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Huawei’s Australia Ban Is Second in Six Months After U.S.

Huawei said earlier this week it had been told by the Australian Attorney Generals office it cant bid for work on the country's national broadband network project. Photographer: Chris Ratcliffe/Bloomberg
Huawei said earlier this week it had been told by the Australian Attorney Generals office it cant bid for work on the country's national broadband network project. Photographer: Chris Ratcliffe/Bloomberg

March 29 (Bloomberg) -- Australia stood by its ban on bids from Huawei Technologies Co. for a national broadband network, marking at least the second time in six months that the Chinese company has been barred from an overseas government contract.

Prime Minister Julia Gillard today defended her government’s decision to tell China’s largest maker of telephone equipment not to bid for work on the broadband network. The U.S. Commerce Department said in October it barred Huawei from a contract, citing “national security concerns.”

The Australian ban adds to political woes for Huawei, the world’s second-largest vendor of phone network equipment with $32 billion in sales last year. The company has repeatedly run into opposition from U.S. lawmakers, who have cited concerns about security because of alleged links to China’s military, which Huawei has denied.

“There is the ‘red-under-your-bed’ camp in D.C., saying Huawei is a front, or at least passes intel to the China spooks,” said Duncan Clark, Beijing-based chairman of BDA China, which advises technology companies. “Excluding Huawei doesn’t seem like a smart idea, and smacks of protectionism, but the intel services don’t have to be publicly accountable, so who knows whether or not their fears are justified.”

Australia’s ban was due to “national interests,” Gillard said.

‘Right Reasons’

Huawei, founded by Ren Zhengfei after his retirement from the Chinese army, had offered to limit all employees on the broadband project to security-cleared Australian citizens, open up its software code, and undergo a full audit of security measures. Huawei said it’s working on eight broadband networks similar to Australia’s in the U.K., Singapore, Malaysia, New Zealand, the United Arab Emirates, Cameroon, Benin and Brunei, and hasn’t been asked for security concessions in those markets.

“The decision we have taken is not in breach of any trade rules or trade regulations with China,” Gillard told reporters in Sydney. “We’ve taken it for the right reasons, through the right process, based on the right advice.”

The Australian network will provide fiber-optic access to about 3.5 million premises in Australia by mid-2015, Gillard said. The NBN plans to roll out fiber to 93 percent of Australia’s population during the next decade, with the rest served by wireless and satellite.

The project is valued at A$35.9 billion ($37.2 billion), according to government figures.

‘Line in the Sand’

“There has to be some restrictions on foreign companies buying into national infrastructure assets,” said Tim Schroeders, who helps manage $1 billion at Pengana Capital Ltd. in Melbourne. “There have clearly been cyber attacks out of China, so Australia has a right to defend its national security. The government has decided it has to draw a line in the sand.”

Huawei was founded in 1988 by Ren, who retired from the Chinese military in 1984. At the time of his retirement, Ren was deputy director of the Science Research Institute of the Engineering Army Corps, according to a biography supplied by the company. Ren hasn’t maintained any ties with the military since then, according to the company.

“We don’t have contracts that link us to the military,” Jeremy Mitchell, Huawei’s director of corporate public affairs in Australia, said in Bloomberg Television interview today. “We are purely a consumer company. We do $30 billion worth of contracts a year. You don’t do that if people don’t trust your company and your staff.”

The Australia ban is a “temporary setback,” Mitchell said.

U.S.-Australia Treaty

Australia and the U.S. pledged in September to jointly thwart potential threats in cyberspace as they would other military attacks under their 60-year-old military treaty. The White House released its strategy for preventing and countering attacks last year, calling for responding to hostile acts in that domain “as we would to any other threat to our country.”

In October, the U.S. excluded Huawei from its Public Safety 700-MHz Demonstration Network, run by the National Institute of Standards and Technology along with the National Telecommunications and Information Administration, a part of the Commerce Department. The network allows communication between first responders in an emergency, including firefighters and police officers.

‘Serious Risk’

That ban on bidding followed other U.S. efforts to curtail Huawei’s growth in the country. The Committee on Foreign Investment in the United States forced the company last year to unwind its purchase of Santa Clara, California-based 3Leaf Systems’s patents after U.S. lawmakers said the acquisition could pose “a serious risk” to U.S. computer networks. Huawei also failed in bids to acquire 2Wire and Motorola’s wireless business in 2010 and 3Com Corp. in 2008.

Huawei said in November it was dissolving a joint venture with Symantec Corp. by paying $530 million for the partner’s stake. The New York Times reported this week the venture is being dismantled because Symantec feared the alliance with the Chinese company would prevent it from obtaining U.S. classified information about cyber threats.

Australia’s ban drew a rebuke yesterday from China’s Foreign Ministry spokesman Hong Lei. Hong said Australia should provide a fair investment environment and not discriminate against Chinese companies. He said China hopes Australia “won’t wear tinted glasses to obstruct Chinese companies’ normal business using the so-called security issue.”

Fueled by its appetite for iron ore and coking coal, China is Australia’s top trading partner, surpassing Japan and the U.S., which is now third. Two-way trade between the nations in the 12 months ended Sept. 30 surged 22 percent from a year earlier to A$110 billion, according to the Australian Bureau of Statistics.

“We’ve got a strong, robust relationship with China,” Gillard said of Australia’s largest trading partner. “This is a moment where we’re seeing one thing differently.”

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net; Jason Scott in Canberra at jscott14@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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