested in gaining US firms of its own. These could include Motorola's wireless infrastructure activities and a stake in the planned LTE network being planned by Harbinger Capital.

Huawei has already reportedly offered the Indian governments unprecedented access to information about its structure and ownership, to prove it is not in the hands of military or intelligence agencies. It may have to go further for the north Americans - perhaps, as the FT suggests, listing its shares on a US or Hong Kong exchange, changing its structure, or setting up a separate US subsidiary. Huawei already has one US unit in Texas, which produces public financial report filings.

In the US, an inter-agency Committee on Foreign Investment can block takeovers of sensitive US assets by foreigners on national security grounds. It rarely vetoes large contracts, but technology and telecoms can be exceptions, especially in the climate of suspicion about online espionage or terrorism.

Wireless Watch is published by Rethink Research, a London-based IT publishing and consulting firm. This weekly newsletter delivers in-depth analysis and market research of mobile and wireless for business. Subscription details are here.

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