China's Huawei Down but Not out in Australia

   on March 27 2012 10:35 AM

(Reuters) - China's Huawei Technologies still hopes to win contracts to build Australia's $38 billion National Broadband Network, despite being blocked from bidding on cyber security concerns, and is ready to make concessions to do so.

Huawei, which denies being involved in cyber espionage, said on Tuesday these concessions could include opening up the source code its devices use and ensuring only Australian citizens who are security cleared work on the project.

We want to be open and transparent, Jeremy Mitchell, director for corporate affairs at Huawei, Australia, New Zealand & South Pacific, said. We are confident that we can get over this hurdle.

The National Broadband Network (NBN) is one of the world's most ambitious communications projects, aiming to connect 93 percent of Australian homes and workplaces with optical fiber and superfast broadband services. It is due to be ready by 2020.

Industry analysts said the decision to freeze out Huawei was baffling as Australia's New Zealand and UK allies have allowed the firm to build similar networks, and Huawei has already been involved in significant telecoms projects in Australia itself.

But they also said it might be hard to change the government's mind, adding it had been common knowledge for months that Huawei had been left off shortlists for NBN contracts, and that another mainland China company which would usually aggressively pursue such business, ZTE, had earlier pulled out. Sources at ZTE said it had backed out because of commercial reasons, without elaborating.

Australia's main intelligence body, the Australian Security Intelligence Organization (ASIO), has cited state-sponsored espionage attacks via the Internet as a major security threat.

The Australian Financial Review on Tuesday quoted sources in the Australian government as saying a submarine cable between Perth and Singapore, being built by a joint venture between Huawei and Global Marine Systems of the UK, might also be investigated on security grounds.

ENORMOUS PROJECT

Huawei has been blocked from deals in the United States due to national security concerns and allegations it violated sanctions by supplying Iran with censorship equipment.

But this is the first time Australia has blocked a company from its largest trading partner from a telecommunications deal.

Huawei was founded by its CEO Ren Zhengfei, a former officer of the People's Liberation Army in China, which has fuelled the claim it has a cozy relationship with the Chinese government - a claim denied by the company.

Analysts said the idea Huawei might at some point compromise its global business, and that of other Chinese companies, by using its equipment to eavesdrop, made little sense.

The idea that they'd risk it all—it would have to be an incredibly valuable piece of data for them to put the whole Chinese technology export industry at risk, said Tony Brown, Brisbane-based senior analyst at Informa Telecoms and Media.

If they were to be caught with their hand in the till would be disastrous for Huawei.

Huawei, for its part, acknowledges such concerns exist, but says they are unfounded. I think it's important that we don't paint China with one brush, said Mitchell. Yes, we are Chinese in origin, but we are privately owned, we are a global company.

Any cyber attacks, he said, were the work of private citizens, vigilante groups.

After strenuous efforts so far, and with such a big prize, it seems unlikely Huawei will give up immediately.

Huawei had launched a major public relations and lobbying campaign, including having a dedicated NBN team in Australia and appointing former foreign minister Alexander Downer and Victorian premier John Brumby to its local board. The NBN's own website refers to a paper commissioned by Huawei on the values of broadband Internet connections.

It's an absolutely enormous project and kind of unique on that scale, said Andrew Milroy, Asia Pacific vice president of ICT Research for Frost & Sullivan.

Huawei has become a significant player in Australia. It supplies equipment to Optus and Vodafone, and has conducted trials with Telstra. But the NBN dwarfs all those—and most other such projects. It has attracted players such as Nokia Siemens Networks, Ericsson, Cisco and Alcatel-Lucent, all of whom have won contracts for the phased rollout.

A spokesman for Australian Attorney-General Nicola Roxon said on Monday the government's position on the NBN was consistent with its practice for ensuring the security and resilience of Australia's critical infrastructure more broadly.

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