Sprint reportedly excludes Chinese vendors from network project

Sprint Nextel Corp. (S) has reportedly excluded Chinese vendors Huawei Technologies Ltd. and ZTE Corp. from their upcoming network project over U.S. security concerns, according to The Wall Street Journal.
The decision could have something to do with a recent conversation the carrier’s CEO Dan Hesse had with Commerce Secretary Gary Locke. The U.S. official reportedly called Hesse to address ongoing security concerns the government has with awarding telecommunications projects to Chinese companies. According to reports, Locke did not directly ask Hesse to block either company from the project.
The Defense Department has declined to discuss any specific security concerns it has with Huawei or ZTE, but released a broad statement that said “(it) is very concerned about China’s emerging cyber capabilities and any potential vulnerability within or threat to (Department of Defense) networks.”
The exclusion of Huawei and ZTE has left Samsung Electronics Co. Ltd. and Alcatel-Lucent as the only remaining finalists for Sprint’s project aimed at modernizing its existing networks. The carrier is approaching vendors to consolidate its current two-network operations (CDMA and iDEN) into a single platform. The move will save operational costs and could result in the decommissioning of up to 20,000 cell sites.
So far, Hesse has only said that Sprint would make a decision on its vendor(s) of choice for the major network overhaul by the end of the year. The Journal also reported that some of the highest bids for the work came in around $8.5 billion, which is well above Sprint’s target range of $5 billion to $7 billion. Hesse is giving a keynote on Tuesday at the Open Mobile Summit in San Francisco and RCR Wireless News will be there to cover anything he says about this hot-button issue.
Last month, four senators on the Senate Committee on Homeland Security and Governmental Affairs wrote the Federal Communications Commission to address similar concerns, particularly the potential for a Chinese vendor to provide China with an opportunity to spy on Americans’ communications.
The group said U.S. carriers who already own or intend to buy infrastructure equipment from Huawei or ZTE are risking the security of their customers. “We are very concerned that these companies are being financed by the Chinese government and greatly influenced by the Chinese military, which may create an opportunity for the Chinese military to manipulate switches, routers, or software embedded in American telecommunications network so that communications can be intercepted, tampered with, or purposely misrouted,” the group wrote. “This would pose a real threat to our national security.”
While security concerns were cited as the key factor in Sprint’s decision, some executives also had concerns about the companies’ ability to finish the work, the Journal added.
By excluding Huawei and ZTE, the project is almost guaranteed to cost more than it would have with a Chinese vendor, although component shortages are driving up the cost just as well. Both companies have frequently undercut competitors with low bids in an effort to gain market share, but efforts to make greater inroads in the United States have been stymied at almost every turn.
Huawei, which was founded by a former Chinese military officer, and ZTE, which was founded by a group of state-run companies that now own a minority share in the business, have consistently denied any collusion with the Chinese government or military. ZTE has said it prepared to let third-parties or U.S. government officials investigate its hardware, software and code. Indeed, the company won U.S. security approval just last month from the U.S. government for all ZTE products with cryptographic modules purchased in the United States.
Prior to Sprint’s move, Huawei released a statement that said it “is disappointed to learn that old mischaracterizations about the company still linger and we want to reiterate some of the facts. The truth is Huawei is an employee-owned private company. Government or military organizations do not hold any shares, or control the company in any form.”