US panel to probe fresh complaints against Huawei, ZTE

A U.S. congressional report that urged American companies to stop doing business with Chinese telecom equipment makers Huawei and ZTE has triggered a fresh wave of complaints against the firms, opening a second phase to the panel's investigation.

A staff member of the House of Representatives Intelligence Committee said the panel has been receiving "dozens and dozens" of calls from current and former employees and customers reporting supposedly suspicious equipment behavior, chiefly involving Huawei.

"I don't think the companies should expect our attention to stop," the staff member told Reuters, adding that the panel would follow up on new leads. The staffer was not authorized to speak publicly on the matter.

In a report issued on Monday after an 11-month investigation, the House committee warned U.S. industry that Beijing could use equipment made by the two companies to spy on certain communications and threaten vital systems through computerized links. It urged network providers to seek other vendors.

The report also advised the Committee on Foreign Investments in the United States (CFIUS), an inter-agency government panel that vets foreign deals for security concerns, to block any future business tie-ups involving Huawei or ZTE and U.S. companies.

Huawei, the world's second-largest maker of routers and other telecom gear, and ZTE, the fifth-largest, both rejected the allegations. China's Commerce Ministry said the U.S. committee had "made groundless accusations against China."

Adding to Huawei's problems, Canada indicated on Tuesday that it would exclude Huawei from firms allowed to build a secure Canadian government communications network, citing possible security risks.

In March, Australia barred Huawei from seeking contracts for the country's National Broadband Network due to cyber security concerns.

By contrast, the European Commission has delayed a trade case against the two Chinese telecom equipment makers, easing tensions between the European Union and its second-biggest trading partner.

Huawei is employee owned, has operations in more than 150 countries, with more than two-third of its annual revenue of $32.4 billion earned outside of China.

In early trade on Wednesday, ZTE's Hong Kong-listed shares were up as much as 4 percent after having fallen 11 percent during the previous two days. Several brokerages said the investigations were likely to have minimum impact on ZTE's bottom line, with investors switching their focus to 4G spending, which is expected to benefit the company.

The U.S. panel's 52-page report did not present concrete evidence that the companies' equipment had been used for espionage, but a classified annex provides "significantly more information adding to the committee's concerns," it said.

Current and former U.S. intelligence officials said Huawei and ZTE, both based in Shenzhen in southern China, pose potential national security threats, but there did not appear to be a consensus about whether security breaches involving their equipment had been confirmed.

One former U.S. official said there were "smoking guns" that justified suspicions about Huawei, noting that the defense industry was a primary target. Another former senior U.S. intelligence official said the threat of illegal eavesdropping may be more theoretical than actual.

On Monday, House Intelligence Committee Chairman Mike Rogers referred to alleged instances of "beaconing" of information to China, though he did not name any specific users of Huawei's equipment that had been affected.

When asked for examples of such unauthorized transfer of information stored on a network, the staff member referred to an incident involving wireless operator Cricket, which is the operating subsidiary of Leap Wireless International Inc. Cricket uses Huawei to deploy its wireless network.

San Antonio virus case
In May this year, unusual activity was observed on a Cricket network node in San Antonio, Texas, while Huawei equipment was being used there, the staff member said. According to this account, there was concern that information from the network was being sent without authorization to China.

Greg Lund, a spokesman for Cricket, said that some of its computers had been infected with viruses earlier this year, and an investigation revealed they were related to Huawei personnel working in the company's facilities. However, the investigation found no evidence that Cricket or its customers' proprietary or confidential information had been accessed, Lund said.

"There is no evidence suggesting that these incidents were the result of malicious activity on the part of Huawei," he said, adding that Cricket was not contacted by the committee during the course of its investigation, and the company did not complain to the committee.

William Plummer, a Huawei spokesman in Washington, recounted a San Antonio incident in a conference call with reporters on Monday, without naming Cricket or Leap.

He said that two independent security experts "were able to identify to the moment that that laptop was infected with a virus by a WiFi access point at that Texas hotel."

"Those are facts and to the extent the committee has any familiarity with those facts, then they also know that they have misrepresented them," said Plummer, a Huawei vice president for external affairs.

Copyright Thomson Reuters 2012