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April, 2018

Washington may target Huawei's rural telecom business in U.S.

Original article: The Wall Street Journal

The U.S. government may place restrictions on the purchase of Huawei telecom equipment by regional American providers of wireless, TV and internet services. If the rule is implemented, those companies will likely be restricted from accessing an $8.5 billion government fund that helps provide internet connectivity to rural America. Rural phone companies and internet providers say that Huawei's products offer value for money and that the company's customer service is good. 



Analysis:

Established in 1987, Huawei is one of the world's largest telecom companies, with a significant global presence. It's been a household name in China for years. After developing a successful telecom equipment business, Huawei expanded into smartphones. It is now the world's No. 3 smartphone maker by shipments. Increasingly, Huawei seeks to challenge Apple and Samsung in the premium segment. 


Yet despite its impressive record, Huawei in some ways still exists in the shadows. To begin, Huawei refuses to go public. Among Chinese tech firms, that's an anomaly. The state-owned telecoms China Mobile and China Unicom went public in 1997 and 2000, respectively. Since then, there has been one massive China tech IPO after the next: Tencent, Baidu, JD.com and Alibaba, to name a few. Smartphone upstart Xiaomi, one of the world's most valuable startups, plans an IPO this year. 


In 2014, Huawei founder Ren Zhengfei told a group of journalists in London that his company would not seek a stock-market listing. Ren described public shareholders as "greedy," adding that Huawei's success can be attributed to it remaining a private company. 


Perhaps - but staying private doesn't improve transparency. Increased transparency would dispel concerns about alleged links the firm has with the Chinese military, where Ren worked prior to founding Huawei. A 2012 U.S. congressional report suggested possible links between the Chinese state and Huawei, although it presented no evidence of those ties. 


The U.S. is not the only country that views Huawei with suspicion. Australia has banned the Chinese telecom giant from bidding on certain national contracts, citing national-security concerns. 


"There is some legitimacy to the Trump administration's concerns about data security issues related to the use of Huawei products in the US telecom market," says Eddie Han, an industry analyst with the Taipei-based Market Intelligence & Consulting Institute (MIC). He points out that Huawei's competitor Xiaomi was accused in 2016 of collecting users' data without their permission. 


Washington may be wrong about Huawei. But the company has done little to assuage concerns. The result for Huawei is missed business opportunities, and not just in telecom equipment. Huawei is largely shut out of one of the world's top smartphone markets too. With Huawei's ambitions to become a premium handset maker, the company needs a strong presence in the US, where consumers have plenty of purchasing power, Han says


The U.S. market is large too, second only to China with an average of 170 million smartphones sold annually. If Huawei could secure 5% of the U.S. smartphone market, it could sell 8.5 million smartphones, more than it usually sells annually in Taiwan, according to data compiled by MIC


Finally, Huawei has built up its presence in most major markets globally, even reaching third place in Europe behind Apple and Samsung. "For Huawei, the US will be the last piece of the puzzle of developed country markets. The company will benefit greatly from selling more smartphones in the US, especially through telecom operators." 

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