Bloomberg News

Canada Said to Consider Telecom Security Restrictions

March 27, 2013

Canada Said to Consider Security Rules Amid Huawei Concern

The reverse side of a Huawei Technologies Co. Ascend P2 smartphone is displayed for a photograph at the Mobile World Congress in Barcelona. Huawei, based in Shenzhen, China, was founded in 1987 by Ren Zhengfei, a former technician in the People’s Liberation Army. Photographer: Angel Navarrete/Bloomberg

Huawei Technologies Co., China’s largest phone-equipment maker, may face additional restrictions selling its products in Canada as the federal government considers new regulations on foreign wireless suppliers it deems security risks.

Prime Minister Stephen Harper’s government is reviewing whether it needs rules to govern the equipment used by the country’s biggest mobile-phone operators, and has been consulting industry officials, said a person familiar with the matter. While the review isn’t singling out any company, Huawei, which supplies both Telus Corp (T) and BCE Inc. (BCE), the country’s largest telephone company, has already been barred from providing gear for government networks, Trade Minister Ed Fast said this month.

“It’s a manageable risk if you can implement some verification systems and accept that suppliers like Huawei are working to try to be as transparent as possible,” said Ray Boisvert, former assistant director of intelligence at the Canadian Security Intelligence Service, the country’s spy agency.

The review comes as Western nations increasingly view cyberattacks as a top security threat. Computer-based sabotage moved past terrorism to take top place in the U.S. intelligence community’s annual list of global threats, which also includes Iran’s nuclear program and the Syrian government’s chemical arsenal.

Canada could require that suppliers have their software code verified by third parties and be subject to random audits, Boisvert said.

‘Pay Attention’

Canada is aware of security concerns surrounding foreign wireless equipment providers, said Industry Minister Christian Paradis. “This is something that we clearly have to pay attention to,” Paradis said in a March 26 interview at his office in Ottawa. He declined to say what the government is doing about its concerns.

A U.S. congressional committee said in October that Huawei and ZTE Corp. (000063) provide opportunities for Chinese intelligence services to tamper with telecom networks for spying. The U.S. barred it in 2011 from participating in building a nationwide emergency network. Still, the company supplies U.S. telecommunications companies including Clearwire Corp. (CLWR:US), a Bellevue, Washington-based wireless Internet provider.

Traffic Surge

A decision by Canada to impose tighter security measures could drive up costs for carriers in the world’s 11th-largest economy, which are already investing billions of dollars to upgrade their networks to accommodate a surge in wireless data traffic. Aside from Montreal-based BCE and Vancouver-based Telus, Huawei customers also include Wind Mobile of Toronto, which began operations in 2009.

Such a review could help suppliers ease concerns about their practices, said Amit Kaminer, an analyst at The Seaboard Group, a Toronto-based telecommunications research firm.

“I think these actions by the government are prudent,” Kaminer said in an e-mail. The companies “should use this review to dispel doubts and myths.”

Harper witnessed the signing of agreements between Huawei and BCE and Telus in Beijing last year.

“Bell works with a range of international network equipment suppliers, including Alcatel-Lucent, Cisco, Ericsson, Huawei and Nokia Siemens,” said BCE spokeswoman Jacqueline Michelis in an e-mail. “We work with these partners, government, and the Canadian and international telecom industry to ensure the highest levels of security for our customers.”

‘Providing Assurances’

“We appreciate and support the reasonable and understandable measures that have been taken collectively between ourselves, carriers across Canada, and the federal government, to allow Huawei to compete in Canada, while providing assurances on matters of network security,” Huawei spokesman Scott Bradley said in an e-mail.

“We will continue to work transparently with customers and the federal government to address any issues necessary,” Bradley said.

Telus spokesman Shawn Hall and Wind Mobile spokeswoman Alexandra Maxwell declined to comment.

Huawei Canada President Sean Yang said last year the company follows “Canadian laws and regulations. We’ve never had an issue. And we would never do anything to jeopardize or undermine the trust we know is critical to our long term success.”

Overtaking Ericsson

Huawei, based in Shenzhen, China, was founded in 1987 by Ren Zhengfei, a former technician in the People’s Liberation Army. Ren began reselling other companies’ gear and then began making routers and switches, the core components of phone and Internet networks, as the company took off. Today, the company is poised to overtake Ericsson AB, as the world’s largest maker of wireless network equipment.

Asked if Sweden’s Ericsson would trigger the same security issues, Paradis said, “you don’t hear the same kind of concern about the other company you just mentioned.”

Shares of Stockholm-based Ericsson have jumped (ERIC:US) 25 percent this year while Huawei is closely held.

Canada’s Fast said that the government has banned Huawei from bidding on government telecommunications contracts. Still, he said in an interview earlier this month that that doesn’t amount to a blanket ban on Chinese investment.

“We welcome investment from the Chinese provided they play by the rules and that they respect Canadian sovereignty, and that they not undertake the kinds of activities that would represent a security threat to Canadians,” Fast said.

To contact the reporters on this story: Andrew Mayeda in Ottawa at amayeda@bloomberg.net; Hugo Miller in Toronto at hugomiller@bloomberg.net

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net; Chris Wellisz at cwellisz@bloomberg.net


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