Telecoms and Security: Old Wine in New Bottles

A recent report by the US Senate warned that entry of telecom equipment manufacturer Huawei into the US market would be a Trojan horse for China’s spy network. For good technical reasons telecoms has always been viewed by governments and states as a perfect medium for eavesdropping, wire-tapping and spying in general.  And all states with the technical capability have used it for these purposes, not just to detect criminal intent but to spy on foreign powers and, yes, to steal industrial secrets. A reasonable presumption is the more technically sophisticated the state, the more it will happen. What intelligent agency in the world worth its salt would pass up the chance? Yes, there are civil laws to protect the citizen and commercial interests, and yes in many cases there needs to be judicial approval for clandestine actions. But there will always be ways around these restrictions. Outsourcing is one such way. For example, which international companies trying to win business in economies where bribery is rampant have not used intermediaries to make the payments? From anecdotal evidence from “people in the know” this is true today as ever it was.

What is new today is simply the Internet. Internet usage penetrates every aspect of the economy and of its political structures. Whether the bugs be built into the hardware, into the software or implanted from afar over the Internet, the story is the same. Cyber-spying and cyber-crime (the former is the latter for the intruded party) are an integral part of the fabric of the modern world. It’s the stuff of politics at election times; it’s often the stuff of policy between elections. It gets really serious however when it crosses the line to cyber-attacks and cyber-war. So is the US Senate right about Huawei and its close connections to China’s military and cyber-warfare agencies? It’s probably exaggerated but also most likely true. How to know it’s true? Because it’s true also of the expectations placed upon carriers from all the major powers in the world; anyone in the industry knows this, but few in the industry are directly involved. It’s not their bread and butter work.

That raises the interesting question: which foreign carriers and vendors to allow in through the door? The US, for example, is ok with allowing Deutsche Telekom to buy MetroPCS Communications, the 4th and 5th largest wireless carriers in the US. Japan’s Softbank is set to own 70% of the third largest US carrier, Sprint, pending approval from US regulators and Sprint shareholders. Hong Kong’s Hutchison is well established in the UK. Huawei and ZTE both offer high quality, low priced equipment that is in high demand. Cisco would argue that is because some of their IP was stolen along the way, but the fact remains that these companies have become phenomenally successful. Part of the reason is that China, even more than the USA, has operated highly restricted practices preventing especially foreign carriers from market entry. Huawei and ZTE are among the companies that have received very favourable access to the domestic market which offers them enormous economies of scale. And they clearly have close working relationships with the military and the state, just as Western, Japanese and South Korean carriers have done.

The main criticism of the US Senate report therefore rests lessupon its claims than upon its blunt instrument approach to the problem. There are ways to monitor, inspect, test equipment and to ring fence suspect networks. Good old-fashioned reverse engineering is one way to do it. Such steps may increase the cost to be buyer, but the cost of tit-for-tat trade sanctions with China is likely to be much higher. On the contrary, this issue should be a trade negotiator’s dream.

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