China Unicom Blocks Cisco in Tit-for-Tat Cyber Spying Row

U.S. allegations of spying against Chinese telecom vendors have turned into a tit-for-tat spying row. Citing cyber spying concerns, China Unicom has barred Cisco from its Internet backbone network, according to Chinese media reports. Echoing accusations the U.S. made against Chinese companies a few weeks earlier, China’s second largest mobile operator fears Cisco equipment raises the potential for security vulnerabilities and backdoors in U.S.-made switches.

Under heightened security concerns, the use of equipment made by foreign vendors in critical infrastructure networks is coming under suspicion. In October, Cisco competitors Huawei Technologies Inc. and ZTE Corp. were labeled national security threats by the U.S. House Permanent Select Committee on Intelligence. The report cited concerns over the potential for China to embed backdoor equipment in U.S. communications infrastructure. This equipment, the committee feared, could be used for commercial and government espionage and to disrupt the U.S. communications network. The military background of Huawei’s executives and suspected links to the China People’s Liberation Army were cited as red flags.

China Unicom’s action escalates security concerns over communications networks into a tit-for-tat cyber spying row. The ramifications of locking out Cisco is certain to impact the competitive landscape. Cisco’s gear is entrenched in 70 percent of China’s telecom infrastructure. If the fallout from the House report on Huawei and ZTE is any indication, Cisco is likely to feel a commercial backlash in China, and possibly elsewhere in Asia. As a result of the report’s accusations, Huawei and ZTE have experienced a fall off in sales in the US, Canada, and Australia and New Zealand.

Huawei representatives are strongly denying the charges. Nonetheless, efforts to build a stronger U.S. channel are experiencing a setback. Most U.S. companies have distanced themselves from Huawei due to the security and corporate espionage concerns. U.S. solution providers are less apt to buy products from a foreign company labeled a security threat, according to a Channelnomics poll. At the same time, the respondents viewed foreign competition as good for the economy.

Huawei is now focused on working with solution providers to promote its data networking and storage products. Added security measures by the U.S. should be good news for Huawei. Clearwire Corp., for example, recently received government permission to use Huawei equipment in its broadband network. The security screening may reinstate confidence in Huawei equipment.

The cyber spying row has spilled over into trade relations. Trade sanctions could be used as a further retaliatory measure, leading to a trade war. The House intelligence report was viewed by some as a form of trade isolationism. (CL) Link