The report by the U.S. House of Representatives' Permanent Select Committee on Intelligence said the possibility of ties between the two companies and the Chinese government raised the danger of China using their gear to conduct electronic espionage. It advised U.S. companies not to buy equipment from the two companies. Huawei and ZTE have contested the report's conclusions.
The committee said it compiled the report after Huawei requested such a study last year. The company sought to defend itself against allegations that it was partly owned or influenced by the Chinese government. Huawei and ZTE both have been targets of U.S. government pressure in the past, leading to Huawei's dropping its bid for a small security software company last year and regulators blocking a purchase of 3Com by Huawei and Bain Capital in 2008.
Partly because of that opposition, Huawei and ZTE have not made significant inroads into the biggest U.S. carrier networks despite being major competitors in much of the rest of the world. But the report named several customers that have bought at least some equipment from Huawei. On Tuesday, three of those companies defended their choices, saying they took steps to make sure their networks were secure.
Clearwire, which runs the national WiMax network used by Sprint Nextel and is now working on an LTE system, said it buys some of the radios for the edge of its WiMax network from Huawei. The Chinese company is just one of four vendors supplying those radios, alongside Samsung Electronics and Nokia Siemens, Clearwire said in a statement.
The edge radios aren't directly connected to the core network systems that manage and process traffic on the network, Clearwire said. But the carrier takes security precautions in any case.
"Among other things, we require each of our infrastructure vendors to submit their equipment and software to extensive testing by a leading third party recognized for vetting critical infrastructure systems for security purposes before incorporating it into our network," Clearwire said.
Cricket Communications, a national low-cost cellular carrier, also said it uses network gear from multiple vendors. A majority of its network is not built with Huawei equipment, Cricket said in a statement. The company said it has systems to monitor its network and identify intrusions. "We are respectful of the committee's findings and will consider them carefully and thoughtfully," Cricket said.
Global wired backbone provider Level 3 wouldn't comment on Huawei in particular but said it has an extensive security system to safeguard its network.
"Telecommunications gear and the components used in making that gear come from all over the world," Level 3 said in a statement. "We follow a stringent set of security protocols that includes extensive testing and monitoring of all vendor equipment."
It's common for service providers to go to multiple vendors for network equipment, to avoid dependence on one vendor.
Cable giant Comcast and two other service providers the report names as Huawei customers -- Suddenlink and Oregon's Bend Broadband -- said they were studying the report. Cox Communications, also named in the report, said it had picked Huawei as a supplier for cellular gear but later dropped its plan to build a cellular network.
Also on Tuesday, the Chinese government slammed the congressional report.
Commerce Ministry spokesman Shen Danyang said in a statement that the report "was based on subjective suspicions and inaccuracies," and that it had made "groundless accusation against China" in the name of national security. He said the report would undermine cooperation between U.S. and Chinese enterprises.
"We hope that the U.S. will abandon practices that discriminate against Chinese companies, and that it will adhere to principles of openness and cooperation," Shen said.
The report further dims the prospect of a Wall Street initial public offering by Huawei, according to one IPO observer. The company has been exploring a possible IPO, partly to provide more transparency that could foster greater trust within the U.S., according to the Wall Street Journal. Sam Hamadeh, CEO of private-company information source PrivCo, said the report probably further discounted the sum Huawei might raise in an offering.
"Even before the news in the last 24 hours, an IPO wasn't likely," Hamadeh said. "That sort of declaration by a Congressional panel is exactly the kind of thing that would frighten off investors." One financial concern may be that the panel's report could cause a domino effect in which other countries raise alarms on the same issues, he said. But Huawei might yet launch an offering in Hong Kong or London, Hamadeh said.
