There is no more vulnerable or important infrastructure in America than our wireless telecommunications networks. The backbone of our commerce today relies on telecommunications, as does our government and military.
Wireless is the backbone of 21st century America. But it’s being threatened.
Already, we see foreign governments with direct ownership stakes in Verizon Wireless and T-Mobile. The Obama administration could make it worse in the coming days and weeks.
Right now, Japanese conglomerate SoftBank is seeking to gain control of Sprint, the third largest wireless carrier in the U.S. and a major vendor to the U.S. government. While foreign ownership stakes in Verizon and T-Mobile received government approval in years past, the SoftBank/Sprint transaction poses new and grave risks.
First, SoftBank is a known deployer and major customer of Huawei, a Chinese company with a record of security breaches. Second, unlike when the T-Mobile and Verizon deals were approved, wireless networks today are widely recognized as “critical infrastructure” worthy of the highest level of protection, similar to power grids and airports.
The pending SoftBank takeover of Sprint could make America dependent on foreign controlled, owned, and critical infrastructure, an unacceptable outcome to maintaining our national security.
It is well established that Huawei provides key infrastructure to Sprint through its Clearwire subsidiary. The U.S. House Intelligence Committee found that Huawei and fellow Chinese equipment provider, ZTE, posed a cybersecurity threat to the U.S. This is what Forbes has reported about Huawei this month:
“Huawei Technologies said it has no plans of giving up on the U.S. telecom market in spite of being branded a national security threat by lawmakers.
Huawei was founded in 1987 by Ren Zhengfei, a former engineer in the People’s Liberation Army. The company’s main business is providing infrastructure equipment to telecom carriers. Huawei initially focused on selling its equipment in rural areas before expanding to China‘s cities and then across Asia and Africa.
Huawei’s efforts to make inroads into the U.S. telecom market have been effectively blocked by the congressional report, in contrast to Europe where the company has been winning large contracts in all the major telecom markets. Huawei has about 1,700 staff in the U.S. and 7,000 employees in Europe.
Last year, the company said it plans to spend a total of $2 billion in the U.K. and double its workforce there over the next five years.
Huawei has been expanding into the consumer market with a growing lineup of mobile devices while providing network equipment to businesses and government agencies through its enterprise group.
Sales of Huawei’s consumer devices grew 8.4 percent to reach $7.8 billion last year. With high-end smartphones like the Ascend P1 and D1 Quad, based on Google‘s Android operating software, Huawei is increasingly competing with the likes of Samsung and HTC Corp. Research firm International Data Corporation (IDC) said Huawei rose to become the world’s third largest smartphone vendor by shipping 10.8 million units in the fourth quarter.”
The revenue from Huawei’s enterprise division grew 25.8 percent to $1.8 billion in 2012. Now in its third year of operation, Huawei’s CEO said they would continue to consolidate the company’s enterprise business in China before entering overseas markets on a “selective basis.”
The Chairman of the House Intelligence Committee released a report warning American companies to shed reliance on Chinese and foreign owned and controlled key infrastructure.
The Chairman and Ranking Member of the House Intelligence Committee, Mike Rogers (R-Mich) and C.A. Dutch Ruppersberger (D-Md.), released a report recommending to U.S. companies considering doing business with Chinese telecommunications companies Huawei and ZTE to find another vendor.
The report encourages U.S. companies to take into account the long-term security risks associated with either company providing equipment or services to our telecommunications infrastructure. Additionally, the report recommends that U.S. government systems, particularly sensitive systems, exclude Huawei or ZTE equipment or component parts.
The report highlights the interconnectivity of U.S. critical infrastructure systems and warns of the heightened threat of cyber espionage and predatory disruption or destruction of U.S. networks if telecommunications networks are built by companies with known ties to the Chinese state, a country known to aggressively steal valuable trade secrets and other sensitive data from American companies.
Additionally, the report notes that modern critical infrastructure is incredibly connected, everything from electric power grids to banking and finance systems to natural gas, oil, and water systems to rail and shipping channels. All of these entities depend on computerized control systems. The risk is high that a failure or disruption in one system could have a devastating ripple effect throughout many aspects of modern American living.
The report, released in October 2012 in a Capitol Hill news conference, states that Huawei and ZTE provided incomplete, contradictory, and evasive responses to the Committee’s core concerns. The report comes after a yearlong investigation into the national security dangers posed by Huawei and ZTE, the two largest Chinese telecommunications companies doing business in the United States.
The report includes five recommendations.
1. U.S. government systems and U.S. government contractors, particularly those working on sensitive systems, should exclude any Huawei or ZTE equipment or component parts. Additionally, the Committee on Foreign Investments in the United States (CFIUS) must block acquisitions, takeovers, or mergers involving Huawei and ZTE given the threat to U.S. national security interests.
2. U.S. network providers and systems developers are strongly encouraged to seek other vendors for their projects.
3. Unfair trade practices of the Chinese telecommunications sector should be investigated by committees of jurisdiction in U.S. Congress and enforcement agencies in the Executive Branch. Particular attention should be paid to China’s continued financial support of key companies.
4. Chinese companies should quickly become more open and transparent. Huawei, in particular, must become more transparent and responsive to U.S. legal obligations.
5. Committees of jurisdiction in Congress should consider potential legislation to better address the risk posed by telecommunications companies with nation-state ties or otherwise not clearly trusted to build critical infrastructure, including increasing information-sharing among private sector entities and expanding a role for the CFIUS process to include purchasing agreements.
“We have to be certain that Chinese telecommunication companies working in the United States can be trusted with access to our critical infrastructure,” Chairman Rogers said.
“Any bug, beacon, or backdoor put into our critical systems could allow for a catastrophic and devastating domino effect of failures throughout our networks. As this report shows, we have serious concerns about Huawei and ZTE, and their connection to the communist government of China. China is known to be the major perpetrator of cyber espionage, and Huawei and ZTE failed to alleviate serious concerns throughout this important investigation. American businesses should use other vendors.”
“It is our responsibility on the Intelligence Committee to protect our country’s national security. That is why we launched this investigation in the first place. We depend on our nation’s networks for so much of what we do every day. As this report shows, we have serious concerns about Huawei and ZTE, two Chinese telecommunications companies looking to gain market share in the United States, and their connection to the communist government of China.
“We warn U.S. government agencies and companies considering using Huawei and ZTE equipment in their networks to take into account the affect if could have on our national security,” said Ranking Member Ruppersberger.
The House Intelligence Committee’s bipartisan recommendations ring true today. Right now, the federal government is poised to permit the SoftBank acquisition of Sprint, despite all the warning signs that the SoftBank/Huawei connection remains intact and poses a significant national security threat to the U.S. The Federal Communications Commission (“FCC”) and CFIUS are nearing a decision on whether to approve the transaction under our nation’s foreign ownership laws and national security policies.
Chairman Rogers recently said that he has been reassured by SoftBank’s commitment to curtail its use of Huawei equipment in Sprint’s networks, yet questions remain about ongoing transactions between SoftBank and Huawei.
The federal government should not rush to judgment on a transaction this important. If approved, SoftBank’s acquisition of Sprint would be the largest foreign aggregation of American wireless spectrum ever. In combination with other foreign holdings in U.S. wireless companies, it would put too much of our critical infrastructure at risk.
Simply put, the FCC and CFIUS should demand additional information from SoftBank about its ongoing relationship with Huawei worldwide and carefully consider the consequences of this transaction to network security at the local, state, regional, and national levels.
For example, the FCC and CFIUS should ask, if SoftBank maintains commercial relationships with Huawei in Asia and Europe, why would it not have every financial incentive to take advantage of economies of scale and deploy Huawei equipment here in the U.S.? What commitments has SoftBank made to the U.S. government that should be subject to public inspection? Has it committed not to deploy Huawei equipment only to retail end-users? What about backhaul, switching, routing, and other network elements?
The American people deserve to know that their entire wireless network is not at risk.
In light of Softbank’s reliance on Chinese equipment vendors worldwide, it is clear that this transaction must be scrutinized to ensure that the nation is not at risk. Unless and until Softbank can show that their acquisition will not adversely affect our national security, the takeover should not be approved.
America must never surrender its critical infrastructure to foreign control or reliance.
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