Exclusive: Red Flag Raised on Chinese Telecom Deal

Only days before Vice President Joe Biden’s tour of east Asia this week, two influential Democratic senators quietly asked the Obama administration to evaluate the intelligence risks posed to the United States by a proposed telecom deal in South Korea.

The deal would allow Chinese telecom giant Huawei to help build a broadband network for South Korea. While U.S. senators usually pay attention to business dealings closer to home, the prospect of Huawei equipment embedded inside South Korea’s new telecom network was enough to raise the concerns of Senate Foreign Relations Committee chairman Robert Menendez and Senate Select Committee on Intelligence chairwoman Dianne Feinstein.

“We are very interested to receive your assessment of potential threats and security concerns that Huawei’s involvement in this plan represents,” the two senators wrote in a November 27 letter obtained by The Daily Beast and addressed to James Clapper, the director of national intelligence; Chuck Hagel, the secretary of defense; and John Kerry, the Secretary of State.

For much of the 20th century, the United States was able to collect vast amounts of signal intelligence because American telecom companies helped create the telecom networks of foreign countries. In recent years—as more countries create the broadband wireless networks needed for tablets, cell phones, and other computers—intelligence officials have begun to worry that China is trying to do the same thing.

With more than 28,000 U.S. troops in South Korea, the U.S. military needs to know its communications channels are secure on the peninsula.

The fear for the U.S. intelligence community and several lawmakers is that Huawei components give China the equivalent of a digital listening post inside a country’s wireless network. The Obama administration has quietly agreed. In 2011, the Commerce Department blocked Huawei’s bid to help build a wireless network for U.S. first responders. In 2010, political pressure stopped Sprint from signing a deal to allow Huawei to build cell towers for a proposed nationwide 4G network.

Huawei is a privately owned company, but it has access to a $30 billion line of credit from China’s Development Bank. Its CEO and founder is also a former officer in the Chinese military.

A spokeswoman for the National Security Staff, the body that advises the president on national security and foreign policy matters, declined to comment on the letter from Menendez and Feinstein. A senior administration official said: “I’m not going to discuss the details of our diplomatic discussions. But we do have concerns about Huawei, evidenced by the fact that Huawei was excluded in October of 2011 from taking part in the building of America’s wireless emergency network for first responders due to U.S. Government national security concerns.”

Vice President Joe Biden is traveling to China Tuesday as part of a tour of East Asia. He is scheduled to visit South Korea later this week.

While in recent years U.S. concerns have centered on Huawei’s efforts to penetrate the American market, some experts also worry about Huawei equipment inside foreign telecom networks. “There has been enough concern over Huawei’s equipment that it could provide an intelligence advantage to the People’s Liberation Army [the military arm of the China’s Communist Party] that a number of countries have declined to purchase Huawei equipment,” said Jim Lewis, a senior fellow and expert in signals intelligence at the Center for Strategic and International Studies.

Lewis pointed out that some countries, including the United Kingdom, have allowed Huawei equipment into their wireless networks, but in these cases special precautions were taken to mitigate the concern that Huawei’s equipment would provide a back door for Chinese intelligence.

Huawei spokespeople have denied that their equipment has been used by China’s military for espionage purposes. William Plummer, a vice president of Huawei and a spokesman for the company in the United States, said his company has provided equipment for many cell phone carriers all over the world. “Our gear is world-proven and trusted, connecting almost one third of the world’s population. The motivations of those that might groundlessly purport otherwise are puzzling.”

Lewis said that Huawei’s routers and switches may be clean at first. But the potential for back doors, or exploits within the software and hardware of the equipment, could be slipped into the gear through routine maintenance such as software updates.

“The computers and devices owned by the company all connect back to and are managed by the supplier,” Lewis said. “Huawei has a degree of control and access to the Korean telecom network. They can pump out a software update and you have no idea what is in the software.” Lewis added that because the United States has to use the Korean telecom system for its own military communications, there is a risk that China could penetrate those communications.

The bad business environment in the United States appears to have led Huawei’s CEO to give up on his efforts to penetrate the U.S. market. Ren Zhengfei, the CEO of Huawei recently told French journalists “we have decided to exit the U.S. market, and not stay in the middle.”

Plummer, however, said Huawei was still interested in U.S. markets. “Huawei remains committed to our customers, employees, investments and operations and more than $1 billion in sales in the U.S., and we stand ready to deliver additional competition and innovative solutions as desired by customers and allowed by authorities.”