ZTE Corp executives are investigating software options for the company’s smartphones after a US technology ban threatened to cut off the operating system at the heart of its devices, a source said. The Android operating system, designed by Google, is the core of ZTE smartphones, powering their apps and other services. The US Commerce Department on Monday banned American firms from selling parts and software to ZTE for seven years. The move was sparked by ZTE’s violation of an agreement that was reached after it was caught illegally shipping US goods to Iran. The move threatens to further complicate relations between the United States and China. The two countries have already proposed tens of billions of dollars in tariffs in recent weeks, stoking fears of a full-blown trade war that could hurt global supply chains as well as business investment plans. ZTE lawyers have been meeting with Google officials about the issue, according to the source with knowledge of the matter, who asked not to be identified because the talks were private. Google declined to comment and ZTE has not responded to requests to comment. The US banning order stated that ZTE cannot “participate in any way in any transaction involving any commodity, software or technology … exported or to be exported from the United States”. That would prohibit Google from licensing any of its Android apps and services to ZTE. The Chinese company could still use the open source version of Android, but analysts said that would make it difficult for ZTE to sell phones outside China because the devices wouldn’t be able to access apps from the Google Play Store. There are few viable alternatives to Android. Microsoft and HP no longer offer smartphone operating systems, Apple’s iOS is exclusive to its own devices, and ZTE doesn’t have its own operating system. The only possible alternative is Samsung’s Tizen, which hasn’t taken off and only supports a few apps. For Alphabet’s Google, losing ZTE as an Android handset maker would not be critical given the Chinese company’s small market share. However, Google has been losing control of what some Android handset makers put on their devices. Samsung, the largest Android manufacturer, has introduced its own mobile services, such as a voice assistant, that compete with Google services. In response, Google has relied more heavily on Chinese manufacturers like ZTE, Huawei Technologies and Xiaomi. ZTE chairman appeals for calm amid US parts ban ‘crisis’ Separately, Republican senators have introduced legislation that would block the US government from buying or leasing telecoms equipment from ZTE and its Chinese rival Huawei Technologies. Huawei’s planned deal with AT&T to sell its smartphones to American consumers collapsed in January after US lawmakers expressed concerns about national security issues. Amid a steady drip of bad news, Huawei has laid off its vice president of external affairs, Bill Plummer, and four other employees at its Washington office, according to sources familiar with the matter. The company slashed lobbying expenditures from US$348,500 in 2016 to US$60,000 in 2017, according to Huawei filings. ZTE has similarly cut its lobbying expenditures, from US$860,000 in 2016 to US$510,000 last year, according to ZTE filings.
