NBN bid to stretch China ties | The Australian

as was posted here ... NBN bid to stretch China ties | The Australian

AUSTRALIA is facing another test in its relationship with China, as the country's largest technology group, Huawei Technologies, makes a bid for a piece of the $43 billion Australian National Broadband Network.

The test for the communications giant, which is also reported to be pursuing part of the Motorola mobile network in the US, is whether it can overcome the security taint of its links with the People's Liberation Army. Huawei's chief executive officer, the reclusive Ren Zhengfei, is a former PLA officer.

Australia's rosy economic relationship with China, which resulted in $83bn in two-way trade in 2008-09, descended last year into acrimony that culminated in the jailing of Australian mining executive at Rio Tinto Stern Hu and his three colleagues last week.

Nevertheless, and despite the spectacular collapse of the $19bn deal for state-owned Chinalco to buy more of miner Rio Tinto, investment continues to pour in. China tipped $10.7bn into our companies last year, with billions more promised.


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But if the overriding issue last year was how much Chinese investment should be allowed in Australia, the biggest bogey now is cyber security. Fears about security are mounting across the world following Google's withdrawal from China after a huge cyber-attack in December.

Huawei is regularly touted as a role model in China's "going out" policy: expanding its companies' international footprint through winning business and buying up foreign companies.

The Shenzhen-based group is now the world's second-largest provider of telecommunications networks to operators across the globe behind Sweden's Ericsson.

It claims to have had international sales of $US30bn ($32.3bn) last year and contracts in scores of countries. Recent wins include a role in the British broadband network and the contract to build the entire NBN in Singapore for Optus's parent Singapore Telecommunications.

The push has not been without controversy. In 2003 Huawei quietly settled a lawsuit for intellectual property theft with US based networks rival Cisco Systems. In 2007 the US knocked back Huawei's bid for another technology group, 3Com, on security grounds.

This week it emerged that US government security agencies are once again probing Huawei as it angles for a piece of the disintegrating technology giant Motorola.

Huawei has operated in Australia for about four years and has a local workforce of about 200 people, 20 per cent of them expatriate Chinese. The company has longstanding contracts with three out of four of Australia's biggest fixed line telecoms groups: Singtel-owned Optus, Telecom New Zealand's Australian arm AAPT and Perth-based internet service provider iiNet.

"Over 50 per cent of Australians already use a Huawei product," Huawei Australia spokesman Luke Coleman cheerfully tells The Australian.

"Huawei is a trusted partner for operators in Australia and globally. We work with Optus, Vodafone-Hutchison Australia, Primus, AAPT and more."

Despite these second-tier deals, Huawei found its way firmly blocked at Telstra under US import Sol Trujillo. Huawei recently got its first sniff as one of three companies Telstra named to test next generation wireless networks, but that's not the big fish the company hopes to catch.

The NBN - one of the centrepieces of Kevin Rudd's successful 2007 campaign - now looms as the company's big chance to bulk up its business here. Analysts say between $5bn and $7bn will be spent on networks gear. Huawei is pitching for the lot.

But already hampered by decades-old fears about its army and government connections, Huawei now faces a world more wary of cyber warfare and network security threats, as well as a right-leaning opposition unafraid to peddle an anti-China message.

Nor has the Rudd government been shy to use security concerns to exclude Chinese projects, such as a Minmetals mine near the defence test site at Woomera.

In their book Australia and Cyber-Warfare, Des Ball of the Strategic and Defence Studies Centre in Canberra, retired air commodore Gary Waters and national security consultant Ian Dudgeon claim cyber warfare units in the Chinese PLA have penetrated the Pentagon's internal internet router and designed software to disable it in the event of a conflict. They say Australia's civilian IT networks and also the defence force's command, control, communications, intelligence, surveillance and reconnaissance systems "are at great risk if they are not adequately defended".

Growing concerns about cyber espionage, particularly from China, prompted the Rudd government to establish the new Cyber Security Operations Centre. It was opened in Canberra in January by Defence Minister John Faulkner, who revealed the department had last year investigated about 200 "electronic security incidents" a month.

He said there was evidence that some of the attacks had come from overseas but did not mention China by name.

Huawei's activities in Australia have already been subjected to close scrutiny by the domestic spy agency ASIO.

As revealed by The Australian last September, ASIO officers met Australian Huawei employees in Sydney and Melbourne who told them the company was employing technicians with direct links to the PLA. ASIO has declined to comment on its investigations into Huawei and the company itself has dismissed as "inaccurate and ungrounded" claims that it has links with either the Chinese military or the Chinese government.

Huawei sought a meeting with ASIO last June to "provide a brief introduction to Huawei".

"Huawei's customers are well aware that we adhere to the highest security standards they set for their networks, and not one company has ever called these standards into question," says Coleman.

In the past six months, Huawei has quietly ramped up its lobbying efforts to allay fears in Canberra ahead of decisions on NBN tenders. "As is normal business practice with a build of this size, any vendor including Huawei will be in a position to allow a full and regular security audit of the equipment and the network," Huawei's Australian chief technology officer Peter Rossi says.

"All data centres would be based in Australia with no remote access available and Huawei would also be in a position to allow the government full access to the source code of the network equipment," Rossi says.

The company has hired heavy-hitting boutique public relations firm Bespoke Approach, which boasts as principals former foreign minister Alexander Downer, Keating-era minister Nick Bolkus and Ian Smith, who ran public relations for the T2 and T3 sale of Telstra shares.

In December the former Chinese army officer Ren - who has never given a media interview - visited Australia "to meet customers". He also caught up with NBN executive chairman Mike Quigley who will be the arbiter - with Rudd's say so - on which vendor gets what.

Singtel, majority-owned by the Singapore government's Temasek holdings, had to jump through plenty of security hoops before it was able to buy Optus, which runs the second biggest network in Australia. But Huawei presents a different problem.

Huawei is no stranger to controversy or security concerns. Still, unlike Minmetals and the vast majority of Chinese mining, energy and steel corporations that have been making multi-billion-dollar investments in Australia's resources sector, Huawei is a private company. This has proved a blessing and curse for the group.

Rather than allaying fears by opening its books and share register, the company issues scant financial information and keeps its shareholders under wraps, and Ren resolutely in the background.

And like just about every large privately owned company in China, Huawei has its internal Communist Party committee. Such committees, which act as a brake on politically "incorrect" behaviour by corporations, are seen as essential to gain government contracts in China.

"In Huawei, affiliation and membership in any political organisation is considered a personal matter. As with other activities related to personal interests, committee meetings are organised outside regular working hours and are not part of daily Huawei work," company spokesman Jeremy Mitchell said.

It is understood that Huawei is considering two approaches to its NBN bid: a purely network-based bid and a larger networks plus value added services bid.

A number of companies contacted by The Australian say they had been in preliminary talks with Huawei about being involved in a larger bid that could see the group make Australian investments or even buy local companies, but Huawei has denied this.

"Huawei Australia is not currently, nor has [it] plans to invest or buy any Australian technology companies," says Rossi.

Of course all the NBN contracts will be nominally made at arm's length from the government by its wholly owned company, which will build and operate the network.

NBN Co issued $23 million in information technology contracts last week to IBM, Accenture and Oracle but the big spending is yet to come. There is only one tender open so far out for thousands of kilometres of fibreoptic cable and the government's timetable for the release of a long and short list of vendors - due to start in February - appears to have collapsed.

The billions of dollars China brings to our economy could hardly be expected to come without strings attached. But Huawei, together with the fading promise of an all-singing, all-dancing broadband network, promises another election year headache for the Prime Minister.

Additional reporting: Cameron Stewart.