Softbank-Huawei links to raise US eyebrows

PUBLISHED : Saturday, 20 October, 2012, 12:00am
UPDATED : Saturday, 20 October, 2012, 4:00am

Softbank buys its mobile-phone network gear from Chinese companies which have been viewed as security threats by the United States and the relationship may become an issue as regulators review its bid for Sprint Nextel.

Softbank's connections with Huawei Technologies and ZTE, China's two largest makers of phone-network equipment, probably will not kill its US$20.1 billion offer for 70 per cent of Sprint, said Stewart Baker, a former US Homeland Security Department official.

It is likely that US officials will address those links when they scrutinise the deal, he said.

The House Intelligence Committee in a report last month urged US companies to steer clear of Huawei and ZTE, citing concerns that the Chinese government could install malicious hardware or software in US telecommunications networks.

"The flap over Huawei and ZTE means that at a minimum, the extent to which equipment from Huawei and ZTE would be introduced into the US infrastructure will be an issue," said Baker, a partner with Steptoe & Johnson in Washington.

"This deal will probably end up getting approved but with a very detailed national security agreement."

About 10 per cent of capital expenditure by Tokyo-based Softbank goes to Huawei and ZTE for equipment like base band units and antenna systems for its 4G mobile network. Alcatel-Lucent and Ericsson provide the core network.

"I am aware in the US, the government is sensitively looking at it, and we understand national security," Softbank president Masayoshi Son said yesterday.

"If the US government decides, don't do it, we would comply. It's only one of our group subsidiary companies using Huawei and ZTE. It's never our main investment," he said.

Sprint chief executive Dan Hesse said that the combined company is set for an extensive regulatory review, and because of that does not expect to close the deal until the middle of next year.

"We don't foresee any issues at all with respect to regulatory approval," he said.

"This will be seen as a positive, it's pro-consumer, it's pro-competitive."

The deal will build the third-largest mobile carrier as a competitor to market leaders Verizon Wireless and AT&T, he said.