US tech leaders, and almost anyone else, banned from associating with ZTE

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.

US - ZTE - 17.04.18All 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 DoC’s decision.

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 environment". 

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 decades.

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 Congress. 

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 hub. 

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 Planning. 

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 noted.

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 those suppliers.

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 government."

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 licence. 

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 organisations.

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. 

Topics: ZTE, DoC, Department of Commerce, embargo, Cisco, Dell, Intel, Microsoft, Oracle