Another China cyber-security flap

The Pentagon’s purchase of bandwidth on the majority Chinese-owned Apstar 7 satellite has prompted another bout of Washington handwringing.

Mike Rogers, the GOP Congressman who led the inquiry into Huawei last October, has complained that it “exposes our military to the risk that China may seek to turn off our ’eyes and ears’ at the time of their choosing.”

The US Defence Department’s Africa Command tapped Apstar 7 through a satellite contractor, Harris CapRock Communications, last May.  The contract expires on May 14, with an option for a three-year renewal.

HKSE-listed APT Satellite is 61%-owned by the state-owned China Satellite Corporation, according to Bloomberg.

Same old story. If it’s China government-linked, it’s a security threat.

Would a commercial satellite operator truly wish to threaten its business by hacking into its customers’ data?  Certainly, the Singaporeans and Taiwanese who are also investors and make up a third of the APT board would be unimpressed, as would other customers and stockholders.

If there’s a slight surprise here it is that the US military’s routinely uses commercial satellites for much if not a majority of its unclassified communications.

Steve Hildreth, a military space policy expert with the nonpartisan Congressional Research Service, said in an e-mail that U.S. officials have told him “a very high percentage of U.S. military communications use commercial satellites on a regular and sustained basis.”

“The U.S. military does not have major concerns with this arrangement,” he said.

So the Pentagon, which knows a thing or two about security, figures that it's encrypted and it's not highly sensitive, so why not take advantage of a cost-effective commercial service like we usually do?

China might be a well-documented source of network attacks, but that doesn’t mean every Chinese company is a security threat. The recent Mandiant report, for one, specifically fingered a PLA hacking team and not companies like Huawei or APT.

As this blog has argued before, such evidence-free grandstanding merely reinforces the Beijing view that the US is using the issue to bully China.

If you still think this is anything but rolled-gold BS, then how about Rogers linking it to sequestration, the budget cuts forced on the Obama Administration primarily by the recalcitrance of he and his Republican colleagues?

Referring to the sequester, he told Bloomberg that the use of a foreign commercial satellite “sends a terrible message to our industrial base at a time when it is under extreme stress.”  Right. Instead of cutting costs as the GOP demanded, the Pentagon should be ponying up to build more satellites. That's really off the planet.

Huawei's brave new world

Huawei’s abandonment of the US market and the trimming of its enterprise sales forecast are the biggest news items out of its annual analyst event in Shenzhen Tuesday.

Yet in both case there is less than meets the eye.

Huawei is not going to win any major US network deals in the current Washington environment, so the remarks by executive VP Eric Xu merely reflect reality. And it certainly has a handset business there.

It might have cut the topline forecast for its new enterprise group, but it's still aiming for a hefty $10 billion in sales by 2017 – equivalent to three-quarters of ZTE’s total revenue last year.

For me, the biggest take-outs are twofold: Huawei’s diversification looks to be on track; but to succeed it has to go where almost no other B2B company has gone in creating a global brand.

On diversification: the enterprise business unit in its second year grew 26% in 2012 and has target growth of 45% this year. Assuming that growth remains profitable, the 2017 target looks achievable.

By that time the company hopes to reduce carrier equipment sales to just 60% of total revenue, compared with 73% last year, and increase handsets to 25% (22% for the past two years) and enterprise to 15% (5%).

On the brand: In a frank presentation, Shao Yang, Huawei's devices chief, said building the brand would be harder than developing the software and hardware. The Interbrand CEO told him there wasn't a single brand on the Interbrand 100 that was big in both B2B and B2C (IBM was the closest). And Huawei doesn’t have anything like Samsung’s $12.5 billion budget.

I’ll be posting more about Huawei here and at Light Reading in the next couple of days.

Aust PM hints door is still open for Huawei

Just months after it declared Huawei a security threat, the Australian government now appears to be inviting the Chinese vendor back into the market.

Australian Prime Minister Julia Gillard has encouraged the company to "seek opportunities to grow its commercial business in Australia,” according to a Huawei account of her meeting with Huawei chairwoman Sun Yafang in Beijing on Tuesday.

In a press conference later, Gillard was less effusive, simply stating that Huawei was a major employer and had a substantial business in Australia.

But Gillard’s private meeting with Sun, at the end of a series of high-profile meetings with Chinese leaders, suggests the government has not closed the door on the Chinese firm, even though it has been ruled out of the NBN project.

Australia is significant because it is a junior partner in the US-led security alliance and is the only country other than the US to have blocked Huawei from major contracts on security grounds.

In Britain, the biggest US ally, Huawei is helping BT roll out its fibre network. A UK parliamentary committee review of Huawei, due to conclude by last Christmas, appears not to have made any adverse findings.

In another win for Huawei in a country close to the US, it yesterday was awarded Telecom NZ's major LTE contract, replacing 3G supplier Alcatel-Lucent.

A quick guide to s how Huawei stacks up among key agencies in the US and its allies:

FOR: White House, UK government, NZ government

AGAINST: US Congress, Pentagon, MI5, ASIO

UNDECIDED: Australian government, Canadian government.

Solving the WeChat problem

Once again, Tencent boss Pony Ma says he won’t be charging for WeChat, according to this Reuters report.  That’s been his stance ever since the story broke in February.

Ma might be in denial, he might be reassuring customers, or perhaps positioning himself ahead of the inevitable user backlash.

But his repeated claim that customers won’t be paying for apps may also points up to a solution - namely that Tencent, and not users, pays the fee to operators.

This is premised on the idea that the charge is necessary because of the extra network costs borne by the cellcos, and in particular China Mobile. When MIIT boss Miao Wei last week confirmed the charge was being planned, he explicitly couched it in those terms.

He certainly didn’t say it was because WeChat app was eroding traditional revenue source.

One reason he wouldn’t say that is because China Telecom and China Unicom have no issue with WeChat – it’s driving data traffic and China Mobile’s customers to them.

Another reason is that, like Ma, he could be trying to avoid the outcry when 300 million consumers discover they’ve lost a favourite service.

In this context it’s worth remembering that he has left it to the operators to work out the details of the charging scheme. A nice bit of footwork.

Of course, it may be that the MIIT is totally on-board with this and sees it as a means not just to shore up the operators’ businesses, but also of reining in other unruly apps.

If that is so it would certainly open up a fresh internet battlefront, but on what we know it seems unlkely.

The path of least resistance is for Tencent to pay a fee to help cover the network costs. This will hurt Tencent a little, but a paid-app arrangement will damage everyone.

WeChat fee 'likely', says MIIT chief

China’s telecom regulator has confirmed it is planning to impose a fee on the free OTT app WeChat.

Miao Wei, the head of China’s Ministry of Industry and Information Technology, told the financial publication Caixin Sunday that the demands by operators for the fee were “very reasonable” and it was “likely” to go ahead.

“The operators say ‘I maintain such a huge network, [but] I still need to invest and to operate. Apart from traffic [fees] there still should be these kinds of charges – that is sensible and reasonable,” Miao said.

Miao’s remarks follow weeks of speculation over the fee, which was reportedly discussed at a meeting between WeChat operator Tencent, the MIIT and operators in February.

But paid WeChat is a long from being a done deal. Miao and the three unloved state-owned operators will need to overcome opposition from WeChat’s 300 million users, not to mention 1.1 billion mobile consumers long disenchanted over pricing and services.

“The WeChat fee will become the most serious battle so far over China’s internet,” Chinese web entrepreneur Fang Xingdong today declared on Sina Weibo.

To win the argument Miao will have to do better than to merely claim that WeChat was “certainly not free” because users are already charged for bandwidth.  Consumers will be asking why they need to pay again if the bandwidth was already paid for.