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AT&T Drops Huawei’s New Smartphone Amid Security Worries

By PAUL MOZUR JAN.9, 2018

SHANGHAI — With an advanced screen, a special artificial-intelligence microchip and an eye-popping price, the newest smartphone from Huawei Technologies was meant to show Americans what China can do with technology.

Instead, Huawei’s push to sell the phone in the United States has suddenly lost a powerful backer — and the push has attracted some unwanted scrutiny from Washington.

AT&T walked away from a deal to sell the Huawei smartphone, the Mate 10, to customers in the United States just before the partnership was set to be unveiled, two people familiar with the plans said on Tuesday, speaking on the condition of anonymity because the discussions were not public. The Wall Street Journal reported earlier that AT&T had changed plans.

The reasons that led to AT&T’s shift were not entirely clear. But last month, a group of lawmakers wrote a letter to the Federal Communications Commission expressing misgivings about a potential deal between Huawei and an unnamed American telecommunications company to sell its consumer products in the United States. It cited longstanding concerns among some lawmakers about what they said were Huawei’s ties to the Chinese government.

The letter, which was reviewed by The New York Times, said Congress had “long been concerned about Chinese espionage in general, and Huawei’s role in that espionage in particular.”
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AT&T, meanwhile, faces its own challenges in the United States. The Justice Department in November sued to block the company’s $85.4 billion bid for Time Warner, a merger that would create a media and telecommunications behemoth with the ability to reach consumers through a wide variety of means.

Huawei has been counting on the Mate 10 to compete with Apple’s high-end iPhones, in a test of the potential appeal of a Chinese brand in the American market. While Huawei has long sold budget phones, some Mate 10 versions cost $900 or more without subsidies from phone carriers.

Huawei sells smartphones in the United States, but it does not have smartphone deals with any of the major wireless carriers in the country. Those carriers — Verizon, AT&T, Sprint and T-Mobile — dominate the market, making it more difficult for Huawei to get a foothold in the country. The AT&T deal was supposed to cement the company’s status as a top maker of the devices, alongside Apple and Samsung Electronics of South Korea.

Congressional misgivings about the company’s close relationship with the Chinese government have long plagued Huawei. Already, other major telecommunications companies refuse to buy the equipment Huawei makes for telecommunications networks — its core business — because of worries in Washington over security.

In the letter, the lawmakers said Huawei had ties to the Chinese Communist Party, as well as to the country’s intelligence and security services, and they accused Huawei of disregarding intellectual property. In particular, the letter implies that the deal with AT&T could more firmly establish Huawei phones in the United States, and ultimately open up the possibility of American government officials using them.

Analysts said the political opposition to Huawei was not surprising. Leaders in China and the United States view technology made in the other country with suspicion. In policy guidance and speeches, Chinese officials have repeatedly called for technology made by American companies to be replaced by locally produced ones. Beijing has also widely blocked major American internet companies from offering products in the country.

American lawmakers have stated their suspicions before. In 2012, a House Intelligence Committee report said two Chinese companies, including Huawei, were a threat to United States national security.

For a Chinese company that has pushed hard to become a recognized multinational player, the setback is only one of many in the United States. Huawei is also under investigation by the Treasury and Commerce Departments over whether it broke American trade sanctions against countries including Iran and North Korea. Huawei says it is committed to complying with the law.

While the letter did not mention AT&T, its pending deal to sell the Huawei smartphone in the United States had been widely reported.

Fletcher Cook, a spokesman for AT&T, declined to comment.

Huawei, a private company, has long denied that it presents security risks. In a statement, Huawei said it had delivered “premium devices with integrity globally and in the U.S. market” over the past five years, adding that it would introduce new products for the American market on Tuesday.

The last-minute disruption is the latest in a long line of setbacks for Huawei, which has struggled for years with political opposition to its efforts to tap the hugely valuable United States market. More broadly, it underscores a deepening political rift over issues of technology, user privacy and security — a rift that adds to a brewing trade dispute between the world’s two largest economies.

Just a week ago, an affiliate of the Alibaba Group in China dropped a $1.2 billion proposal to acquire MoneyGram, after a United States panel that reviews foreign takeovers did not endorse it. The deal drew heavy criticism from lawmakers over the possibility of Chinese access to American user data, despite assurances from the Chinese company that it would take steps to make the data more secure.

https://www.nytimes.com/2018/01/09/business/att-huawei-mate-smartphone.html?partner=rss&emc=rss