AT&T Backs Away From Deal to Supply China Made Huawei Phones

AT&T has reportedly walked away from a deal to provide new mobile phones to U.S. customers made by Chinese technology giant Huawei 

Based in Shenzhen, China, Huawei announced in December 2017 that it would be supplying smartphones via U.S. carriers this year; and it was widely expected that a deal would be announced during the CES Huawei Keynote speech in Las Vegas on Tuesday.

But just one day earlier, The Wall Street Journal reported that AT&T had backed out the deal under political pressure. Members of the U.S. Senate and house intelligence committees had apparently written to the FCC on 20 December, 2017, noting concerns over “Chinese espionage in general, and Huawei’s role in that espionage in particular.”

It is assumed that this led to political pressure on AT&T to abandon the deal; and it is believed that Verizon is under pressure not to conclude a similar deal with Huawei later in the year. Huawei has been a persona non grata in U.S. official channels since a 2012 Congressional Report raised concerns over possible state-sponsored espionage delivered via Huawei communications equipment.

Huawei has always denied any involvement with the Chinese government; and the U.S. is almost alone in ‘banning’ (effectively, if not legally) Huawei equipment. Similar concerns in the UK government have to a large extent been mitigated by the ability to examine hardware and reverse engineer software under GCHQ overview at a location called The Cell in Banbury, near Oxford.

There is little official comment about what happened this week. It seems from Huawei’s consumer business unit CEO Richard Yu’s comments on Tuesday that Huawei blames AT&T for the break down of the deal. “It’s a big loss for consumers,” he told his audience, “because they don’t have the best choice for devices.” 

Although entering the market late, Huawei is already the world’s third largest supplier of smartphones, behind only Samsung and Apple. Access to the huge American market, where by far the majority of phones are provided by the carriers, will now be seriously limited. It is worth noting that there is no legal ban on Huawei phones, and the Chinese company will still sell them to American consumers through online outlets such as Amazon. 

There are some similarities with the US government ban on Russia’s Kaspersky Lab products. In both cases, concern has been raised over historical ties with the founders’ respective governments. Eugene Kaspersky, founder and CEO of Kaspersky Lab, was educated at a KGB-sponsored school and served in the Russian military as a software engineer; while Ren Zhengfei, founder and president of Huawei Technologies Co, is an ex-People’s Liberation Army officer. There is concern that both companies could retain covert relations with their respective governments.

There is, however, one very big difference. With Kaspersky Lab, the ban is on its use by federal agencies. With Huawei, the ban is effectively on anyone seeking to acquire Huawei hardware via a phone-and-data-plan from a carrier; that is, the Huawei ban excludes general consumers — who could pose no national security risk — from acquiring these phones in the most popular manner.

This in turn has raised some concerns that the pressure on AT&T is more economic and perhaps geopolitical than it is national security. Could it be additional political pressure on China to be more proactive against North Korea? Or could it be a visible manifestation of ‘America First’ and President Trump’s demand that China balance bilateral trade between the two countries?

Either way, it is unlikely to be good for U.S./China relations.

The South China Morning Post today quoted He Weiwen, a former business counselor at the Chinese consulate in New York. “Investment cooperation between China and the U.S. will be squeezed,” he said. “China should contemplate countermeasures.”

However, at this stage it is only conjecture (however well-informed) that this is a U.S. political move — without further details it could be an AT&T business decision.

“This might be because there is something preinstalled on the phones that AT&T doesn’t agree with; for example, preinstalled software, certificate authority certificates and other things that might yield some kind of data gathering capabilities and/or control either directly or indirectly,” noted F-Secure’s principle security consultant Tom Van de Wiele. “It might be that Huawei is putting its foot down on the application eco-system and its rules.”

He also pointed out further non-political issues that could have scuppered the deal. “The phone might be too ‘open’ in that it easily allows you to unlock it and switch telcos, away from AT&T — and that’s still a huge thing in the U.S.”

Similarly, there are potential security issues with any phone, possibly heightened by Huawei phones using Huawei proprietary chips. “As Android devices come in a multitude of deployments — it’s easier for overly ‘curious’ features to get included without being noticed,” F-Secure’s security adviser Sean Sullivan told SecurityWeek. “There have been several cases in which vendors screwed up and included things such as Baidu components in European deployments.”

But he added, “These were budget phones; you get the quality that you pay for. In the case of Huawei — too many eyes are/would be auditing its devices — it’s doubtful that anything deliberate would be done via an AT&T phone.” Sullivan is not convinced that the AT&T deal has been shelved for purely security concerns.

This is the second China deal to have been prevented in the last few days. Last week the U.S. Committee on Foreign Investment rejected Chinese firm Ant Financial’s takeover bid for U.S.-based money transfer firm MoneyGram — again citing national security concerns.

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