Ten days ago, I posted on what I called a clever trade barrier, a Federal Communications Commission (FCC) provision associated with the T-Mobile USA acquisition of MetroPCS that would effectively bar China-based telecommunications equipment vendors from bringing innovation, competition and affordable broadband to the U.S. marketplace and consumers.
Today, the Wall Street Journal (WSJ) reported that a similar provision had been put in place for Japan's Softbank's acquisition of the majority share of Sprint.
In a subsequent WSJ blog post - http://blogs.wsj.com/washwire/2013/03/28/sprint-and-softbank-agree-to-forgo-remove-huawei-equipment-lawmaker-says/ - it was reported that House Intelligence Committee Chairman Mike Rogers had weighed-in directly to put pressure on Sprint.
For any number of reasons (personal career preservation among them), I have not blogged in the past on last year's comedic sham of an investigation of my employer Huawei by Chairman Roger's Committee (however, there are a number of chapters devoted to this topic in my draft perhaps-never-to-be-released book "Huidu - Inside Huawei").
But the WSJ blog piece today hit a nerve, and, well, it prompted something unprecedented - I posted a comment on the Journal's site, as follows (read the linked WSJ blog post first):
March 23, 2013
The seeds of a number of the myths, rumors, innuendo and outright lies about China-based Huawei technologies (my employer) may well have been planted in 2000,in a little-read article in a relatively unknown publication, by a relatively obscure academic.
A Bruce Gilley December 2000 article in the now-defunct Far Eastern Economic Review, titled “Huawei’s Fixed Line to Beijing,” is chock full of “may’s,” “according to sources,” and “according to local press reports,” but at no time does the author actually factually substantiate his oft-repeated premise of “widespread evidence of strong official backing” of Huawei (his repeated unsubstantiated references to variations of “strong government support” are almost mind-numbing).
Nevertheless, the article seems the Rosetta Stone behind several key pieces of Huawei mis-information that have been repeatedly regurgitated by one or another Sinophobe for the better part of the last decade. Indeed, elements of the article, referenced and footnoted dozens of times in U.S. government and other reports and statements, have somehow morphed into “intelligence.”
The impact of the Gilley piece is no small matter. While the corrupt seeds Gilley planted may seem innocuous to some, they serve as the foundation for the mis-informed (or simply ill-intended) bashing of Huawei today . Indeed, just one Gilley misrepresentation – related to the life history of Huawei’s Founder and CEO - has been at the heart of so-called national security concerns associated with Huawei.
To wit: “Huawei’s Fixed Line to Beijing” introduces an incorrect biography of Huawei’s Founder Ren Zhengfei that supposedly-reputable think tanks and intelligence bodies and politicians and media have re-spewed, over and over again, for years, without once checking the facts. Gilley, the academic few have ever heard of, was for whatever reasons afforded the credibility of trusted (and sole) gospel.
Check this out:
In his December 2000 article, Gilley wrote: “Huawei was founded in 1988 by Ren Zhengfei, a former director of the Information Engineering Academy of the PLA’s General Staff Department, according to company sources. The academy is responsible for telecoms research for the Chinese military.”
In its 2005 report titled “A New Direction for China’s Defense Industry,” the world-renowned American Think Tank (and U.S. Government go-to resource) RAND repeated Gilley’s text almost verbatim (sans the “according to company sources” parenthetical and with the sentences joined – edits which seemingly justified the lack of footnote): “Huawei was founded in1988 by Ren Zhengfei, a former director of the PLA General Staff Department’s Information Engineering Academy, which is responsible for telecom research for the Chinese military.”
From this purported biography, any number of nefarious connections between Huawei and the Chinese government were surmised, and potential national security threats conjectured. (Incidentally, Ren’s true bio is available on Huawei’s website – among other things, the facts are that he was a civil engineer who never worked in telecom or “information engineering” until founding Huawei in 1987).
Gilley’s 2000 article also gave birth to the myth of Huawei having some special designation from the Chinese Government, with Gilley coining a phrase that would later take on a life of its own: “Beijing wants Huawei to be its national champion.” RAND again parroted Gilley in its 2005 Report, trumpeting “national champion” as some sort of official PRC title and blessing.
The RAND Report lent credence to Gilley’s version of Ren’s bio and the so-called “national champion” status, and these utter fictions subsequently morphed into “facts” in the ensuing years, with the likes of the U.S.-China Economic and Security Review Commission (created by the Congress in 2000 to monitor, investigate, and make annual reports and recommendations on the national security implications of the relationship between the U.S. and the PRC), various reputable think tanks ala The Heritage Foundation, and numerous Sinophobic Members of Congress (reaching a crescendo with the sham of an “investigation” of Huawei by the Chairman of the U.S. House Intelligence Committee in 2012).
Yet worse (and sadly), the politically-biased (or simply lazy) government perpetuation of myth was further driven by the immediacy imperative of today’s media and the related phenomenon of copy-paste journalism, with few if any bothering to check facts or to question contradictions.
Indeed, to the extent that the myths have been challenged, such challenges have been largely ignored or dismissed, resulting in the further festering of FUD (fear, uncertainty and doubt) related to Huawei, whether due to political expedience, or, perhaps, simply a lack of intellectual or time-oriented bandwidth.
Until earlier this year…
The Washington-based Center for Strategic and International Studies (CSIS), another high-end think tank, has not historically been friendly to Huawei. Indeed, at least one CSIS "scholar" has regularly exposed himself as little more than a puppet of American Sinophobes and Defense and Intelligence hawks, willfully spreading known misinformation to further political or anti-competitive agendas.
Yet, in February 2013, a Huawei case study included in a CSIS Report titled “China’s Competitiveness: Myth, Reality and Lessons for the United States and Japan,” actually put an end to at least one of the poison flowers seeded by Gilley thirteen years earlier.
While the relatively-balanced Report cites and footnotes other Gilley (and additional) misinformation, when it comes to the reference to Huawei’s Founder and CEO, CSIS writes: “Ren had been working in the engineering corps of the PLA, rising to the level of Deputy Director, but left in 1983 after the corps was disbanded.” Notably missing from this brief biographic sketch is any reference to Ren having served as “Director of the Information Engineering Academy of the PLA’s General Staff Department.”
But there is a footnote…
The original draft of the CSIS Report actually featured the fallacious Gilley bio, but, to the author’s credit, when he was quickly challenged on this, and subsequently conducted further research, the Gilley/RAND/USCC, etc. myth was discarded. Per the footnote in the CSIS Report:
“An earlier version of this case study placed Ren at the Information Engineering Academy of the PLA’s General Staff Department. The accuracy of this is now in doubt, and seems to have originated from a report in 2000 that was used as a source for a large number of subsequent press, think tank and government publications.”
With that, a thirteen-year old Huawei-related fallacy – the most regularly trotted out turd supporting concerns related to so-called national security threats – has been effectively undone. While Huawei certainly bears the responsibility to further and better clarify the facts about its history, based on the CSIS reversal of more than a dozen years of myth, perhaps it’s also time for those that purport untruths about Huawei - and then challenge the company to prove the negatives - to instead themselves be challenged to prove their so-called positives.
March 19, 2013
Last year, T-Mobile USA announced its intent to acquire a smaller, regional U.S. carrier: MetroPCS. Given T-Mobile’s foreign ownership (Germany-based Deutsche Telekom), the transaction is subject to review and approval by the Committee on Foreign Investment in the United States (CFIUS). As previously blogged, CFIUS is a U.S. Government inter-agency committee – including 16 Departments and Agencies - that reviews the "national security" implications of foreign investments in U.S. companies or operations.
While the CFIUS process is an utter black box, many have been quite curious to divine whether or how the recent CFIUS approval of the transaction may have built in market-distorting barriers to block infrastructure equipment from China-based suppliers (like my employer Huawei) on purported (yet never-substantiated) “national security” grounds. This would hardly be a novel endeavor, given the various ham-handed initiatives elements of the Government have pursued over the last three years, but the approach (via CFIUS) would be unique.
We CFIUS-watchers got head-faked.
You see, there was a separate but parallel and seemingly much more mundane review of the transaction required by the Federal Communications Commission (FCC) in order for MetroPCS’s government-granted radio spectrum licenses to be transferred to T-Mobile.
And, on March 12, the FCC gave its approval to the merger and the transfer. The approval of the transaction incorporated previously existing security agreements with T-Mobile related to earlier transactions, e.g. Deutsche Telekom’s purchase of VoiceStream in 2001 (which created T-Mobile) and T-Mobile’s acquisition of SunCom Wireless in 2008 which lightly amended the original security agreement.
As a result of the FCC’s review of the current merger, a curious new provision was added to a previously-adopted Amendment. The provision requires T-Mobile to provide the Departments of Justice and Homeland Security (DOJ and DHS) a list of all of the “principal equipment” deployed in their network (principal equipment is defined in the provision as pretty much every meaningful hardware, software and service element of the network) and the names of the vendors or contractors providing such equipment. Further, T-Mobile is required to give DOJ and DHS advance notice before selecting any new vendor or contractor.
And then comes the kicker: The provision concludes: T-Mobile (DT)“shall negotiate in good faith to resolve any national security, law enforcement or public safety concerns DOJ or DHS may raise in response to any disclosure by DT pursuant to this section.”
Clever. Very clever.
Everyone was waiting to see what CFIUS might have done, perhaps a proposal of some sort of “ban” on “China-based companies” (notwithstanding that virtually every telecom vendor is to some extent in effect a China-based company and, in any event, share supply chain and other cyber-vulnerabilities with China-based companies). Some had even dared to hope that perhaps CFIUS had factored security assurance disciplines into an agreement that would apply across T-Mobile vendors and actually effectively contribute to more secure networks.
The FCC carried the market-distorting water this time. CFIUS didn’t have to risk – yet again - accusations of black-listing or trade barriers, they could just rely on the FCC provision.
Can FCC do this? Well, yes. It would seem that the FCC is exercising its authority under Secs. 214, 301 and 310 of the Communications Act and additional FCC rules adopted in 1995 related to “Market Entry and Regulation of Foreign Affiliated Entities” under which the FCC reviews and acts on “… public interest factors that we consider in determining whether to grant a foreign-affiliated carrier's application…include…national security, law enforcement issues, foreign policy and trade concerns brought to our attention by the Executive Branch.”
Is it really a trade barrier? Well, no, and yes. Technically, the provision is little more than a “notice and negotiate” clause. Hardly a ban. Does it mention China-based vendors? No. But c'mon, anyone who's been watching this space for the last three years knows exactly what's going on. In any event, practically speaking, the intent is clear and the chilling effect severe. And not just on T-Mobile. T-Mobile will certainly pass on the pressure to its smaller and regional roaming partners. Moreover, there are parallel FCC and CFIUS review processes related to Japan’s Softbank’s purchase of 70% of Sprint’s U.S. network. We can almost certainly expect similar chilling provisions.
Where does that leave us? Well, as many are aware, AT&T and Verizon have already had their very significant government revenues wielded against them to discourage them from working with competitive venders. So, in short, we end up with less competition, less innovation, more expensive and less efficient broadband, less investment, fewer American jobs, more international trade tensions, jeopardized market access for American firms overseas, etc.
And for what? National security? Hogwash. Utter bullshit. Whether Cisco, Alcatel-Lucent, Ericsson or Huawei, each and every telecom equipment vendor is relying on common, global supply chains and subject to common, universal vulnerabilities and threats. Anything short of raising the security assurance bar for everyone is a thinly-veiled political or protectionist ploy.
Time will tell if the FCC’s “notice and negotiate” provision is the trade barrier it would appear to be. But, while we’re waiting, we should shine a light on the provision and its seeming intent. If our national telecom regulator is being used as a political or protectionist tool, we should at the very least expose what is happening for exactly what it is.