US raises suspicions of Chinese influence in Eastern Europe

The US Department of State has raised concerns over Chinese presence in Eastern Europe as a potential danger for corruption and government espionage ambitions.

During a briefing ahead of Secretary of State Mike Pompeo’s trip to Budapest, Bratislava, Warsaw, Brussels and Reykjavik, two administrative officials fielded questions over the objectives of the roadshow. Russia and China featured heavily throughout the briefing, though Eastern Europe has been highlighted as a potential source of problems for the US.

“The short answer is yes, we are more concerned about the Chinese presence, the Huawei presence in Central and Eastern Europe than in Western Europe,” a senior official said in a briefing. “I should be clear that, of course, we see this as being problematic across the board, but I think what sets Central and Eastern Europe apart is you have a large number of mostly small and midsize states that – many of whom have a higher propensity to corruption.

“And so I think from a Chinese perspective, they see in Central and Eastern Europe EU member-states – I think 12 out of the 16 members of 16+1 are EU memberships or EU member-states. So they see relatively small countries with a recent history of communism with significant pathways of corruption that lend themselves more readily to state penetration in key sectors, and then they have a springboard to operate within EU fora.

“And all you need to do is look at the success that the Chinese have had importing individual Eastern European member-states of the EU to block the EU on things like recognition of the human rights problem in China or a support for the US position in the South China Sea.”

While these accusations are more broad than simply the telecommunications industry, Eastern Europe has been a field of success for Huawei and ZTE in recent years. With perhaps more lax rules and less paranoid governments than the more ‘developed’ nations across the bloc in years gone, recent events will certainly not make for pleasant reading.

Aside from the suspicion this trip has been seemingly designed to turn the Eastern European nations against China, an arrested Huawei employee in Poland appears to have turned the country against China. After several informal conversations about the saga, there does seem to be a general feeling Poland is marching towards an official ban in line with the US.

The Poland issue is somewhat of an interesting one as the government would have to weigh up the benefits of keeping its US ally happy alongside the societal benefits of being Huawei-friendly. Poland is effectively the Eastern European HQ of Huawei, with the firm employing roughly 900 people across the country. A ban would rid of the country of these jobs, as well as any notable investment and also the in-direct employment Huawei’s presence stimulates in other businesses.

The US wants to remain the leading economic superpower of the world, and this aggression against Chinese international expansion seems to be one of the strategies to maintain this position. It isn’t necessarily doing much to hide these tactics or ambitions, but that doesn’t seem to matter; they are working.

Europe sailing towards conflict over China 5G

Germany is drafting rules to allow Chinese companies to participate in the 5G bonanza, while the European Commission is thinking of banning them. Something’s got to give.

In terms of collective political influence and economic power, the European Union could consider itself more or less on par with the US and China. Considering the Union represents the societal, political and economic interests of 28 nations, more than 500 million people and roughly $23 trillion in GDP, it is certainly a powerful concept. But the China issue is just one example of how its neatly stitched patchwork could unravel very quickly.

China is a very tricky equation to balance right now. On side, you have an incredibly powerful economy, a massive and increasingly wealthy population and technological advancements which could benefit almost every society. However, to access these riches you have to deal with a government which ideologically conflicts with a lot of what Europe stands for.

But this is where a potentially significant conflict lies. The European Commission is reportedly looking at how it could create a de facto ban for Chinese technology and kit in communications infrastructure, conflicting with some of its member states positions. The Commission is supposed to represent the interests of all its member states, creating a common framework which sits above national policies, but if these policies are a contradiction of opinions of some member states the perfect storm could be brewing on the horizon.

Germany is not talking the anti-China rhetoric

The most recent reports echoing out of Berlin will not have the US government jumping for joy. Local newspaper Handelsblatt is suggesting the German government is doing everything it can to write security protections into new regulation, however, the rules will be written in a manner which will not exclude Chinese companies.

The reports have not been confirmed by any official government spokespeople as of yet, though this does follow on from the Federal Office for Information Security (BSI) made in December.

“For such serious decisions like a ban, you need proof,” said Arne Schoenbohm, President of BSI.

The US will not be happy about developments here, a delegation is currently undertaking a European lobby tour to turn officials against China, though neither will the European Commission. There are several instances which indicate the European Commission is taking a similar stance against China, suggesting a bloc-wide ban could be on the cards before too long.

Aside from recent reports the European Commission is rewriting cybersecurity rules to effectively ban Chinese companies from providing technology for communications infrastructure, one of its Commissioners has also fuelled the anti-China rhetoric.

“I think we have to be worried about these companies,” Commissioner for Digital Single Market Andrus Ansip told reporters in December. Ansip was referring to companies such as Huawei and ZTE, while this statement implies the Commission believes there are strong ties between multi-national corporations and the Chinese government.

The United States of Europe argument emerging again?

With Germany seemingly working to ensure collaboration with Chinese companies remains possible, the UK creating monitoring mechanisms to enable Huawei’s work and Italy denying reports it is considering its own ban, the European Commission appears to be working in direct contradiction to some of its largest member states.

To be fair, the role of the European Commission is to serve all the states not just the big ones, but the point of the bureaucracy is to create a common framework which all agree on, not rules which are forced onto member states. Cynics of the Commission and Union in general will suggest this is perhaps more evidence of Juncker and co. attempting to create a United States of Europe, where the desires of the member states are secondary to that of the ruling party.

Although many of these conspiracy theories are generally relegated to the comment boards of the Daily Mail, the Commission might well be heading towards a monumental conflict. Any rules which are written at European Commission level would potentially render national regulations redundant, a scenario those member states would not be happy with.

Considering the shoddy state of affairs Brexit has been creating, perhaps the European Commission should attempt to create an image of co-operation and collaboration. Antagonising leading member states is not a sensible idea, while a ‘state v. Europe’ conflict over security is not something which will reflect favourably on the agency.

Is politics anything more than arguing with shiny teeth?

Caught on the fringes of this conflict and the constant political seesawing are the telcos. Governments often tell the telco industry they are there to help and enable innovation, but it seems most of the time politicians are nothing but a hindrance attempting to score PR points by pandering to buzzwords and public opinion.

With governments aiming to ban Huawei and ZTE from connectivity plans, several telcos have stepped into the fray to give their own opinion. The message seems to be relatively consistent; heighten security requirements if you must but banning a vendor in an incredibly top-heavy market will not be a good idea.

“Clearly, if there were a complete ban at radio level, then it would be a huge issue for us, but it would be a huge issue for the whole European telco sector,” Vodafone CEO Nick Read said during the latest earnings call. “Huawei probably has 35% of the market share through the whole of Europe.”

Deutsche Telekom is another who foresees any Huawei ban being nothing but problematic. The German telco has previously stated a ban on Huawei would set its 5G ambitions back two years. Several telcos are considering scaling back work with Huawei, but this is perhaps directed more towards the uncertain political climate than any outright worry regarding the security credentials of Huawei equipment.

European telcos are not dependent on Huawei equipment to function effectively, but they are somewhat reliant on it. There aren’t enough suppliers, or good-enough suppliers, to strike Huawei out of the mix. US telcos are not having to deal with this headache as their operations adapted to a lack of Huawei and ZTE years ago, Europe is struggling with the political seesawing and story of uncertainty. Any business leader will tell you, a consolidated, cohesive and concrete regulatory landscape is critical for success.

Huawei stuck between a rock and a hard place

Huawei is a company which now has no control over its own fate.

With the US parading around political offices spreading its anti-China message without the burden of evidence, Huawei can’t do anything. Numerous governments are asking the vendor to prove its security credentials, but this will mean little is there is still suspicion. The case against Huawei is not based on evidence, but one which is based on a political and economic power struggle.

With a lack of evidence to substantiate any accusations against the firm, Huawei is being asked to do something which has been accepted as almost impossible; prove a negative. All of the questions and queries being directed at the firm have a single aim, to demonstrate there are no ties between the organization and the Chinese government, as well as its intelligence agencies.

It’s an almost impossible task, especially when you take into account the powerful influence of the US and the fact most of these decisions are being made on hearsay, circumstantial evidence and emotion. Whatever Huawei says, however much evidence is put on the table, we suspect opinions have already been made.

An issue of consistency and contradiction

In a single signature, the European Commission could throw the bloc into disarray. If the rumours evolve into reality, the European Commission could impose its own rules, contradicting the hopes and ambitions of some member states. Such a scenario would question how much control the member states have over their own society, undermining the concept of sovereignty.

Any fundamental changes would certainly have to be greenlit by all member states, but the European approach to China on the whole, and Huawei specifically, has not been entirely consistent. One question which might be worth considering is whether the European Commission is overstepping its remit.

We are almost certain Germany will not be happy being told to ban Huawei considering it seemingly wants to ensure Chinese participation in the upcoming 5G bonanza. Conflict is on the horizon, potentially pitting the European Commission against the biggest financial contributor to the bloc.

Huawei founder opened up to the press, or did he?

Ren Zhengfei, the founder of Huawei, once again dismissed the allegations that Huawei has been spying for the Chinese government in a rare meeting with the media.

Huawei’s normally reclusive founder told the Financial Times on Tuesday that he missed his daughter, who was arrested in Canada and faces extradition to the US. Ren also reiterated that Huawei has not spied for the Chinese government and has not been asked to do so. “No law in China requires any company to install mandatory backdoors,” Ren was quoted by the FT.

Ren also handed out an olive branch to President Trump, calling the latter “great” and recognising the positive results the American administration’ tax cuts had delivered to the American economy. But he also warned the isolationist route the current American government is pursuing. “The message to the US I want to communicate is: collaboration and shared success. In our world of high tech, it’s increasingly impossible for any single company or country to sustain or to support the world’s needs,” Ren said. Earlier President Trump said he ‘would intervene on Huawei CFO’s case to help China trade deal’.

When it comes to Huawei’s tactics to navigate the difficulties it faces in the western markets, Ren conceded “it’s always been the case, you can’t work with everyone . . . we’ll shift our focus to better serve countries that welcome Huawei,” he told the reporter.

By the founder’s own standard, this interview was a rare opportunity for the outside world to get more transparency of the company he set up 32 years ago. But we were not made much wiser on a few key questions.

Huawei’s CFO, and Ren’s daughter, was charged with misleading the American banks with false information on Huawei’s relationship with its subsidiary related to the company’s business in Iran, which resulted in the banks being handed multi-billion dollar fines. Ren’s interview did not shed new light on the case, despite expressing his parental feeling.

In the spirit of “presumed innocent until proved guilty”, we should believe that the Huawei founder was telling the truth when he claimed Huawei has not spied on behalf of the Chinese government. His words were also carefully chosen when he claimed, “no law in China requires any company to install mandatory backdoors”, which is true. Law enforcement agencies may require companies or private persons to assist their work. In some jurisdictions the companies or individuals have the legal right to refuse, as Apple did in 2015 when being asked by the FBI to unlock an iPhone used by the San Bernardino attackers.

In other jurisdictions companies and individuals are obliged to comply with such demands.

China’s Intelligence Law was passed by the National People’s Congress, China’s legislature, in June 2017 and entered into force the following day. Two articles of the law are of interest here:

Article 7: An organization or citizen shall support, assist in and cooperate in national intelligence work in accordance with the law and keep confidential the national intelligence work that it or he knows. (Translation by the Law School, Peking University)

Article 14: National intelligence work institutions, when carrying out intelligence work according to laws, may ask relevant institutions, organizations and citizens to provide necessary support, assistance and cooperation. (Translation by QUARTZ)

In plain language this means the intelligence agencies have the mandate to require any institutions or individuals to cooperate (Article 14) and the institutions or individuals must comply (Article 7).

Therefore Ren, who declared “I still love my country, I support the Communist party” to the FT journalist, is law-bound to say Huawei has “never received any request from any government to provide improper information”, no matter whether it has received requests of this kind or not. Hypothetically, if Huawei had received requests from the Chinese intelligence agencies to assist their tasks, it could not refuse, otherwise it would be violating the first half of Article 7. On the other hand, if Huawei, hypothetically, had carried out intelligence tasks as required, it could not tell anyone, otherwise it would be violating the second half of Article 7.

But, seriously, no one would have expected an alternative answer.

Where is the evidence of Huawei espionage?

Before we get carried too carried away with the recent arrest in Poland, let’s remember something; this is a Huawei employee accused of espionage, not Huawei.

Right now, Huawei is the world’s whipping boy. This is a company which is taking the punishment for the nefarious activities of the Chinese government. In Poland, a Huawei employee and another from Orange have been arrested, accused of espionage. But the condemnation should be directed towards the Chinese government and these individuals, not necessarily Huawei.

For the record, we are not suggesting Huawei is completely blameless. The company might be in bed with Beijing, but as it stands there is no concrete evidence to support this theory. The arrest in Poland is circumstantial, evidence that relies on an inference to connect it to a conclusion of fact. It most judicial systems, reasonable doubt is tied into circumstantial evidence meaning it can contribute to a verdict, but alone it is rarely enough to assign guilt.

Huawei could well be a puppet with strings attached to Beijing, but evidence needs to be produced to ensure ‘democratic’ nations are not presuming guilt, a contraction of their legal principals.

The prospects for Huawei are not currently looking good. Effectively banned from any meaningful work in the US, banned in Australia and Japan, under close watch in the UK, ignored in South Korea, condemned by the European Union and in a very suspect position in New Zealand. Eastern Europe was one area where it looked like business was safe, but now the Polish are talking about a ban as well.

With all this heart-ache and headaches for the Huawei executives you have to question how much evidence there has been of espionage. As far as we are aware, nothing of note.

This is of course not to say there isn’t any but look at the situation. The US government is trying to rally the world against Huawei and China on the whole, it has been for years now, and you have to think it would use evidence to turn the tides if it had any. Back in 2012, a House Intelligence Committee told the US government Huawei was a ‘National Security Threat’, but in the six years since this point no evidence has been produced to support this statement. Yet this report has been used as the foundation of all negative sentiment directed towards China and Huawei.

This report, which was the result of a yearlong investigation by the committee, came to the conclusion Huawei and ZTE were a national security threat because of their attempts to extract sensitive information from American companies and their loyalties to the Chinese government. The report stated it had obtained internal documents from former Huawei employees suggesting it supplied services to a ‘cyberwarfare’ unit in the People’s Liberation Army, but this evidence has never made it to the public domain.

For most, the sustained rhetoric of espionage could be viewed as politically and economically motivated. Chinese companies are making an impression on the world and Silicon Valley’s vice-like grip on the technology industry is loosening. This would be incredibly damaging for the US economy on the whole, which has partly relied on the dominance of this segment for success in recent years. In recent months it has been flexing its muscles and some are bending to its will. Deutsche Telekom is an excellent example.

Only last month, DT suggested it was reviewing its relationship with Huawei to ease concerns from the US government. It just so happens government agencies are reviewing its US businesses potential merger with Sprint. Breaking ties with the Chinese vendor would certainly gain favour with Washington, but is this culture of paranoia and finger-pointing something we should be encouraging?

Again, this is not to say there is no evidence to support the accusations. However, if the US government had the smoking gun, surely it would have shown it to the world. Some might suggest it had an obligation to inform its allies of such nefarious activities. Some even more sceptical individuals might also suggest that if there was classified evidence, it would have been leaked by someone over this period. In today’s world it is impossible to keep big secrets secret. Just look at Edward Snowdon’s revelations.

Over in Germany, the Federal Office for Information Security (BSI) has said it would take this very approach. Arne Schoenbohm, President of BSI, said that for his agency to consider banning Huawei from the country he would have to see evidence. This statement came at the same time a US delegation had been meeting with officials from the Foreign Ministry to discuss a ban. As no ban has emerged, it would appear the US delegation was unable to table any evidence.

Going back to the arrest in Poland, some might suggest this is enough evidence to ban Huawei from operating in the nation. However, governments have been catching spies for decades and punishing individuals. There is little (or any) precedent to ban the company than individual works for unless there is a direct link between the organization and the nefarious government. Over in the UAE, 31-year-old PhD student at Durham University has been arrest for espionage also, but the University has not been punished. MI5 and MI5 catch spies and potential terrorists every year, but the companies they work for are not accused of espionage.

We suspect the Chinese government is obtaining information through reprehensible means, but if the world is to hold China accountable, ‘western’ governments need to stand by their principles and not undermine the foundations of fair society. The principle which is being forgotten today is the assumption of innocence until a party has been proven guilty.

Two wrongs do not make a right, and we have to ask ourselves this question; are we any better than the oppressive governments if we forget this simple principle of a fair and reasoned judicial system; innocent until proven guilty.

Huawei employee arrested in Poland on spying allegations

Huawei’s sales director in Poland, who previously served in the Chinese diplomatic corps, has been arrested by the Polish authorities on spying allegations. Huawei immediately terminated his employment.

More details have been disclosed related to the arrest of Wang Weijing, who also goes by the name Stanislaw Wang. After serving as attaché at the Chinese general consulate in Gdansk, Wang joined Huawei’s Poland office in 2011, first as its PR director then as its sales director responsible for selling to the Polish public sector. Wang was detained on 8 January, on allegations of spying, as was first reported by the Polish public broadcaster TVP.

According to TVP, an Orange employee arrested on the same allegations, identified as Piotr D, had worked at the country’s Internal Security Agency (ISA, or “Agencja Bezpieczeństwa Wewnętrznego (ABW)” in Polish), which carried out the arrests. While at ISA one of his responsibilities was issuing security certificates for equipment used by Poland’s public-sector offices. He left the agency earlier after being accused of corruption but was not formally charged.

The offices of Huawei and Orange were searched respectively following the arrests, though a spokesperson for ISA told Reuters that the allegations against Wang were related to individual actions, not directly linked to Huawei. This is also the line Huawei adopted when it promptly severed the employment relationship with Wang, citing that “in accordance with the terms and conditions of Huawei’s labour contract, we have made this decision because the incident has brought Huawei into disrepute.”

Orange said it did not know if the investigation in Piotr D. was linked to his professional work but would continue to cooperate with the authorities.

Despite the troubles it has run into in markets like the US, New Zealand, Japan, and the UK, Huawei’s business in Eastern Europe has been largely unperturbed. However the latest twist in Poland and the earlier arrest of Meng Wanzhou, Huawei’s CFO, in Canada might put this position under pressure. On Saturday 12 January, Joachim Brudzinski, Poland’s interior minister, called for a EU-NATO joint position with regard to banning Huawei from these markets when speaking on a Polish commercial radio station. “There are concerns about Huawei within NATO as well. It would make most sense to have a joint stance, among EU member states and NATO members,” said Brudzinski.

Then on Sunday 13 January, Karol Okonski, a government official responsible for cyber security, told Reuters that Poland could consider forbidding the public sector from using Huawei products while probing the legal measures to limit Huawei’s access to the private sector. “We do not have the legal means to force private companies or citizens to stop using any IT company’s products. It cannot be ruled out that we will consider legislative changes that would allow such a move,” Okonski said.

Huawei has always denied that it poses security threats, or it spies on behalf of the Chinese government. In a statement it sent out to media after its CFO’s arrest and it sent again after the arrests in Poland, Huawei stressed that it “complies with all applicable laws and regulations in the countries where it operates, and we require every employee to abide by the laws and regulations in the countries where they are based.”

Incidentally, the South China Morning Post reported earlier that, shortly before her arrest in Canada, Meng Wanzhou and Ren Zhengfei, the founder of Huawei and Meng’s father, hosted a town hall meeting for Huawei employees. According to a transcript distributed to Huawei staff and seen by SCMP, both executives discussed extensively on compliance. Cases were divided into “red” and “yellow” lines. By red line, Meng meant the rules where there is “no bargaining and must be strictly complied with”, while by yellow line she referred to cases where strict compliance is not operationally feasible, and the company can build in the costs of flouting the rules as “sunk costs.” She cited labour risks as an example.

“Of course, beyond the yellow and red lines, there may still be another scenario, and that is where the external rules are clear-cut and there’s no contention, but the company is totally unable to comply with in actual operations. In such cases, after a reasonable decision-making process, one may accept the risk of temporary non-compliance,” quoted by SCMP.

Ren also urged his staff to consider both cost and benefit in compliance cases, especially related to laws of the US and EU. SCMP quoted him challenging those present when answering a question: “We must not bind ourselves up just because the US is attacking us. If our hands and feet are bound, then we will not be able to continue producing, then what’s the point of compliance?”

The biggest stories of 2018 all in one place

2018 has been an incredibly business year for all of us, and it might be easy to forget a couple of the shifts, curves, U-turns and dead-ends.

From crossing the 5G finish line, finger pointing from the intelligence community, the biggest data privacy scandal to date and a former giant finally turning its business around, we’ve summarised some of the biggest stories of 2018.

If you feel we’ve missed anything out, let us know in the comments section below.

Sanction, condemnation and extinction (almost)

ZTE. Three letters which rocked the world. A government-owned Chinese telecommunications vendor which can’t help but antagonise the US government.

It might seem like decades ago now but cast your mind back to April. A single signature from the US Department of Commerce’s Bureau of Industry and Security (BIS) almost sent ZTE, a company of 75,000 employees and revenues of $17 billion, to keep the dodo company.

This might have been another move in the prolonged technology trade war between the US and China, but ZTE was not innocent. The firm was caught red-handed trading with Iran, a country which sits very prominently on the US trade sanction list. Trading with Iran is not necessarily the issue, it’s the incorporation of US components and IP in the goods which were sent to the country. ZTE’s business essentially meant the US was indirectly helping a country which was attempting to punish.

The result was a ban, no US components or IP to feature in any ZTE products. A couple of weeks later manufacturing facilities lay motionless and the company faced the prospect of permanent closure, such was its reliance on the US. With a single move, the US brought one of China’s most prominent businesses to its knees.

Although this episode has been smoothed over, and ZTE is of course back in action, the US demonstrated what its economic dirty bombs were capable of. This was just a single chapter in the wider story; the US/China trade war is in full flow.

Tinker, tailor, Dim-sum, Spy

This conflict has been bubbling away for years, but the last few months is where the argument erupted.

Back in 2012, a report was tabled by Congressman Mike Rogers which initially investigated the threat posed by Chinese technology firms in general, and Huawei specifically. The report did not produce any concrete evidence, though it suggested what many people were thinking; China is a threat to Western governments and its government is using internationally successful companies to extend the eyes of its intelligence community.

This report has been used several times over the last 12 months to justify increasingly aggressive moves against China and its technology vendors. During the same period, President Trump also blocked Broadcom’s attempts to acquire Qualcomm on the grounds of national security, tariffs were imposed, ZTE was banned from using US technologies in its supply chain and Huawei’s CFO was arrested in Canada on the grounds of fraud. With each passing month of 2018, the trade war was being cranked up to a new level.

Part of the strategy now seems to be undermining China’s credibility around the world, promoting a campaign of suggestion. There is yet to be any evidence produced confirming the Chinese espionage accusations but that hasn’t stopped several nations snubbing Chinese vendors. The US was of course the first to block Huawei and ZTE from the 5G bonanza, but Australia and Japan followed. New Zealand seems to be heading the same way, while South Korean telcos decided against including the Chinese vendors on preferred supplier lists.

The bigger picture is the US’ efforts to hold onto its dominance in the technology arena. This has proved to be incredibly fruitful for the US economy, though China is threatening the vice-like grip Silicon Valley has on the world. The US has been trying to convince the world not to use Chinese vendors on the grounds of national security, but don’t be fooled by this rhetoric; this is just one component of a greater battle against China.

Breakaway pack cross the 5G finish line

We made it!

Aside from 5G, we’ve been talking about very little over the last few years. There might have been a few side conversations which dominate the headlines for a couple of weeks, but we’ve never been far away from another 5G ‘breakthrough’ or ‘first’. And the last few weeks of 2018 saw a few of the leading telcos cross the 5G finish line.

Verizon was first with a fixed wireless access proposition, AT&T soon followed in the US with a portable 5G hotspot. Telia has been making some promising moves in both Sweden and Estonia, with limited launches aiming to create innovation and research labs, while San Marino was the first state to have complete coverage, albeit San Marino is a very small nation.

These are of course very minor launches, with geographical coverage incredibly limited, but that should not take the shine off the achievement. This is a moment the telco and technology industry has been building towards for years, and it has now been achieved.

Now we can move onto the why. Everyone knows 5G will be incredibly important for relieving the pressure on the telco pipes and the creation of new services, but no-one knows what these new services will be. We can all make educated guesses, but the innovators and blue-sky thinkers will come up with some new ideas which will revolutionise society and the economy.

Only a few people could have conceived Uber as an idea before the 4G economy was in full flow, and we can’t wait to see what smarter-than-us people come up with once they have the right tools and environment.

Zuckerberg proves he’s not a good friend after all

This is the news story which rocked the world. Data privacy violations, international actors influencing US elections, cover ups, fines, special committees, empty chairs, silly questions, knowledge of wrong-doing and this is only what we know so far… the scandal probably goes deeper.

It all started with the Cambridge Analytica scandal, and a Russian American researcher called Aleksandr Kogan from the University of Cambridge. Kogan created a quiz on the Facebook platform which exposed a loop-hole in the platform’s policies allowing Kogan to scrape data not only from those who took the quiz, but also connections of that user. The result was a database containing information on 87 million people. This data was used by political consulting firm Cambridge Analytica during elections around the world, creating hyper-targeted adverts.

What followed was a circus. Facebook executives were hauled in-front of political special committees to answer questions. As weeks turned into months, more suspect practices emerged as politicians, journalists and busy-bodies probed deeper into the Facebook business model. Memos and internal emails have emerged suggesting executives knew they were potentially acting irresponsibly and unethically, but it didn’t seem to matter.

As it stands, Facebook is looking like a company which violated the trust of the consumer, has a much wider reaching influence than it would like to admit, and this is only the beginning. The only people who genuinely understand the expanding reach of Facebook are those who work for the company, but the curtain is slowly being pulled back on the data machine. And it is scaring people.

Big Blue back in the black

This might not have been a massive story for everyone in the industry, but with the severe fall from grace and rise back into the realms of relevance, we feel IBM deserves a mention.

Those who feature in the older generations will remember the dominance of IBM. It might seem unusual to say nowadays, but Big Blue was as dominant in the 70s as Microsoft was in the 90s and Google is today. This was a company which led the technology revolution and defined innovation. But it was not to be forever.

IBM missed a trick; personal computing. The idea that every home would have a PC was inconceivable to IBM, who had carved its dominant position through enterprise IT, but it made a bad choice. This tidal wave of cash which democratised computing for the masses went elsewhere, and IBM was left with its legacy business unit.

This was not a bad thing for years, as the cash cow continued to grow, but a lack of ambition in seeking new revenues soon took its toll. Eight years ago, IBM posted a decline in quarterly revenues and the trend continued for 23 consecutive periods. During this period cash was directed into a new division, the ‘strategic imperatives’ unit, which was intended to capitalise on a newly founded segment; intelligent computing.

In January this year, IBM proudly posted its first quarterly growth figures for seven years. Big Blue might not be the towering force it was decades ago, but it is heading in the right direction, with cloud computing and artificial intelligence as the key cogs.

Convergence, convergence, convergence

Convergence is one of those buzzwords which has been on the lips of every telco for a long time, but few have been able to realise the benefits.

There are a few glimmers of promise, Vodafone seem to be making promising moves in the UK broadband market, while Now TV offers an excellent converged proposition. On the other side of the Atlantic, AT&T efforts to move into the content world with the Time Warner acquisition is a puzzling one, while Verizon’s purchase of Yahoo’s content assets have proved to be nothing but a disaster.

Orange is a company which is taking convergence to the next level. We’re not just talking about connectivity either, how about IOT, cyber-security, banking or energy services. This is a company which is living the convergence dream. Tie as many services into the same organisation, making the bill payer so dependent on one company it becomes a nightmare to leave.

It’s the convergence dream as a reality.

Europe’s Great Tax Raid

This is one of the more recent events on the list, and while it might not be massive news now, we feel it justifies inclusion. This developing conversation could prove to be one of the biggest stories of 2019 not only because governments are tackling the nefarious accounting activities of Silicon Valley, but there could also be political consequences if the White House feels it is being victimised.

Tax havens are nothing new, but the extent which Silicon Valley is making use of them is unprecedented. Europe has had enough of the internet giants making a mockery of the bloc, not paying its fair share back to the state, and moves are being made by the individual states to make sure these monstrously profitable companies are held accountable.

The initial idea was a European-wide tax agenda which would be led by the European Commission. It would impose a sales tax on all revenues realised in the individual states. As ideas go, this is a good one. The internet giants will find it much more difficult to hide user’s IP addresses than shifting profits around. Unfortunately, the power of the European Union is also its downfall; for any meaningful changes to be implemented all 28 (soon to be 27) states would have to agree. And they don’t.

Certain states, Ireland, Sweden and Luxembourg, have a lot more to lose than other nations have to gain. These are economies which are built on the idea of buddying up to the internet economy. They might not pay much tax in these countries, but the presence of massive offices ensure society benefits through other means. Taxing Silicon Valley puts these beneficial relationships with the internet players in jeopardy.

But that isn’t good enough for the likes of the UK and France. In the absence of any pan-European regulations, these states are planning to move ahead with their own national tax regimes; France’s 3% sales tax on any revenues achieved in the country will kick into action on January 1, with the UK not far behind.

What makes this story much more interesting will be the influence of the White House. The US government might feel this is an attack on the prosperous US economy. There might be counter measures taken against the European Union. And when we say might, we suspect this is almost a certainty, such is the ego of President Donald Trump.

This is a story which will only grow over the next couple of months, and it could certainly cause friction on both sides of the Atlantic.

Que the moans… GDPR

GDPR. The General Data Protection Regulation. It was a pain for almost everyone involved and simply has to be discussed because of this distress.

Introduced in May, it seemingly came as a surprise. This is of course after companies were given 18 months to prepare for its implementation, but few seemed to appreciate the complexity of becoming, and remaining compliant. As a piece of regulation, it was much needed for the digital era. It heightened protections for the consumer and ensured companies operating in the digital economy acted more responsibly.

Perhaps one of the most important components of the regulation was the stick handed to regulators. With technology companies growing so rapidly over the last couple of years, the fines being handed out by watchdogs were no longer suitable. Instead of defining specific amounts, the new rules allow punishments to be dished out as a percentage of revenues. This allows regulators to hold the internet giants accountable, hitting them with a suitably large stick.

Change is always difficult, but it is necessary to ensure regulations are built for the era. Evolving the current rulebook simply wouldn’t work, such is the staggering advancement of technology in recent years. Despite the headaches which were experienced throughout the process, it was necessary, and we’ll be better off in the long-run.

Next on the regulatory agenda, the ePrivacy Regulation.

Jio piles the misery on competitors

Jio is not a new business anymore, neither did it really come to being in 2018, but this was the period where the telco really justified the hype and competitors felt the pinch.

After hitting the market properly in early 2016, the firm made an impression. But like every challenger brand, the wins were small in context. Collecting 100,000s of customers every month is very impressive, but don’t forget India has a population of 1.3 billion and some very firmly position incumbents.

2017 was another year where the firm rose to prominence, forcing several other telcos out of the market and two of the largest players into a merger to combat the threat. Jio changed the market in 2017; it democratised connectivity in a country which had promised a lot but delivered little.

This year was the sweeping dominance however. It might not be the number one telco in the market share rankings, but it will be before too long. Looking at the most recent subscription figures released by the Telecom Regulatory Authority of India (TRAI), Jio grew its subscription base by 13.02 million, but more importantly, it was the only telco which was in the positive. This has started to make an impact on the financial reports across the industry, Bharti Airtel is particularly under threat, and there might be worse to come.

For a long-time Jio has been hinting it wants to tackle the under-performing fixed broadband market. There have been a couple of acquisitions in recent months, Den Networks and Hathway Cable, which give it an entry point, and numerous other digital services initiatives to diversify the revenue streams.

The new business units are not making much money at the moment, though Jio is in the strongest position to test out the convergence waters in India. Offering a single revenue stream will ensure the financials hit a glass ceiling in the near future, but new products and aggressive infrastructure investment plans promise much more here.

We’re not too sure whether the Indian market is ready for mass market fixed broadband penetration, there are numerous other market factors involved, but many said the initial Jio battle plan would fail as well.

Convergent business models are certainly an interesting trend in the industry, and Jio is looking like it could force the Indian market into line.

Redundancies, redundancies, redundancies

Redundancy is a difficult topic to address, but it is one we cannot ignore. Despite what everyone promises, there will be more redundancies.

Looking at the typical telco business model, this is the were the majority have been seen and will continue to be seen. To survive in the digitally orientated world, telcos need to adapt. Sometimes this means re-training staff to capitalise on the new bounties, but unfortunately this doesn’t always work. Some can’t be retrained, some won’t want to; the only result here will be redundancies.

BT has been cutting jobs, including a 13,000-strong cull announced earlier this year, Deutsche Telekom is trimming its IT services business by 25%, the merger between T-Mobile and Sprint will certainly create overlaps and resulting redundancies, while Optus has been blaming automation for its own cuts.

Alongside the evolving landscape, automation is another area which will result in a headcount reduction. The telcos will tell you AI is only there to supplement human capabilities and allow staff to focus on higher value tasks, but don’t be fooled. There will be value-add gains, but there will also be accountants looking to save money on the spreadsheets. If you can buy software to do a simple job, why would you hire a couple of people to do it? We are the most expensive output for any business.

Unfortunately, we have to be honest with ourselves. For the telco to compete in the digital era, new skills and new business models are needed. This means new people, new approaches to software and new internal processes. Adaptation and evolution is never easy and often cruel to those who are not qualified. This trend has been witnessed in previous industrial revolutions, but the pace of change today means it will be felt more acutely.

Redundancy is not a nice topic, but it is not always avoidable.

T-Mobile/Sprint merger finds a new enemy in mysterious lobby group

A new non-profit organization called ‘Protect America’s Wireless’ has emerged, seemingly with the sole objective of hurling spanners at the T-Mobile US and Sprint merger.

Details on the group are relatively thin at the moment, it was only founded last month, though a press call introducing the group and its mission statement on the website both seem to give the same message; the T-Mobile US and Sprint merger will be bad for the national security of the US.

“We must protect our networks from foreign spying,” the team announces on the websites homepage. “Our greatest concern is the pending Sprint T-Mobile merger, which could give countries like Saudi Arabia, China, Germany, and Japan direct access to our networks through the use of foreign-made networking equipment and billions of foreign money. We call on President Trump, Congress, and the FCC to protect American national security by denying these foreign interests access to America’s wireless communications.”

On the press call, David Wade, Founder of Greenlight Strategies, suggested a merger of the two telcos would open up the US to a Chinese ecosystem, while also suggesting any business working closely with Chinese vendors would effectively handover data to the Chinese government. While it is true Sprint owner Softbank has collaborated closely with Huawei and ZTE in the 5G R&D journey, this seems to be taking the conspiracy theory up another level. Deutsche Telekom, parent company of T-Mobile US, also has ties to Chinese vendors, but there aren’t many telcos who don’t.

The theory here is a merger between the two telcos would be bad for national security, effectively handing China a key to the backdoor. There have certainly been objections from a competition perspective, but this is the first we’ve seen with this angle. It’s difficult not to be suspicious about who the puppet master actually is.

Interestingly enough, the group has declined to discuss where funding is emerging from. As a 501c4 non-profit, the team do not have to disclose funding or ownership details, though they are permitted to attempt to influence politics as long as it isn’t their main area of focus. While the groups attempt to tackle US security is a thinly veiled attempt to demonstrate ‘social welfare’, as long as the group isn’t spending more than half of its funds on political-related activities, it can continue to operate half-hidden by shadows.

Finding out who is funding this organization is key to figure out what the angle is and whether this is yet another example of propaganda, though it is not necessarily a simple task. 501c4 non-profits have to complete a Form 990 for the IRS, on which any donations above $5,000 have to be disclosed. Unfortunately, due to the efficiency of the IRS, there is usually a 12-18 month lag on this information being made publicly available.

Until the influencers and donors of this group have been identified, this could be a very dangerous source of misinformation. Statements being made might very well be true, but without transparency it would be safe to be suspicious.

DHS and GCHQ join the China spy BS brigade

The Department of Homeland Security (DHS) has stated it, and the UK’s National Cyber Security Centre, are supporting industry denials regarding malicious microchips installed on hardware by China.

Last week Bloomberg unveiled a weighty report which pointed the finger at the Chinese government for an in-depth and delicate espionage campaign which would have shaken the telco industry’s global supply chain. By allegedly compromising motherboards produced by Super Micro, the security protocols and trade secrets of more than 900 companies have been directly compromised. Who knows how wide the web could spread when you look at the indirect implications, partners who use the infected networks or collateral damage.

While the claims have been refuted by all the parties involved, including Apple and AWS, and despite confidence from the DHS and the National Cyber Security Centre, a division of GCHQ, without a denial from the body likely to be conducting the supposed investigation, the CIA, or a flat-out rejection from the White House, there is still an air of possibility.

“Like our partners in the UK, the National Cyber Security Centre, at this time we have no reason to doubt the statements from the companies named in the story,” a statement from the Department of Homeland Security reads. “Information and communications technology supply chain security is core to DHS’s cybersecurity mission and we are committed to the security and integrity of the technology on which Americans and others around the world increasingly rely.”

The initial report is a damning one. According to Bloomberg, Chinese agents infiltrated subcontractors of Super Micro operations in Shanghai, or coerced the managers of these facilities, to gain access to the motherboards. A microchip, smaller than a grain of rice, was placed on the hardware, before it was shipped onto customers to be incorporated into servers. Elemental, now an AWS company, was supposedly one of the customers who used the motherboards, as was Apple, a major US bank, the US Navy and the CIA, who used Elemental servers for drone missions. The information which would be available is staggering.

All parties involved have denied finding any malicious microchips on hardware, and also being aware of or aiding in any investigation led by US intelligence services. With the DHS and GCHQ also stating they have no reason to doubt the statements of denials, the chorus of disapproval is getting louder. That said, there is still an element of doubt.

Bloomberg is one of the most trusted and professional news sources on the planet, with a pedigree for unveiling worrying truths which have been deemed unsuitable for the general public. The report, which was researched and written over months, points to a total of seventeen sources. One source might have been suspect, two or three might have been dubious, but seventeen individuals confirming the same story suggests there is at least an element of truth to the claims.

Ultimately we doubt there will be anything the companies or government can do to completely remove the element of distrust. The claim of nefarious actors and activity has been raised, and now there will always be a heightened suspicion. A concrete rejection of the claims from the White House and the US intelligence services would set the ball rolling, but don’t expect that any time soon. This saga conveniently supports the anti-China rhetoric being fuelled by the US government; why would it want to do anything to discredit the help Bloomberg is giving it?

Amazon, Supermicro and Apple call BS on Chinese spying sting – someone is lying

Amazon, Supermicro and Apple have released statements denying they have ever found any malicious microchips on their hardware calling into questions the validity of Chinese espionage claims.

Yesterday Bloomberg pulled back the curtain on an apparent three year-old US government into one of the most intrusive and intricate espionage campaigns, fuelled by the Chinese government. Should the claims be proven true, it would certainly add weight to the political paranoia which has been whipping the anti-China rhetoric into a frenzy, though the major players have denied all knowledge of the malicious microchips and the resulting investigation.

“As we shared with Bloomberg BusinessWeek multiple times over the last couple months, this is untrue,” said Steve Schmidt, Chief Information Security Officer at Amazon. “At no time, past or present, have we ever found any issues relating to modified hardware or malicious chips in SuperMicro motherboards in any Elemental or Amazon systems. Nor have we engaged in an investigation with the government.”

“Supermicro has never found any malicious chips, nor been informed by any customer that such chips have been found,” Supermicro said in a statement. “The manufacture of motherboards in China is not unique to Supermicro and is a standard industry practice. Nearly all systems providers use the same contract manufacturers.”

“Over the course of the past year, Bloomberg has contacted us multiple times with claims, sometimes vague and sometimes elaborate, of an alleged security incident at Apple,” an Apple statement reads. “Each time, we have conducted rigorous internal investigations based on their inquiries and each time we have found absolutely no evidence to support any of them. We have repeatedly and consistently offered factual responses, on the record, refuting virtually every aspect of Bloomberg’s story relating to Apple.”

While the entire saga is now a bit hazy, one thing is clear, someone is lying and misleading the general public.

Would China compromise ‘Workshop of the World’ position?

It is not difficult to believe the Chinese government would conduct such campaigns. It is generally accepted the Chinese government monitors the activities and communications of its own citizens, therefore it is not a huge stretch of the imagination to believe it would do so for foreign countries. But, would the Chinese government put its valuable position as the ‘Workshop of the World’?

With roughly 75% of smartphones and 90% of PCs manufactured in the country, any accusations of espionage would certainly force companies to reassess their supply chain. What company would buy hardware if they knew the potential for data breaches? It would be commercial suicide. China surely knows this, but it depends on what it places more importance on; securing intelligence from foreign governments and multinational corporations, or maintaining stability for a very lucrative industry for the country.

This is not to say they wouldn’t, but it would have to accept it would be sacrificing an important and profitable role in the global supply chain, one which it has worked hard to dominate.

Amazon, Supermicro and Apple clearly have a lot to lose

Another denial here is nothing which should come as a surprise. Should there have been a confirmation, the trio would haemorrhage customers.

Amazon AWS’ government business is a big earner, but how many would trust the services if there was a threat of espionage. The same could be said of corporate clients who are incredibly protective of trade secrets. Supermicro manufactures motherboards for more than 900 customers around the world, clearly this would be incredibly damaging to its reputation. For Apple, and Amazon as well, the PR damage for the consumer business could be a disaster. Consumers would be very wary, which combined with the high-prices Apple tends to charge, could possibly turn the public to other brands.

Each company has a lot to lose by admitting it has been compromised. There was of course going to be a denial, especially considering this investigation has not been confirmed by the government. If it does turn out to be true, the trio can simply state they were under non-disclosure agreements and a denial was necessary for national security, even if it was a lie.

A convenient revelation for the US government

Just as President Trump is going on the offensive against the Chinese government with tariffs and company bans, the story emerges. To say it is convenient timing is somewhat of an understatement.

Just last month, Trump upped the ante on the Chinese trade war by introducing tariffs on another $200 billion of imports. This adds to the initial $50 billion which was announced earlier in the year. With the price of imports increasing, and the option of domestic manufacture more expensive, the price of certain consumer goods will soon begin to rise. Trump will soon need to justify to US citizens why it is important to swallow these price increases, and an espionage scandal would certainly fit the bill.

Another interesting aspect is on the 5G side of things. With Huawei banned from any meaningful deployment or contracts, the risk is reduced competition which could potential lead to increased prices and slower deployment. Ghost stories about the naughty Chinese will only get the government so far, Trump will soon need a concrete reason for banning Huawei and ZTE from the fray. The malicious microchips provide justification here as well.

Not everyone can be right

Right now the validity of the claims is hazy. There are of course strong arguments for all, some suggesting they are telling the truth and some as evidence of lies, but right now, who knows.

With the intelligence community and the White House remaining quiet, rumours will continue to swirl. Until this confirmation or denial for the investigation is unveiled, the conspiracy theorists will be typing away. Of course, a confirmation or denial will not stop the conspiracy theorists, but it will at least provide some clarity for the rest of us.

Maybe the Chinese espionage rhetoric is more than political hot air

Evidence has reportedly been found of China spying on more than 30 US companies, suggesting the anti-China rhetoric might be more than political posturing.

To date, little hard evidence has been displayed in the public domain regarding Chinese espionage, but that might be about to change. According to Bloomberg, a three-year old investigation has uncovered tiny microchips nestling on the motherboards of servers used not only in private corporations, but Department of Defense data centres, the CIA’s drone operations, and the onboard networks of Navy warships. These chips can be traced down the supply chain to a Chinese subcontractor used by SuperMicro.

While espionage has focused on locating and exploiting vulnerabilities in software in recent years, compromising hardware can be more effective. It is more difficult to do, but due to the life-cycle of these products, it can be longer until the issue is uncovered. Compromising hardware can be done in two ways; firstly, devices can be manipulated when on-transit between the supplier and the customer, or the nefarious activities can be conducted at the beginning of the manufacturing process. This is an example of the latter.

The microchips were first discovered after Amazon sought to acquire a company called Elemental. Elemental makes software for compressing massive video files and formatting them for different devices, but also provides expensive servers for customers installed on their sites to handle the video compression. These servers were assembled by SuperMicro, which in turn outsourced some processes to the Chinese subcontractor. These microchips allowed the controller to create stealth doorway into any network that had servers hooked up to it.

To conduct this sort of espionage is incredibly difficult. Not only does the microchip need to be small enough to avoid detection, and powerful enough to perform the desired actions, implanting the device would require an intimate knowledge of the products design. Considering how much of the worlds telecommunications manufacturing is done in China, the country is in an incredibly unique position to master the complex and intricate task. Sources states the microchips were inserted by operatives from a unit of the People’s Liberation Army, the armed forces of the People’s Republic of China and Communist Party of China.

Amazon has stated it had no knowledge of such a saga, though Bloomberg notes this is contradicted by its own sources. While the scale of such espionage activities are unknown for the moment, it is believed more than 30 companies could have been victims, including Apple which had planned to purchase servers from SuperMicro as part of the companies data centre expansion plans.

For the US government, this might just prove to be the justification it needs to chase Chinese companies off the shores. It has been battling to rid the country of Huawei and ZTE, though as little evidence has been released to the general public, a sceptic might suggest this was little more than anti-communist propaganda.

Unfortunately, this might simply compound the pressure which is being applied to China, instead of creating a resilient security framework. A whitepaper from the Rural Broadband Alliance entitled Domain5 suggests a supply chain can be compromised at any point and concentrating on one country might not be the best solution. Operatives are capable of infiltrating a manufacturing plant, in theory, irrelevant as to where it is, therefore concentrating too intently on one country might weaken the security protocols elsewhere.

This should not undermine what is perhaps the most damning evidence of Chinese espionage in recent years however. Various intelligence committees and sub-committees have pointed the finger of dodginess at China for years, though this is the most compelling evidence which we have seen.