This month’s arrest of Huawei Chief Financial Officer Meng Wanzhou is drawing scrutiny to T-Mobile and Sprint’s proposed merger valued at some $26.5 billion, reducing the carriers’ chances of completing their already risky consolidation without major concessions. While the political context of the development is both complicated and sensitive, the consequences of the arrest and the ongoing legal battle stemming from it may be far-reaching and reflect on a number of industries, including the United States wireless sector. Ms. Meng’s arrest is once again drawing attention to the fact that Huawei and Sprint’s parent — Japanese tech giant SoftBank — are close partners that have been collaborating on 5G initiatives for many years now.
The Japanese connection
Many industry watchers, as well as past and current members of the Western intelligence community are now pointing to Ms. Meng’s case as one of the main talking points in T-Mobile and Sprint’s merger saga that’s been ongoing for about half a decade now. Former House Intelligence Committee Chairman Mike Rogers recently told Bloomberg stateside agencies ought to be “very, very cautious” about giving Huawei any degree of influence over any U.S. carrier, let alone a telecom behemoth that would be created if T-Mobile and Sprint merged their operations. T-Mobile’s legal team already acknowledged the newly emerged concerns but remains adamant the basic facts of the case haven’t changed, arguing the U.S. government has always been careful about not allowing Huawei technologies into the stateside wireless segment and concluding there’s no way that happens in the future.
Proponents of the tie-up are also arguing the SoftBank link is overblown seeing how the Japanese technology juggernaut already agreed to cede a controlling stake in a hypothetical merged entity to T-Mobile parent Deutsche Telekom, which would significantly limit its ability to push for the combined company to embrace Huawei’s network gear and software in the future. In terms of exact figures, SoftBank would hold 27-percent of the company, Deutsche Telekom would hold a 42-percent stake, leaving just under a third of the firm in the public market. Huawei already supplies most of the parties involved in the deal with some equipment, though its activity in the U.S. is highly limited to the many regulatory issues and legal clashes with American companies it experienced in the past.
T-Mobile and Huawei aren’t exactly best buddies
Another point that most industry watchers pointing to the Huawei-related risks of Sprint and T-Mobile’s merger often miss is that T-Mobile and the Chinese manufacturer haven’t been on the best of terms for some time now. Several years back, T-Mobile accused Huawei of trade secret theft, claiming some of its visiting engineers sketched and stole components from its secret mobile user experience testing robot “Tappy.” While the Bellevue, Washington-based company initially demanded hundreds of millions of dollars in damages, it was unable to prove that Huawei’s engineers were acting on direct orders from management, hence proving trade secret theft but not corporate espionage, with the case itself being concluded last year. That episode put an obvious strain on T-Mobile and Huawei’s relationship and the former hasn’t been carrying the latter’s devices ever since.
Huawei managed to find another potential partner in the U.S. wireless segment late last year, having agreed on a partnership with AT&T. The Dallas, Texas-based network operator was meant to start carrying the Mate 10 series of Android flagships in January but ended up dropping the idea mere hours before it was planned to be announced at Consumer Electronics Show 2018 in Las Vegas, Nevada. The move was prompted by federal pressure as Washington officials are understood to have threatened AT&T with scrapping its lucrative government contracts. Richard Yu, the CEO of Huawei’s consumer electronics unit, called the development a result of baseless accusations motivated by the U.S. government’s desire to provide its rivals with an unfair advantage. Some six months later, Congress approved a spending bill with a provision that bans any federal use of technologies made or merely associated with Huawei and ZTE, another Chinese firm that’s been facing accusations of being a security threat to the West. Around the same time, Pentagon banned Huawei and ZTE Android devices from being sold on and around U.S. military bases in the country and abroad, also citing national security concerns.
An endless influx of regulatory issues, clashes, and accusationsh
Ms. Meng’s December 1 arrest is hence just another episode in the never-ending saga of Huawei’s global ambitions, issues, and clashes with foreign governments and companies. The 46-year-old is being accused of organizing an illegal banking scheme and forging secret ties to a Hong Kong company operating in Iran with the intention of breaking U.S. trade sanctions imposed on Iran. The U.S. Commerce department nearly pushed ZTE into bankruptcy over similar issues earlier this year, with that episode suggesting Huawei’s top executive won’t be off the hook anytime soon.
Ms. Meng has been released earlier this week, with a Vancouver court setting her bail at the equivalent of $6.5 million. She’s currently under limited house arrest after having her passport taken and has to wear an ankle monitor while she’s awaiting a continuation of her trial. Canadian authorities made the arrest on the behest of the U.S. Department of Justice, with Washington having until early February to formally request her extradition, a move it’s expected to make as early as next week. Huawei expressed doubts about the legitimacy of her arrest, demanding to see some concrete evidence of wrongdoing and claiming it’s not aware of any transgressions on her part. Ms. Meng doesn’t have a criminal record anywhere in the world but is now facing up to 30 years in federal prison if the allegations against her are proven true and she’s tried in the U.S. Earlier this week, President Trump said he’d intervene in the affair if doing so would prove beneficial to Washington’s ongoing trade talks with China, with the Far Eastern country interpreting that comment as evidence the arrest is politically motivated and demanding an immediate and unconditional release of Ms. Meng while calling for Canada to stop acting as a U.S. puppet.