The Huawei Technologies Co. logo is displayed outside the Huawei Connect 2017 conference in Shanghai, China. (Photographer: Qilai Shen/Bloomberg)

Huawei Facing Barriers in Latest Washington Jab on Feared Spying

(Bloomberg) -- Chinese network-gear makers Huawei Technologies Co. and ZTE Corp. could face higher barriers to the U.S. market under a proposal advanced Monday by federal regulators in Washington’s latest move against feared espionage from foreign telecommunications suppliers.

Federal Communications Commission Chairman Ajit Pai proposed barring funds from a program that subsidizes wireless service in rural areas from being used to buy equipment or services from companies determined to be a risk to U.S. national security.

The move follows increased scrutiny of Huawei by U.S. officials. In a Dec. 20 letter led by Arkansas Republican Senator Tom Cotton, 18 lawmakers expressed concern about “Chinese espionage in general, and Huawei’s role in that espionage in particular” and suggested briefings for FCC officials by intelligence agencies. Congress has barred the Pentagon from buying gear from Huawei, ZTE and the Russian firm Kaspersky Lab, and FCC officials could use that list as a model.

“Threats to national security posed by certain communications-equipment providers are a matter of bipartisan concern,” Pai said Monday in a news release that didn’t mention Huawei. “Hidden ‘back doors’ to our networks in routers, switches -- and virtually any other type of telecommunications equipment -- can provide an avenue for hostile governments to inject viruses, launch denial-of-service attacks, steal data, and more.”

Huawei is among the largest makers of networking equipment, despite a de facto ban that prevents America’s four principal wireless carriers from using its gear. It was all but blacklisted in 2012 along with ZTE when the U.S. House Intelligence Committee cited security risks posed by the companies.

Earlier this month the administration of President Donald Trump blocked Broadcom Ltd.’s hostile takeover bid for San Diego-based chipmaker Qualcomm Inc. over fears the combined company would cut research, handing next-generation wireless leadership to Huawei and jeopardizing U.S. national security. In September, Trump blocked the sale of Lattice Semiconductor Corp. to a Chinese-backed investor.

The U.S. and China are involved in a wider trade conflict, with Beijing announcing tariffs on products including pork and wine as retaliation against steel and aluminum duties ordered by Trump.

Pai’s proposal is set for a preliminary vote at the April 17 meeting of the agency, where he leads a Republican majority. It would affect the use of money from the FCC’s $8.5 billion Universal Service Fund, which helps fund companies that build networks in rural areas and offers monthly subsidies to poor consumers.

Best Buy Co. is said to be cutting ties with Huawei, and U.S. mobile-phone carriers AT&T Inc. and Verizon Communications Inc. have distanced themselves. Verizon is said to have dropped all plans to sell phones made by Huawei, and AT&T decided not to introduce Huawei’s Mate 10 Pro to the U.S. market.

The U.S. mobile-phone market is dominated by Apple Inc. and Samsung Electronics Co. Since most phones are purchased through carriers, it’s almost impossible for a manufacturer to gain serious market share without support from AT&T or Verizon, the two largest U.S. wireless networks.

A Huawei spokesman declined to comment.

Huawei, China’s largest maker of telecommunications equipment, was founded in 1988 by former Chinese army officer Ren Zhengfei. Speaking at an industry event in January, Richard Yu, Huawei’s consumer-products chief, defended his company’s record, saying it has proven its privacy and security protections.

©2018 Bloomberg L.P.