National Security and Investment Security

Who would have ever thought that the U.S. would use their National Security laws to prevent or restrict what component or components, that can or can not be used in a network or product. Well, that happened this week and it is reason of concern, not so much from a physical security standpoint, but from an investment security point of view.

Anytime the U.S. government restricts a corporation from providing critical components for the infrastructure being built in the United States, it is like the government once again intervening in the free market and the free market becomes less free, but more and more affected by government intervention.

Sprint Nextel Corp. is building out its 4G Network, both Wimax and LTE and will be excluding Huawei and ZTE from its contracts on the premise of in the interest of National Security. The United States Defense Department is asserting that they are concerned about the close ties between Huawei Technologies Ltd. and ZTE Corporation’s and the Chinese government and military. The concern is that there are security issues when you allow Huawei’s and ZTE’s components into the U.S. infrastructure.

On the surface this sound like a plausible argument, in that if the U.S. allows Huawei and ZTE components into U.S. infrastructure, the Chinese government and military could extract critical information by disruption or interception and use that information for their competitive advantage, commercially and militarily.

The U.S. government gave ZTE it’s government security approval and certificate for its network infrastructure, making ZTE the first Chinese vendor to receive this coveted certification. The certification is handed down from the National Institute of Standards and Technology (NIST) for Federal Information Processing Standards (FIPS). You can read more about ZTE’s government certification here.

If, the U.S. government blocks Huawei and ZTE from supplying the necessary equipment for America’s 4G, Next-Generation infrastructure,will Cisco and French-based Alcatel-Lucent, Hewlett-Packard and Juniper Networks become the beneficiaries. What about Sycamore and Corning, what role will they play? In part it’s going to be interesting to see how the U.S. government directly imposes restrictions on Huawei and ZTE, because indirectly Huawei and ZTE will continue to supply its numerous subsidiaries, such as Futurewei Technologies in Plano and its vast network of vendors, such as NTCH Inc. in Los Angeles.

There are so many companies and telecoms in America who depend on ZTE and Huawei products for their network and no amount of regulating is going to totally stop Huawei and ZTE from doing business in America, because Huawei and ZTE supplies everyone we do business with who don’t have Chinese names, such as Alcatel-Lucent, Verizon, T-Mobile, MetroPCS and a dozen or more regional wireless companies. You would have to shut down the entire Internet in America and also the wireless carriers to render any kind of restriction on Huawei and ZTE, because their equipment is already so embedded in our infrastructure that the Defense Department is just waking up to realize the potential threat.

Don’t forget that many of the components that make up CDMA networks, WIMAX and LTE networks are sourced from China by Huawei and ZTE subsidiaries and other vested vendors. Here are some little known handsets supplied by Huawei and ZTE.

MetroPCS sells several Huawei handset models, the Huawei M750, M328 and the Huawei Ascend.

T-Mobile’s Tap smartphone is the Huawei U7519.

Verizon’s Salute smartphone is from ZTE, as is many components that Verizon is using for its network infrastructure. MetroPCS offers several phones by ZTE, the ZTE Essenze, C78 and the ZTE Agent.

More than a few components and critical equipment used to run the Internet now and in the future is supplied by Huawei and ZTE and there is little the U.S. government can really do about it unless it wants to shut down the Internet and the wireless telecommunications and landline infrastructure. The bottom line for the U.S. government is National Security and the bottom line for corporations are profits. Anything that hampers the free hand of trade and the free market corporations will oppose directly or indirectly and last time I checked, corporations pretty much fuel politics in America and the rest of the world, so it will be interesting to see what happens.

P.S. Don’t forget that we sold the Hummer division that GM used to own to Sichuan-based, Tengzhong Heavy Industrial Machinery Company. Tengzhong is a giant of a construction and equipment company in China. What do you think they’re going to do with our former Hummer division?