Chinese Telecom Vendors Face US, India Mistrust

A recent report from research firm iSuppli indicates distrust from the Indian and U.S. governments could slow growth for two prominent Chinese telecom vendors.

Over the past decade, Chinese companies Huawei and ZTE have grown from virtual unknowns to two of the largest telecom equipment providers in the world. Despite this impressive growth, the companies have constantly struggled to enter the U.S. markets, even after trying to buy their way in through acquisitions.

It does not look like getting in will become easier any time soon for the two companies. Last week, a group of senators asked the Obama administration to review Huawei's bid for a Sprint Nextel project.

"They have struggled to get in the US market because of politics, security, xenophobia and to some extent the conservative, slow moving nature of the U.S. telecom companies who are comfortable with the vendors they have always used," Ratliff said.

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What could make worse for the two companies is the scrutiny both have faced in India, where the government has blocked purchase orders due to new security clearance mandates.

Ratliff said the Indian government is suspicious that equipment manufactured abroad represents a security risk because sensitive information could be transmitted to foreign governments through firmware back doors. The government is especially concerned with Chinese-made equipment, he said.

The result of the Indian government's enhanced scrutiny has been a hold on 450 equipment orders worth $2 billion, according to iSuppli. Of those orders, only 27 have been approved, all of which are from the U.S. The market for wireless infrastructure is expected to rise to $83 billion in 2014 from $65 billion this year, meaning a lot of potential dollars are at stake.

Ratliff said it is important to not count out Huawei and ZTE. "You should never sell them short. They've grown so quickly at such a great pace, it's hard to believe they won't continue. This could be a hiccup," he said.

To resolve the situation, Ratliff said both companies, especially privately held Huawei, will have to be more transparent. "They could do the governments a big favor by opening up, that would allay those concerns," he said.

ZTE did not respond to requests for comment.

In an emailed response, a Huawei spokesperson said the company is employee-owned, privately held and that neither government nor military have any influence over it. She said the company strictly complies with all the laws and related trade compliance regulations established by the UN and all the countries where they operate, including the U.S.

"We are deeply committed to long-term investment in North America, and will continue to contribute to this market by providing innovative communications network solutions and services to address our customers' challenges and needs. Huawei strives to be open, transparent and is committed to cooperate fully with all stakeholders to advance the U.S. telecommunications industry," the spokesperson said.