The Morning Download: Blockchain Consolidation Phase Close at Hand, Hyperledger Chief Says

“At a certain point the investor community will realize that lightning might not strike more than a couple of times,” Mr. Behlendorf said. “That consolidation phase, I don’t know if it starts in 2018, but I think that is something that is imminent.”

So what comes next? It might be less about trying to create the next Ethereum and more about integrating the platforms that survive a shakeout. “If we can spend our money figuring out how we can talk about convergence in a way that still gives us all a business model going forward, and migrate our users, and go upstream,” he says. “There’s not much money to be made, in my opinion, in the foundation layer.”

DOWNLOAD EXTRA: CYBER PUNK

Debbie Harry, May 17, 2018, at The Morrison Hotel Gallery in New York, for the opening of The Age of Punk, a photo exhibit about the music club CBGB & OMFUG in the 1970s.

Debbie Harry, May 17, 2018, at The Morrison Hotel Gallery in New York, for the opening of The Age of Punk, a photo exhibit about the music club CBGB & OMFUG in the 1970s. Photo: LAURA ROSENBUSH

If you could ask one question of rock and roll singer and songwriter Debbie Harry, what would it be? CIO Journal had a brief conversation with her Thursday evening at The Morrison Hotel Gallery in New York, where she and Blondie co-founder and guitarist Chris Stein hosted the opening of The Age of Punk, a photo exhibit about the music club CBGB & OMFUG in the 1970s. Unable to fight the impulse to try and kill a good party, we asked her about the history of technology. Specifically, we wanted to know if she could describe the impact of digital technology on music during the course of her career.

Ms. Harry paused for a moment before she answered. “Yes,” she said. “There is a lot more product.”

TECHNOLOGY NEWS

Kroger makes bold push to boost online shopping. Kroger Co. has struck a deal with Ocado Group PLC, a British grocer known for its use of robots, to supercharge its online delivery business, the Journal’s Heather Haddon and Saabira Chaudhuri report. Thousands of robots at Ocado facilities communicate via 4G technology to pick groceries out of storage and fill as many as 65,000 orders a week. AI helps to continually optimize those operations.

Hundreds of bitcoin wannabes show hallmarks of fraud. In a review of documents produced for 1,450 digital coin offerings, The Wall Street Journal has found 271 with red flags that include plagiarized investor documents, promises of guaranteed returns and missing or fake executive teams.

Stock fotogs among crypto winners. The Journal found that at least five projects filled out their white papers or websites with executive images pulled directly from online stock photography or other sites.

China approves Toshiba’s $18 billion sale of memory-chip unit.The WSJ’s Kosaku Narioka calls the approval a possible gesture of goodwill as Beijing tries to stave off U.S. trade penalties. Bain Capital’s acquisition is set to be completed on June 1, Toshiba said.

Look inside ZTE smartphone and see it’s made in America. The export ban of U.S. technology to China’s ZTE Corp. has been devasting, with the telecommunications giant shutting down its major business operations. A peek inside ZTE’s Axon M smartphone explains why, the Journal’s Dan Strumpf reports. U.S. companies supply 60% of its electronic components.

Uber’s chief product officer Jeff Holden is leaving company. At Uber, Mr. Holden helped create its corporate values, which last year became a lightning rod for criticism following the company’s series of scandals including allegations of sexual harassment, the Journal’s Greg Bensinger reports. Of 16 executives running the company as a committee last year immediately after the departure of former CEO Travis Kalanick in June, seven have since left.

Cryptocurrency firms explore getting bank licenses. Coinbase Inc., which operates the largest U.S. cryptocurrency exchange, met with officials at the U.S. Office of the Comptroller of the Currency in early 2018. The Journal’s Ryan Tracy says a federal banking charter would let the firm swap a hodgepodge of state regulators for one primary federal one. The companies would also gain the option of directly offering customers federally insured bank accounts and other services.

An under-the-skin fitbit for chewing cud. Implanted under the skin of three cows in Utah are sensors designed to monitor body temperature, chewing activity and general activity. MIT Technology Review reports that the company behind the technology, Livestock Labs, hopes to one day bring subcutaneous sensors to humans.

Hempy McHempface. The Estonian town of Kanepi put it to the internet to decide what its symbol should be. The internet chose a cannabis leaf, the New York Times reports.

Put this in your pipe. Kanep in Estonian means cannabis, says the NYT.

WHAT YOUR CEO IS READING

‘Newton’ (1795) by William Blake. PHOTO: GETTY IMAGES/BETTMANN ARCHIVE
‘Newton’ (1795) by William Blake. PHOTO: GETTY IMAGES/BETTMANN ARCHIVE

Every week, CIO Journal offers a glimpse into the mind of the CEO, whose view of technology is shaped by stories in management journals, general interest magazines and, of course, in-flight publications.

Kissinger on how The Enlightment ends. At 94, the former national security advisor and secretary of state is almost old enough to remember when the first printing press hit the streets, paving the way for what we now call the Age of Enlightenment. “Individual insight and scientific knowledge replaced faith as the principal criterion of human consciousness,”Henry Kissinger writes in the Atlantic. Centuries later, humanity finds itself slipping into Age of Faith 2.0, this one defined by algorithms and data. “These algorithms, being mathematical interpretations of observed data, do not explain the underlying reality that produces them. Paradoxically, as the world becomes more transparent, it will also become increasingly mysterious,” he writes. Human cognition is set to lose its “personal character.”

Cybersecurity requires a step back. One way or another, it will happen. Air gaps will be bridged, firewalls breached and the cybersecurity staff worken by that 2 a.m. call. For the sake of security (and sleep), should companies drop the digital transformation schtick and go analog? Well, yes, kind of, suggests Andy Bochman, senior grid strategist at Idaho National Laboratory. Mr. Bochman recommends that companies move away from a “full reliance on digital complexity and connectivity.” An effort to identify “essential processes” and cut or even eliminate the digital pathways hackers could use to reach them, makes a company safer and senior leaders better able to weigh strategic cyber risks, he writes in Harvard Business Review,

When analytics efforts fail. Scaling analytics pilot programs remains out of reach for a surprising number of companies. In a recent McKinsey & Co. survey, just eight percent out of 1,000 respondents with analytics initiatives said they found success. Blame the boss, many of whom cannot differentiate between “traditional analytics,” such as business intelligence, and the “advanced analytics” made possible by tools such as machine learning. To fix the problem, McKinsey recommends that the CEO, CAO or CDO start educating the peers on analytics analytics. “These workshops can form the foundation of in-house “academies” that can continually teach key analytics concepts to a broader management audience.”

EVERYTHING ELSE YOU NEED TO KNOW

Mortgage rates this week jumped to their highest level since 2011, signaling a shift to a higher-rate environment that could slow home price appreciation and squeeze first-time buyers. (WSJ)

President Donald Trump’s trade chief said the U.S. is “nowhere near” a deal on Nafta. (WSJ)

Tesla and a large Chinese firm each struck new deals with lithium producers, the latest sign that are rushing to secure supplies of the material used in electric car and cell phone batteries. (WSJ)

President Trump acknowledged new doubts about the fate of his coming meeting with North Korean leader Kim Jong Un, expressing surprise over the uptick in harsh language from Pyongyang. (WSJ)

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Is China ready for what US could unleash in trade war?

As rumblings of a trade war between Washington and Beijing grow louder, the Trump administration appears to be gearing up for renewed confrontation with China.

The signs have been clear. Last month, Donald Trump’s move to slap punitive tariffs on solar panels and washing machines, mostly on imports from China, was an opening salvo, while the “renegotiation” of the Nafta and Korea-US (KORUS) free trade agreements has drawn the most attention.

It’s a matter of time before Trump and China embrace the TPP

But these moves are just a small part of the policy arsenal Washington could unleash under the banner of “national security interests” to monitor, control and block commercial activities between Chinese and American entities.

Watch: Trump’s new tariffs spark outcry in Asia

This month Wendy Cutler, a former US government trade official, made an ominous warning towards China, saying the tariffs were “just the beginning of a series of announcements that will be coming”.

There are a variety of show-stopping actions the administration could take, with little or no warning, including: blocking foreign acquisitions or deals with firms and industries Washington considers “nationally sensitive”; new or increased sanctions against individuals, companies and countries; and introducing new export licensing requirements for seemingly benign materials and components – causing rapid disruption to global supply chains.

Locked and loaded, China and the US are heading into a trade war

These scenarios fall under the lengthening shadow of what are known as strategic industries and economic security, through which more than a dozen US federal agencies enforce hundreds of regulations and restrictions.

Any enterprise that fails to realise the gravity of these measures will have calamity visited upon it. Take the example of Chinese telecoms firm ZTE, which recently paid out US$892.4 million in penalties to US government agencies. ZTE violated export controls and sanctions regulations on shipments of US origin materials to Iran and North Korea.

Despite being major trading partners – with all of the benefits this brings to both sides – Beijing and Washington are both pursuing increasingly self-serving agendas based on national security, and that seems destined to intensify.

Trump’s first year failed the China test. His second looks far worse

Important technology sectors have been pulled into the fray and the rivalry has spilled over into cyber warfare, espionage and the militarisation of space.

The consequences of this growing power rivalry are deadly serious. Recent reports of a supposed spy-killing campaign in China, reportedly instigated by Jerry Chun Shing Lee, a CIA-agent-turned mole – are a sobering reminder of this reality.

In the latest round of blocked Chinese business ventures, the US Federal Communications Commission (FCC) last month forced AT&T to back out of a major deal with the Chinese smartphone maker Huawei.

The deal would have made Huawei, the world’s largest maker of telecommunications equipment, a major supplier of phones to AT&T’s customers. However, the firm has long been suspected by US lawmakers of links to Beijing’s economic and political policy apparatus. Huawei’s founder, Ren Zhengfei, was an officer in the Chinese military.

Why a cooling in China’s economy would be a good thing

Although Huawei is a private company, most US authorities are convinced that virtually all big Chinese companies have murky ties to Beijing’s power circle. The thought of millions of American consumers using Chinese-made phones with secret “back doors” and data-tracking features written into the operating systems was enough to kill the deal.

Since 2012, Huawei had been blocked from selling network equipment to US telecommunications carriers, so the latest rebuff on telephone sales has dealt a major blow to the company, essentially locking it out of the world’s largest economy.

Another recent deal blocked on similar grounds saw Ant Financial, the fintech arm of Chinese internet giant Alibaba, which also owns the South China Morning Post, being barred from purchasing Moneygram, the US money-transfer company. The deal, worth US$1.2 billion, was killed by the Committee of Foreign Investments in the US, on the grounds that Chinese interests would have access to the private data of millions of Americans.

Sovereign wealth funds: just a way for China and Russia to flex muscles?

In the current climate in Washington, espionage and sabotage are on equal footing with the fear of losing competitive advantage in critical sectors, particularly in semi-conductors, artificial intelligence and robotics.

In September, the Trump administration took its first major action when it blocked Canyon Bridge Fund – owned by Chinese state-backed entities – from buying Lattice Semiconductor Corporation, a cutting edge American tech company. This trend will continue into 2018, and probably intensify, as Chinese firms increasingly target hi-tech acquisitions.

Watch: China-US relations in Trump era

Beijing, of course, is no stranger to blocking foreign companies from operating in its markets. Google, Facebook and Twitter have all been blocked from providing services in rulings motivated as much by security concerns as they were designed to protect local Chinese firms.

The only game in town? Why China will keep buying US Treasury debt

The Chinese are also said to have reacted to Edward Snowden’s divulgence of the NSA’s surveillance activities in China by excluding US vendors Cisco and Apple from approved government supplier lists.

How far will this all go? And will claims of national security serve as instruments of trade protectionism? No doubt, they will.

International businesses should get ready for a bumpy ride ahead.

Alex Capri is a visiting fellow at the Department of Analytics & Operations at National University of Singapore Business School

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Huawei and ZTE come under fire from FBI, CIA, NSA

It isn’t exactly a secret that the US government has a certain hesitancy when it comes to phones made by Chinese companies, but today, we’re seeing some top security official state that apprehensiveness outright. Many top security officials have come out and recommended that Americans avoid buying phones made by Huawei and ZTE. Such a recommendation won’t really come as much of a shock, and may even do something to solidify some recent rumors we’ve been hearing.

According to CNBC, six of the country’s top intelligence chiefs have advised the Senate Intelligence Committee that Americans shouldn’t buy phones made by Huawei or ZTE. That roster of intellgence chiefs includes some high profile people, including the heads of the FBI, CIA, NSA, and the US director of national intelligence. While these recommendations have existed in the past for those who work for the government, this is the first time that the agencies have advised private citizens on the matter.

By using these phones, FBI director Chris Wray argues, it opens up the potential for “foreign governments that don’t share our values to gain positions of power inside our telecommunications networks.” Some of the downsides Wray covers are things like undetected espionage, or the capacity to “exert pressure or control over our telecommunications infrastructure.”

Huawei, for its part, tells CNBC that it “poses no greater cybersecurity risk than any ICT vendor.” The company also noted that it is “trusted by governments and customers in 170 countries worldwide,” suggesting that this worry is unique to the US.

Huawei has been having a tough time trying to break into the US, and recent rumors claim that the US government is at least partly to blame. Last month, AT&T abruptly called off a deal to carry Huawei phones in its stores, and later reports stated this was due to pressure from the US government. We also recently heard that Verizon had dropped a similar deal, leaving Huawei to sell phones unlocked in the US.

Whether or not Huawei and ZTE deserve this apprehension is up for debate, but for now, it seems the US government isn’t interested in the perceived risks associated with having those companies gain a foothold in the market. We’ll see if that changes anytime soon, but given the looming threat of cyberwarfare, US security agencies are likely to stay the course for now. Stay tuned.

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Verizon Kills Plans For Selling Huawei Phones Following US Government Pressure

huawei mate 10 prohuawei mate 10 pro

Huawei has just experienced another setback in its efforts to partners with a major U.S. wireless carrier to sell its smartphones. Verizon was in discussions to sell smartphones from the Chinese OEM, but those talks have hit a brick wall. Huawei ran into similar trouble with AT&T earlier this year.

According to a new report from Bloomberg, U.S. lawmakers put pressure on both AT&T and Verizon to scrap any plans to sell Huawei smartphones to Americans. According to the government officials, there are serious concerns regarding Chinese spying and the possibility that backdoors could be installed on devices.

For its part, Huawei officials acknowledge that breaking into the U.S. market is a bit harder than previously expected. “The U.S. market presents unique challenges for Huawei, and while the Huawei Mate 10 Pro will not be sold by U.S. carriers, we remain committed to this market now and in the future,” said the company in a statement earlier this year following AT&T’s decision for to pull out of a deal.

At CES 2018, Huawei CEO Richard Yu reflected on his company’s troubles with U.S. wireless carriers. “Everybody knows that in the US market that over 90 percent of smartphones are sold by carrier channels,” said Yu. “It’s a big loss for us, and also for carriers, but the bigger loss is for consumers, because consumers don’t have the best choice.”

mate 10 bluemate 10 blue

Yu went on to explain that Huawei has had to prove itself time and time again since its inception. “We win the trust of the Chinese carriers, we win the trust of the emerging markets,” said Yu. “And also we win the trust of the global carriers, all the European and Japanese carriers.” Unfortunately for Huawei, the U.S. government isn’t receptive to its advances.

Despite striking out with America’s two largest wireless carriers, the company is not completely out of the game. Major U.S. retailers including Best Buy, Amazon, Microsoft, Newegg, and B&H will sell the Mate 10 Pro starting on February 18th. Pre-orders for the smartphone will kick off on February 4th.

Back in 2012, both Huawei and ZTE were labeled as security threats to the U.S. by the House Intelligence Committee. “Neither company was willing to provide sufficient evidence to ameliorate the Committee’s concerns. Neither company was forthcoming with detailed information about its formal relationships or regulatory interaction with Chinese authorities,” wrote the congressional panel at the time.

mate10 allmate10 all

“Huawei, in particular, failed to provide thorough information about its corporate structure, history, ownership, operations, financial arrangements, or management. Most importantly, neither company provided sufficient internal documentation or other evidence to support the limited answers they did provide to Committee investigators.”

More recently, the Trump administration has reportedly tossed around the idea of a nationalized 5G wireless network. The reason for such a network would be to fend off threats from countries like China and Russia. Cyberwarfare and cyberespionage are increasingly becoming problems in our always-connected world, and countries are looking for additional ways to fortify their defenses.

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Do ‘National Security’ Threats Signal The Beginning Of The End For US-China Trade Relations?

Photographer: Qilai Shen/Bloomberg

The Trump administration is gearing up for renewed confrontation with China on trade-related issues. Most observers have focused their attention on the threat of increased tariffs or the “renegotiation” and dismantling of existing free trade agreements.

In 2018, Washington could unleash a host of damaging policy weapons that have nothing to do with customs duties . Instead, the theme of U.S. “national security” will be invoked to monitor, control and block a broad range of commercial activities between Chinese and American entities.

There are a variety of show-stopping situations that could transpire—literally from one day to the next—which could disrupt cross-border commerce:

  • Blocked foreign acquisitions or deals with U.S. “nationally sensitive” firms and industries
  • Increased sanctions against individuals, companies and countries
  • New export licensing requirements for a growing list of seemingly benign materials and components.

These scenarios fall under the lengthening shadow of “SIES”—strategic industries and economic security. The U.S has more than a dozen federal agencies enforcing hundreds of SIES regulations and restrictions.

Any multinational enterprise that fails to realize the gravity of these measures will have calamity visited upon it. Just ask ZTE, the Chinese telecoms company that recently paid $892 million to various U.S. government agencies. ZTE violated export controls and sanctions regulations on shipments of U.S. origin materials to Iran and N. Korea.

Despite being major trading partners—with all of the upside for business and investment—Beijing and Washington are both pursuing primarily self-serving agendas. It’s an unpleasant truth, but the national security dimension of the relationship is destined to intensify. Key technology sectors have been pulled into the fray of the China-U.S. rivalry, with spill over into the realms of cyber warfare, espionage and the militarization of space.

The consequences of the growing U.S.–China power rivalry are deadly serious . Recent reports of a spy-killing campaign in China, instigated by a CIA-agent-turned mole, are a sobering reminder of this new reality.

U.S. blocks Huawei and Ant Financial business deals

In the latest round of blocked Chinese business ventures in the U.S., the Federal Communications Commission (FCC) forced AT&T, the U.S. telecoms giant, to back out of a major deal with the Chinese smartphone maker Huawei. The deal would have made Huawei a major supplier of phones to AT&T’s customers—and opened up a major new market for Huawei.

(Photo by David Becker/Getty Images)

Huawei, is the world’s largest maker of telecommunications equipment. But it has long been suspected by U.S. lawmakers to be linked to Beijing’s economic and political policy apparatus. The founder of Huawei, Ren Zhengfei, was an officer in the Chinese military. Although Huawei is a private company, most U.S. authorities are convinced that virtually all big Chinese companies have murky ties to Beijing’s power circle. The possibility of millions of American consumers using Chinese-made phones with secret “back doors” and data tracking features written into the operating systems was enough to kill the deal.

Since 2012, Huawei had been blocked from selling network equipment to U.S. telecommunications carriers, so the latest rebuff on telephone sales has dealt a major blow to the company, essentially locking it out of the world’s largest economy.

Also in recent weeks, Ant Financial, was blocked from purchasing MoneyGram , the U.S. money-transfer company. The deal, worth $1.2 billion, was killed by the committee of foreign investments in the United States (CFIUS), on the grounds that Chinese interests would have access to the private data of millions of Americans.

More on Forbes:Alibaba’s Failed MoneyGram Deal Shows How China’s Payment Wars Are Spilling Over Into U.S.

Earlier in the year, U.S. government agencies were barred from buying cybersecurity software from the Russian firm Kaspersky Lab, the result of growing fears about pervasive Russian spying in the U.S.

Security fears everywhere

For Washington, espionage, and sabotage are on equal footing with the fear of losing competitive advantage to foreign adversaries in critical sectors, particularly in semi-conductors, AI and robotics.

Last year, the Trump administration took its first major action when it blocked Canyon Bridge Fund—with ownership by Chinese state-back entities– from buying Lattice Semiconductor Corporation, a leading edge American tech company. This trend will continue into 2018, and probably intensify, as the Chinese have increasingly targeted high-tech firms for acquisition.

Related:As Chinese Investment In U.S. Increases, So Too Does Scrutiny

The Chinese are said to have reacted to Edward Snowden’s divulgence of U.S. government surveillance activities in China by excluding U.S. vendors Cisco and Apple from approved government supplier lists.

(Photo by Arif Hudaverdi Yaman/Anadolu Agency/Getty Images)

Beijing, of course, is no stranger to blocking foreign companies from operating in its markets. Technology companies such as Google, Facebook and Twitter come to mind. These decisions were motivated by security concerns within the ruling party, as much as they were designed to protect local Chinese firms.

How far will this all go? And will claims of national security serve as instruments of trade protectionism? No doubt, they will.

Prudent businesses would be well advised to be ready for anything.

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Lawmakers Urge AT&T to Cut Ties with Huawei, Citing National Security Concerns

huawei

The Chinese phone manufacturer Huawei is bidding to snap up market share in the United States, but lawmakers in Congress are urging AT&T to cut its ties to the phone manufacturer and work with other companies. It’s not the first time Huawei’s government ties have caused heartburn on Capitol Hill, and it comes just a week after Huawei’s US launch of the Mate 10 was reportedly scrubbed at the last second.

These new allegations are from Reuters, which reports US lawmakers also oppose plans from the Chinese telecom China Mobile Ltd to enter the US market. Issues identified by the regulators as problematic also include an AT&T-Huawei collaboration over the emerging 5G standard and AT&T subsidiary Cricket selling Huawei phones as well. Apparently the problems are serious enough that lawmakers have been warning corporations that deploy Huawei hardware that they may not be eligible to work on government contracts.

Huawei’s global market share has risen sharply over the past few years, including strong gains in a matter of months.

If you’re thinking this all sounds rather familiar, well, you’d be right. Both the Trump and Obama Administrations have sounded similar warnings on Huawei over the years. The result is a US smartphone market that’s somewhat different from the globe as a whole. Samsung and Apple are still the top two device manufacturers worldwide, but from there the list diverges. Globally, Huawei, Oppo, and Vivo round out the top five (Others claims a 41.7 percent share of the market). In the United States, LG, Motorola, and HTC round out the top five, or did as of a year ago.

In 2012, both Huawei and ZTE were the subject of a US government investigation into whether their networking equipment and mobile phones offered loopholes or backdoors that could be exploited by actors working for the Chinese government. The government found neither company’s responses sufficient, but hammered Huawei in particular for failures in transparency. Huawei refused to explain aspects of its corporate structure, its ties to the Communist Party, the results of a 1999 tax fraud audit, the situation in which that audit was dropped, or any financial documents that would support Huawei’s claim to operate as a completely independent entity from its parent organization.

While none of Huawei’s potential US partners have said much about the report, Huawei and ZTE handsets remain rarities in the US market. And in a way, that’s a shame. The US market could benefit from better competition in handsets, particularly at the lower end where low-cost Android devices now offer surprisingly good performance for your dollar. Unfortunately, the past few years has also emphasized both the pervasive security problems posed by mobile devices (including the IoT) and the degree to which cyberwarfare has decidedly real-world consequences. From disinformation campaigns to attacks levied at specific sites or companies, things have gotten more heated. The last thing we need is to deliberately invite such problems to take root.

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US security concerns could stall Huawei’s and ZTE’s 5G expansions

Will U.S. citizens get their first 5G phones from Huawei or ZTE? Not if Congress has its way.

Over the past week, members of Congress have been getting tough on the two Chinese companies, formally identifying both as threats to national security following years of investigations. Today, Reuters reported that unidentified U.S. lawmakers asked AT&T to stop collaborating with Huawei on standards for its next-generation 5G network, and cut ties to Huawei altogether.

The report follows U.S. Representatives Michael Conaway’s and Liz Cheney’s introduction of the Defending U.S. Government Communications Act, a bill to bar the U.S. government from using or contracting with Huawei and ZTE, after a House intelligence committee report concluded that their products were insecure for government and military use.

In the works since well before a September House hearing on Huawei and ZTE, the Congressional actions appeared to coincide with ZTE’s claim at CES that it would launch its first 5G phone in the United States by early 2019 and AT&T’s unexpected decision to kill plans to start selling Huawei phones in this country.

Today’s report suggests that AT&T walked away from Huawei under pressure from government regulators, who were most likely lobbied by the same members of Congress involved in the investigation. It’s unclear whether or how much AT&T was collaborating with Huawei on 5G; the company was reportedly working with Qualcomm and Ericsson prior to announcing its end of 2018 5G network plans, but could easily have had other partners.

There is good reason to be concerned about the security of cellular networks. As VentureBeat reported last week, the upcoming U.S. launches of two 5G networks will mark the beginning of a long-planned drive to put 5G cellular radios everywhere, and within everything.

Designed to add connectivity to billions of devices — securely — 5G is also expected to serve as the networking technology inside next-generation cities and car traffic infrastructures. Consequently, if a foreign government had a secret back door to infiltrate 5G networks, it could take control of entire cities, including all of their 5G-connected devices and vehicles.

That nightmare scenario is the flip side of the “ubiquitous 5G” dream, and the precise reason 5G was built with new security protocols. As Ericsson noted in a 5G security white paper, the ubiquity of 5G will turn virtual vulnerabilities into tangible public safety threats, so 5G networks demand extra protections: integrated attack resistance, multiple layers of encryption, integrity protection against injection or modification of traffic, and authentication superior to username/password combinations, just to name a few. Today, LTE networks running compromised equipment or software can be susceptible to intrusions, and even networks with solid hardware can be taken down by one or more inexpensive devices.

While Trump administration protectionism might otherwise be blamed for the recent Congressional actions, investigations into Huawei’s and ZTE’s potential threats to critical U.S. infrastructure date back to at least 2012, when 60 Minutes and the aforementioned House report spotlighted the concerns. Although ZTE and Huawei are supposedly private companies, ZTE is state-owned and was founded by investors associated with China’s aerospace ministry; Huawei was started by an ex-Chinese military engineer, and has what has been described as an “opaque” corporate structure. Both are suspected of covert ties to the Chinese government, and neither would explain why Chinese Communist Party committees had been set up within their business structures.

In recent years, both companies have been investigated for breaking U.S. laws: Huawei has been accused of assisting an alleged elite cyberwarfare unit of China’s army, as well as bribery, corruption, and immigration violations, while ZTE pled guilty to selling sanctioned computer equipment to Iran, and allegedly obstructed an investigation into the sales.

At the same time, both companies are in the top five for global telecom equipment sales, with significant supply contracts for overseas governments. Their continued growth depends in part upon the United States market, but given the directions Congress is taking, the likelihood of seeing either company making major inroads here has just dropped significantly.

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New Bill to Ban US Government Use of Huawei and ZTE Tech

Proposed by Texan Republican representative Mike Conway, the Defending US Government Communications Act, if enacted would prohibit the US government “from working with service providers that use any equipment from (Huawei or ZTE) for security reasons.” This ban would also extend to any entity that the head of the relevant agency reasonably believes to be controlled or connected to the Chinese government.

Conway commented that “Chinese commercial technology is a vehicle for the Chinese government to spy on United States federal agencies, posing a severe national security threat.”

Cited in the bill was General Michael Hayden, who served as Director of the Central Intelligence Agency and Director of the National Security Agency, he stated in July of 2013 that Huawei had “shared with the Chinese state intimate and extensive knowledge of foreign telecommunications systems it is involved with.”

Extracts from the bill included material from the FBI Counterintelligence Strategy Partnership Intelligence note that asserted that expanded use of Huawei technology equipment and services in US telecommunications significantly increased the risk of the Chinese government accessing US business communications, “China makes no secret that its cyber warfare strategy is predicated on controlling global communications network infrastructure.”

A Headache for Huawei

No doubt this act will be unwelcomed by Huawei, the world’s third-largest smartphone manufacturer and the biggest seller of telecoms equipment after Apple and Samsung, as it will make their task of reaching the US market more laborious. This comes as a further disappointing blow after US mobile carrier AT&T announced last week that it was pulling out of a deal to sell Huawei’s smartphones.

AT&T had come under pressure from US politicians and the Federal Communications Commission (FCC) to halt the deal. Despite this Huawei has said it still plans to continue to launch the Mate 10 Pro without a US Carrier Partner. For now, it will have to rely on selling unlocked devices through online channels.

Huawei’s Hopes For the Future Frustrated

While the US has cited numerous potential security threats from companies like Huawei, Android Authority points out that the “decision protects manufacturers and Apple from a strong competitor muscling in.” If allowed to enter the US market with US government backing, Huawei could have had a significant impact in America and possibly realised its goal of overtaking Apple.

Before the collapse of the AT&T deal and the new bill, Ken Hu, chief executive of Huawei had optimistically predicted in his New Years message that revenue would rise 15%, to earn 600 billion yuan in 2018.

In a 2017 interview with CNBC, Francisco Jeronimo, research director for European Mobile devices at IDC, said: “Huawei is today the biggest challenger to Apple and Samsung. Indeed, they are growing very fast. They will probably overtake Apple in the smartphone business, either this year or next year.”

Huawei is already the second-biggest smartphone supplier in several European countries, including Finland, Italy and Spain. In 2017 it shipped 153 million smartphone units worldwide. According to Business Insider UK, Chinese smartphones hold more appeal as they have a similar level of quality at a fraction of the cost.

Previous Moves to Limit Chinese Telecoms

This isn’t the first time the US has taken steps to limit China’s access to the US market over fears of illicit behaviour. In 2017, Chinese electronics giant ZTE was in 2017 fined over $1 billion after admitting it had violated US-Iran sanctions by shipping product from the US to Iran.

Huawei and ZTE aren’t alone, earlier this month the Committee on Foreign Investment in the United States (CFIUS) blocked Chinese firm Ant Financial’s $1.2 billion purchase of US money transfer business Moneygram, citing fears over Chinese espionage against US military personnel, who use the service.

The US is not alone in this approach, in 2013 Australia upheld its ban on prohibiting Huawei bidding on contracts for the country’s National Broadband Network similarly citing cyber security as the reason.

A Long Way to Go

The bill is far from becoming law, it still has to pass the committee stage, then the House and Senate before it can be signed off on by the President. However, if it does manage to navigate the copious amounts of red tape required it will be interesting to see how this impacts US-Sino relations.

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