ZTE Loses Italy Deal Even as U.S. Restrictions Start to Ease

(Bloomberg) -- The Trump administration is letting ZTE Corp. resume some business activities while the U.S. weighs an end to a seven-year ban on the Chinese telecommunications company.

The easing of restrictions didn’t come soon enough for ZTE’s bid to win a contract in Italy to supply wireless equipment to Wind Tre SpA. ZTE lost the deal because it’s barred from buying U.S. technology, and Ericsson AB won the 600 million-euro ($700 million) contract instead, people with knowledge of the matter said, asking not to be identified because it hasn’t been announced. ZTE’s shares in Hong Kong rose about 2 percent and Ericsson gained as much as 1.1 percent in early trading in Stockholm.

The mixture of good and bad news is just the latest chapter in the saga of ZTE, which has seen its prospects and stock price rise and fall in the past few months over access to technology it needs to sell telecoms gear across the globe. The U.S. imposed the ban against the Chinese company earlier this year, saying that it failed to comply with punitive measures imposed after allegations of lying about equipment sold to Iran and North Korea.

Still, the administration of U.S. President Donald Trump has sought to ease restrictions on ZTE, which has become a bargaining chip amid rising trade tensions with China. Last week, the Shenzhen-based company appointed a new chairman as part of its agreement to clean house and pay a record $1.4 billion fine to get back into business. The latest ZTE authorization by the Commerce Department’s Bureau of Industry and Security is valid from July 2 until Aug. 1.

ZTE is expected to be in compliance with U.S. demands by Aug. 1, a person familiar with the matter said.

Representatives for Ericsson and Wind Tre declined to comment on the Italy deal, which ZTE had originally won two years ago. Now, the Swedish telecommunications equipment maker has the multiyear accord to supply base stations for about 60 percent of Wind Tre’s Italian mobile networks.

The latest U.S. authorization permits China’s No. 2 maker of telecoms gear to support existing networks or equipment under contracts signed on or before April 15, when the U.S. blocked companies from selling components to ZTE on the sanctions violations. The ban had forced ZTE to announce it was halting major operations.

Trump reversed course in May, saying he was reconsidering penalties on ZTE as a personal favor to Chinese President Xi Jinping. Later that month, the Trump administration announced it would allow the company to stay in business after paying the fine, changing its management and providing “high-level security guarantees.”

The about-face sparked concerns of ZTE being used as a bargaining chip in U.S.-China trade negotiations to avert a tariffs dispute. Those talks have stalled and the U.S. is set to impose tariffs on $34 billion of Chinese goods Friday, and another $16 billion may follow. China has said it will retaliate dollar-for-dollar on U.S. imports.

ZTE’s new management now faces the challenge of rebuilding trust with phone carriers and corporate customers. The company is said to be facing at least $3 billion in total losses from the months-long moratorium, which cut off the flow of chips and other components it needed to make its networking gear and smartphones.

Read more: A QuickTake on ZTE’s role in the U.S.-China trade war

In Washington, a bipartisan group of lawmakers remains concerned about ZTE’s threat to U.S. national security and is pushing for legislation aimed at restoring harsher penalties. Lawmakers are set to resume negotiations on legislation that will try to balance concerns that ZTE presents a security risk with efforts to get the company back into business.

This week’s authorization lets ZTE give support, including software updates, for ZTE phone models that were available to the public on or before April 15, and it allows parties to make and receive payments for permissible ZTE transactions. The order also authorizes “the disclosure to ZTE of information regarding security vulnerabilities in items owned, possessed or controlled by ZTE” to protect communication networks and equipment, it said.

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