Europe Was Growing Wary of Huawei Even Before CFO's Arrest

The shock arrest of Huawei Technologies' chief financial officer comes at a crunch time in Europe, as governments decide whether to crack down on the Chinese technology giant.

Before Canadian officials detained Wanzhou Meng on December 1 over potential violations of US sanctions on Iran, officials from Britain, Germany and France were becoming increasingly wary of the telecom equipment-maker, according to people familiar with the matter.

Amid concerns of an escalating US-China trade war, America has been bringing allies onside over its long-standing fears that Huawei's gear could enable Chinese spying. While Australia and New Zealand in recent months barred Huawei's equipment from next-generation phone networks, Europe has yet to take decisive action.

Europe, where 5G networks will be rolled out starting next year, is a key battleground for Huawei as its largest market outside Asia, and where the company has spent more than a decade notching contracts with the likes of Deutsche Telekom AG and Vodafone Group.

"Companies are making their decisions about their core network technology," said Ben Wood, chief of research at technology analyst CCS Insight. "Those are decisions which are implemented and then sustained for a decade, so this is a very, very important crossroads for Huawei and these kind of moves are very unhelpful, the fact that this has all blown up at this time."

Germany's coalition government has concerns about letting Huawei supply 5G equipment, according to people familiar with the matter. Officials are looking at potential changes to rules or standards that would affect Huawei, though it's controversial within government, said the people, who asked not to be identified as the deliberations are private.

A representative for German's Economics ministry declined to comment.

One German lawmaker, who attended a recent briefing by U.S. officials advocating against Huawei, said any action on the matter should wait until after the country's 5G airwaves auction finishes in 2019 and licenses have been awarded. Germany currently has no legal basis to partially or fully exclude Huawei from supplying 5G equipment.

"Germany and the EU should not jump on Trump's campaign against China," said Katharina Droge, Green lawmaker responsible for trade. "Nevertheless, it is in Germany's own interest to take the concerns about Chinese technology very seriously."

In France, government departments are rethinking the country's relationship with Huawei, according to people familiar with the matter. Earlier this year Digital Affairs Minister Mounir Mahjoubi said phone carriers should work with European equipment-makers.

The risk for Huawei may be greater in the UK, where the head of the foreign intelligence agency MI6 said on Monday that the government must decide if Huawei should be barred from running 5G networks.

A cybersecurity oversight board that keeps watch on Huawei's activities in the country in July said it could no longer guarantee that equipment from the company doesn't compromise the UK's national security, and will meet again next week. The government is also conducting a review into the resilience of its supply chains that could lead to recommendations affecting Huawei.

"We reject any suggestion that we might pose a threat to national security," said a spokeswoman for Huawei in an emailed statement. "Cyber-security should not be politicised, and equipment vendors should not be treated differently based on country of origin."

Espionage concerns have long swirled around the closely-held company, run by a former military engineer. Huawei has always maintained that it's independent and doesn't give the government access to its equipment. It's mounted slick lobbying campaigns to assuage political leaders in Europe and opened its operations to monitoring in markets like the UK.

With equipment seen by telecom executives as superior to that of Nokia Oyj and Ericsson AB, Huawei has managed to topple its European rivals to become the largest mobile gear supplier on the continent.

The coming of 5G technology, which will allow speeds fast enough to download a full-length movie in seconds and a range of new products and services, has security and government officials concerned that core networks will be more at risk of being hacked.

Phone carriers in Europe already split their equipment supply between the three major suppliers and could shift more of their business to the non-Chinese vendors over time, UBS analyst Tejas Venkatesh wrote Thursday in a note.

BT Group Plc is putting pressure on Huawei to address Britain's concerns, through its role on the board chaired by intelligence agency GCHQ which oversees the company's activities, according to telecom industry executives who spoke on condition on anonymity.

A representative for BT declined to comment.

Three UK, a unit of Hong Kong billionaire Li Ka-Shing's CK Hutchison Holdings, has signed key 5G equipment supply contracts with Huawei and Nokia. The carrier on Thursday said it's monitoring the situation closely but currently has no concerns about partnering with Huawei.

Telefonica Deutschland Holding AG continues to see Huawei as an important business partner, said Cornelius Rahn, a spokesman for the German carrier. "This arrest is no reason to question that relationship," he said.

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