The case of losing the $200 million contract and the secrets inside Huawei’s business empire

During an urgent meeting held on March 5, 2019, the bidding for the upgrade of the mobile network for Denmark turned out quite strange. Telecommunications infrastructure negotiations are key issues – these agreements – are often made in private, deciding which companies are authorized to put their equipment and employees at what levels. the deepest depths of a country’s internet and telephone systems. But the discussion of the aforementioned contract for Denmark, which lasted all winter, became particularly tense.

In preparation for the transition to 5G mobile networks, Denmark’s telecommunications industry has become the subject of a behind-the-scenes economic proxy conflict. The relationship between the US and China is getting worse and worse and unknowingly, the decision of TDC Holding A/S – Denmark’s leading telecommunications company will carry symbolic value beyond human nature. The number of contracts is about 200 million USD.

A meeting on March 5 took place between Jens Aalose, senior executive vice president of TDC, and Yang Lan, a young country manager from Huawei Technologies, the world’s largest maker of networking equipment. . Huawei manages TDC’s existing network, which it built under a 2013 contract that’s about to expire. At 2:52 a.m. that morning, Huawei’s branch in Denmark submitted an urgent amendment to the 5G contract proposal without any prior warning.

This was especially unusual: A few weeks earlier, Huawei had made their final and best offer. The new proposal is similar to the old one. But while the old bid was significantly higher than that of Swedish company Ericsson AB – Huawei’s only competitor in this auction, the last one sent out at dawn had a higher price. lower price.

This is very noticeable. Competing bidders are not allowed to know about each other’s price proposals; Their terms were kept tightly secret inside TDC – only about a dozen people had access. As a result, Aalose arrived at the meeting with extreme caution.

What happened there only added to his suspicions. He noticed that Lan had an unusually confident attitude that day: “He was very confident and had a more aggressive approach than usual,” as he stated in a report later prepared by the team. TDC corporate security. Lan seemed to know something. Believing that Huawei knew the details of Ericsson’s proposal, Aalose ended the meeting early.

The resulting investigation, conducted by TDC over the next four weeks, plunged the company into a dark, anxiety-ridden territory. The company’s senior management is suspected; their office may have been compromised; and employees report that they are being followed by strangers. This article is based on detailed internal documents reviewed by Bloomberg and interviews with about 5 people involved in the investigation and its results. The informants asked to remain anonymous as they were not authorized to speak publicly on the matter.

This is a program that has never been reported in Huawei’s history and is an example of the methods that have sown suspicion about the company around the world. This also shows the real life of businesses when getting lost in the middle of the escalating conflict between the US and China over technology.

Huawei – whose name means “Chinese Achievement” – was founded in 1987 by Ren Zhengfei, a former Chinese military engineer who was originally a domestic distributor of telephone switches. . Many Chinese technology companies have really only grown in the domestic market, where they are protected from foreign competition through selective regulation and subsidies.

However, Huawei has ventured overseas since its inception. They began manufacturing their own hardware and joined the global communications revolution: the explosion of mobile phones, the convergence of audio and data, and the birth of the mobile internet.

At first, the company was mainly competitive on price, selling at less than or equal to cost, thanks to generous support from the Chinese government. Over time, the quality of their equipment improved, then became leading technology.

Huawei makes routers and mobile station antennas for data transmission, and writes increasingly complex orchestration management software to squeeze it all into the available bandwidth. Over the last decade, the company has held a leadership position in supplying telecommunications providers across Africa, Asia and Europe, outpacing its closest rivals, Sweden’s Ericsson and Finland’s Nokia Oyj.

Lan’s career started from that global development. According to his LinkedIn profile, Lan joined Huawei in 2005 as an account manager in China’s Hebei province, and he worked there for three years before being sent to work in Stockholm, where Ericsson is headquartered. main. A year later, he was promoted to national manager for Denmark.

Huawei is expanding in Europe, having won a contract to build a 3G network in the Netherlands in 2004, followed by another in the UK. According to a former senior TDC employee and two former Danish officials who worked closely with Lan, Huawei worked hard to win a partnership with TDC when Lan arrived in the country in 2009. This appears to be one formidable task; The host countries of TDC and Ericsson are Nordic neighbors with strong diplomatic and cultural ties.

However, TDC finally opened up to the persuasion. Three people familiar with the matter said that TDC’s technical staff were not satisfied with Ericsson’s reliability. Since TDC’s network processes classified Danish government data, officials there have an impact on any potential partnership with Huawei – and they have reason to consider it, too.

Meanwhile, the source revealed, US intelligence agencies have begun to persuade their European colleagues to prioritize European suppliers. In Denmark, however, the campaign backfired.

When US officials warned that Huawei equipment could contain so-called “backdoors” vulnerabilities that allow copying of data or eavesdropping on conversations, Danish officials feared that the US could do so. same thing with equipment from their preferred vendors.

Of course, TDC and its government partners still have real security concerns about Huawei, but according to former TDC employees and two former Danish officials, Huawei has finally agreed to come. a special deal. TDC will send its Huawei equipment to a special testing facility in the UK set up by Huawei and Government Communications (GCHQ), the UK’s cybersecurity and intelligence agency. There, the source code will be checked for any unauthorized modifications before the device can be used in Denmark.

In 2013, TDC announced a six-year, $700 million contract with a Chinese supplier to build and manage TDC’s 3G and 4G mobile networks. Lan has gone on to take on a variety of management roles in Ghana, Nigeria and Poland. Then, in 2016, he was sent back to Copenhagen to secure a new TDC contract before his current one expired.

At that time, Huawei and its rivals were starting to build 5G networks, operating on higher frequencies than previous generations. New networks offer faster bandwidth and speeds, but because high-frequency signals don’t travel as far as lower frequencies, the system requires more transceivers and more advanced software to manage it all.

The benefits of 5G for consumers and business customers are still controversial. But for Huawei – and its rivals – it’s an opportunity to sign billions of dollars in global contracts. Denmark was one of the first European countries to roll out 5G.

In 2016, the same year Lan returned to Denmark, the US Department of Justice began investigating the company for fraud, infringement of intellectual property rights and evasion of sanctions. These investigations have resulted in criminal charges, as well as the arrest in Canada of Meng Wanzhou, the company’s vice president and the founder’s daughter. She was held in Vancouver under house arrest for nearly three years, until released through a deferred prosecution agreement with the US government.

Huawei has also been repeatedly accused that its equipment is used for spying. The company boldly denies this, but there is conflicting evidence. In 2012, according to Bloomberg News, Australian officials informed their colleagues in the US of a sophisticated intrusion involving Huawei equipment.

Hackers from Chinese spy agencies are copying vast amounts of data from Australia’s telecommunications system and sending it back to China. This incident was considered particularly ominous because the code used in the hack was sent via Huawei’s software update, indicating that either the company approved the operation or its technical staff had been compromised. by intelligence agents.

In response to the reports, Huawei said it was never notified of the breach by Australian authorities, but this incident confirmed suspicions by US and Australian intelligence agencies that its spies China is using Huawei to gain access to customer networks. The discovery marks the start of a focused diplomatic effort from both countries to slow Huawei’s growth.

At TDC, when the 5G bidding process began at the end of 2018, there were still influential managers who had gone through difficulties with Ericsson and were still strongly supportive of Huawei. However, others feel uneasy. Within the Danish government, some of the officials who approved the 2013 contract also became suspicious after Huawei appeared to avoid complying with the security review process it had agreed to. In many cases, TDC had to deploy Huawei equipment and software that were not sent to the UK for inspection because of “administrative delays”.

Immediately after the meeting with Lan on March 5, 2019 was canceled, Aalose – a senior employee of TDC – ordered to investigate the source of the information leak at his company. Since senior TDC employees are all possible suspects, this investigation is particularly sensitive. This task is assigned to the company’s security team. They work at a small operations center in the basement of a building next to TDC’s executive office.

Within days of the leak investigation began, TDC management decided it could no longer do business with Huawei. On March 7, TDC’s 5G strategy committee decided to accept Ericsson’s proposal.

Source: Bloomberg