Chinese vendor Huawei’s fascinating open letter is an attempt at recovery in the US telecoms market after its various recent setbacks. It also demonstrates the company has learnt that any recovery will come from playing a more savvy political game than it has to date.
The letter says Huawei is open to any investigation by the US government since the company will be shown as “a normal commercial institution and nothing more”. The letter is also striking because of its tone. It is an attempt to change opinions about Huawei and to address the four main concerns raised about the company in the US: its alleged links to the Chinese military; its attitude to intellectual property rights; claims that Huawei is unfairly supported by the Chinese state; and allegations that the company represents a threat to US national security.
But the letter is not a dry argument on the vendor’s merits but also a more rhetorical attempt to win over political opinion. It quotes President Obama’s inauguration speech with its famous reference to choosing “hope over fear”. And then goes on to talk about the USA being “a great country and one for which Huawei has always had the utmost respect”. The letter was written by Ken Hu, chairman of Huawei’s US operations, and published on the company’s website.
Its publication follows a week in which a Chinese government study alleged that the EU and member states have propped up leading European telecoms vendors with billions of euros in subsidies, according to The Wall Street Journal. Apparently, the Chinese government sees the European action as a potential breach of World Trade Organisation (WTO) rules. The Chinese move looks like a counterattack on an EU document that was reportedly circulating in government circles a few weeks ago that claimed Chinese state-owned banks subsidised Huawei and ZTE.
Meanwhile, Huawei itself won a preliminary injunction earlier in the week which stops, temporarily at least, Motorola Solutions from transferring Huawei’s intellectual property to Nokia Siemens Networks as part of the latter’s takeover of Motorola.
The Chinese firm is not used to winning in US politics or its legal system. Most recently, Huawei was this week forced to give up its proposed acquisition of 3Leaf by the Committee of Foreign Investment in the United States, an influential government agency that reviews foreign investments in domestic companies for national security concerns. The agency said the deal should not go ahead. That defeat was the immediate cause of Huawei’s open letter published later in the week.
The letter attempts to address the four major allegations against the company. In terms of its links to the Chinese military, Huawei says this claim “rests on nothing but the fact that Huawei’s founder and CEO, Mr. Ren Zhengfei, once served in the People’s Liberation Army”. The letter goes on to say that “no one has ever offered any evidence that Huawei has been involved in any military technologies at any time”. Next, the company defends its record on intellectual property rights. In 2010, Huawei paid western companies US$222 million in licensing fees, it says, of which US$175 million was paid to US firms. Specifically, it mentions that IPR-related payments to Qualcomm have totaled more than US$600 million over the years.
Next, it addresses support from the Chinese state. It admits to receiving tax incentives offered by the government to encourage R&D. “This is similar to tax incentives offered by American government agencies to US companies,” it points out. In 2010, the company received a total of RMB593 million (US$89.75 million) of financial support from the Chinese government for R&D. And, it says, the company does not benefit directly from the credit lines offered through it to Chinese banks. These credit lines are offered to its customers. These type of loans only represent about nine percent of its annual income in 2010, similar to its industry peer group.
Finally, the letter addresses national security concerns in the US. That view has “centered on a mistaken belief that our company can use our technology to steal confidential information in the US”. It points to an absence of evidence that the company has violated any rules and its use of independent security experts to audit its products.
Huawei’s letter seeks to address the concerns that is holding back the company’s progress in the US. It has taken strong criticism on a number of fronts which it is attempting to address. This letter sets out to do this but perhaps more importantly shows Huawei has become aware of how crucial diplomatic and political skills will be to determining its fate.
The editorial views expressed in this article are solely those of the author(s) and will not necessarily reflect the views of the GSMA, its Members or Associate Members.