17 April 2018
| Alan Burkitt-Gray
It is now illegal for US technology companies such as Cisco, Dell, Intel, Microsoft, Oracle, Qualcomm and Symantec to trade with ZTE after a US government ruling.
All seven were identified last year
as supplying hardware or software to the Chinese equipment
maker, which the Department of Commerce (DoC) yesterday named
as a Denied Person.
Now, telecoms projects across the world, including Europe,
Asia, Africa and the Americas, will be impacted by the
The ruling (PDF here), which included
ZTE’s "successors, assigns, directors, officers,
employees, representatives, or agents", means that the company
"may not, directly or indirectly, participate in any way in any
transaction involving any commodity, software or technology
… exported or to be exported from the United States that
is subject to the regulations".
In a terse response, the Chinese company said: "ZTE is aware
of the denial order activated by the United States Department
of Commerce. At present, the company is assessing the full
range of potential implications that this event has on the
company and is communicating with relevant parties proactively
in order to respond accordingly."
Only a month ago ZTE, whose shares are listed on the Hong
Kong and Shenzhen exchanges, said its full year revenue for
2017 was 7.5% higher than 2016’s result. Net
profit was up 293% on the year. The company has now halted
trading in its shares.
The DoC’s seven-year ban will hit ZTE hard.
Only last year the company showed off a pilot 5G handset using
Qualcomm technology that it had tried out in a project with
China Mobile. Qualcomm and the other US tech companies will no
longer be able to get export licences from the US to sell their
hardware and software to ZTE.
In what looked suspiciously like a coordinated move, Ian
Levy, technical director of the UK’s National
Cyber Security Centre (NCSC) issued a warning to British telecoms
operators "regarding the potential use of ZTE equipment and
services in the UK telecommunications infrastructure
The NCSC is a division of Government Communications
Headquarters (GCHQ), the British spy agency that has been a
partner of the US National Security Agency (NSA) for
Levy’s warning was leaked to the Financial
Times just minutes before the DoC issued its own ruling
about ZTE. Clearly UK carriers will be responding directly to
the warning from a division of the UK government, though
Vodafone was unwilling to comment to Capacity.
In a carefully worded statement, BT said: "ZTE is just one
of many research partners with which BT is engaged around a
number of joint projects. Such projects focus on the future
uses of networks and technologies and do not necessarily result
in the commercial deployment of the research
partner’s kit in our network.
"BT takes the security of the UK’s critical
national infrastructure very seriously and has a robust testing
regime in place to ensure that the equipment from all suppliers
used in our network remains secure."
However, the impact of the DoC ruling will be global. Major
US carriers are already blocked from using ZTE kit in their
networks, thanks to years-old security worries from
Many carriers are known through previous announcements to
use ZTE equipment or software. All will now be looking at the
impact on their business.
All three large Canadian operators – Bell Canada,
Rogers and Telus – use ZTE’s MF275R home
Orange announced in November 2017 that its operations in
Cameroon, the Central African Republic and the Democratic
Republic of the Congo will use a unified billing platform from
the vendor’s software division, ZTEsoft.
In the same month Germany’s Breitbandversorgung
Deutschland (BBV) – which means "Broadband Service
Germany" – said it has a "two-digit million [euro]
amount" for a rural fibre project using ZTE kit.
Also in November, Telefónica announced that it was
testing ZTE’s 5G transport technology at its
Future Networks Lab in Madrid. Telefónica’s
global CTO, Enrique Blanco, did not respond to
Capacity’s request for comment.
In October 2017 Japan’s SoftBank said it had
successfully transmitted data at almost 1Gbps in a trial in
Nagasaki working with ZTE on a project called Wireless City
In June 2017 ZTE said it had won 75% of a project to build a
100Gbps backbone for Thailand carrier True.
In May 2017 Greek prime minister Alexis Tsipras announced in
Beijing that ZTE would be the main technology partner for
Forthnet’s plan to spend €500 million on a
Greece-wide fibre network. The project was for €350
million to be spent in the next three year and the other
€150 million in the following four years.
And in January 2017 Telekom Austria Group’s
Belarussian unit Velcom launched a virtualised core network
that was built by ZTE with architectures using OpenStack-based
NFV and standard off-the-shelf hardware.
But the DoC’s decision will have industry-wide
ramifications – especially as ZTE has a leading role
with other vendors in the development of 5G specifications and
technology: a development that is nearing completion over the
next two years.
Just last Friday ZTE proudly announced that it would provide
the chair of a 5G connected-vehicle standards group run by the
US-based Institute of Electrical and Electronics Engineers
(IEEE). ZTE staff are also involved in European
Telecommunications Standards Institute (ETSI) work, the company
Why is ZTE in such a plight? Because in 2016 the US
discovered documentary evidence that it was breaking embargoes
by smuggling kit into Iran via a number of shadow companies.
All kit included US-originated hardware and software, in
contravention of the terms of the licences ZTE had agreed with
After much wrangling, ZTE agreed in early 2017 a fine of
$1.19 billion, though $300 million of that was suspended for
seven years as a guarantee of future good behaviour. It agreed
to sack a number of leading executives, including those whose
signatures were on the documents unearthed by the DoC. And it
said that it would reprimand 39 other staff who were connected
with the Iranian scheme.
But, says the DoC, the letters of reprimand were not sent
until about a month after it asked about progress in early
February 2018 – and, contrary to ZTE’s
promise, they had received bonuses.
The DoC called this "ZTE’s pattern of
deception, false statements, and repeated violations of US
law". The false statements from ZTE "violate the settlement
agreement" of 2017, said the DoC.
ZTE asked for extra time, but the DoC said: "Giving ZTE
additional time to complete its internal investigation will not
erase the company’s most recent – in a
series – of false statements to the US
Under the new ruling ZTE is banned until March 2025 from
applying for a licence or export control document or from
buying, selling or servicing anything that requires a US
No one is allowed to facilitate "the acquisition or
attempted acquisition by a denied person of the ownership,
possession, or control of any item" that requires a US licence.
And ZTE staff and agents are all denied persons.
It’s subject to legal interpretation, but that
ban might well block ZTE’s participation in
international standards groups or even conferences and other
events in the US or involving US citizens and
Will ZTE survive the DoC’s onslaught? The
company has already – a year ago – come to
one agreement with the US after being found to break the rules.
Now, says the US, it’s broken them again. This
time the US may not be so forgiving. And ZTE has to pay that
extra $300 million fine, currently held in escrow.
Department of Commerce,