Opinion | Huawei, ZTE face long US winter

I don't usually like to write about the same company or issue twice in the same week, but it's hard to ignore a new report that has just come out of Washington saying US telcos shouldn't do business with China's top 2 telecoms equipment makers due to security concerns. Of course people who follow the industry will know that I'm referring to a new Congressional report taking aim at Huawei and ZTE (0763.HK; Shenzhen: 000063), 2 of the world's leading telecoms equipment makers and also 2 of China's high-tech exporting superstars. The report comes just a day after reports emerged that Huawei was considering an offshore IPO in an attempt to diffuse concerns that its equipment can be used for spying by Beijing.

This new report is the most specific yet detailing security risks posed by equipment from both Huawei and ZTE, saying the biggest risk comes from both companies' vulnerability to influence by Beijing. The committee further recommended that the US government block any potential sales by Huawei or ZTE to US telcos, a move that will surely discourage companies like Sprint (NYSE: S) or Verizon (NYSE: VZ) from ordering equipment from the 2 companies.

Both Huawei and ZTE fired back with statements that were unusually strong for companies that prefer to take a low profile stance on this sensitive matter. Huawei used its American spokesman William Plummer, a former US State Department official, to denounce the report's findings as "baseless", calling it a "dangerous political distraction". Even China's Foreign Ministry joined with its own more muted protest, saying Chinese telecoms equipment makers respect international market norms, and that the US should dispose of its preconceptions.

As if the report wasn't bad enough, another media report disclosed that US networking equipment giant Cisco (Nasdaq: CSCO) has also severed a long-standing relationship to supply its routers and switches to ZTE after the Chinese company constructed a sophisticated telecoms network for the Iranian government. The US bans its companies from selling such equipment to Iran, whose nuclear energy program it suspects is a front for trying to develop an atomic bomb.