When Worlds, Blog Posts and Head-Fakes Collide

On March 19, I blogged about the clever U.S. Government head-fake "approval" of T-Mobile's acquisition of smaller U.S. carrier MetroPCS (link to that post: http://mbplrcbd.blogspot.hk/2013/03/exposing-clever-trade-barrier.html).

Seemingly exercising its authority to review the transaction in the context of “… public interest factors...determining whether to grant a foreign-affiliated carrier's application…including…national security, law enforcement issues, foreign policy and trade concerns,” the FCC approved the deal with an interesting amendment to previous agreements with T-Mobile which requires the carrier to provide the Departments of Justice and Homeland Security a list of current vendors and equipment and advance warning before selecting any new vendor and, related to either or both, to “negotiate in good faith to resolve any national security, law enforcement or public safety concerns DOJ or DHS may raise in response to any disclosure…”

Now, on the face of it, this seems reasonable enough, although I think that most informed stakeholders caught the Government's anti-China-based telecom vendor wink-and-nod.

If they didn't, however, House Intelligence Chairman Mike Rogers spewed it out rather plainly in his March 29 Sinophobic spittle-spraying statements about the concurrent Government review of Japan-based Softbank's purchase of the majority stake of Sprint.  As I blogged that day (http://mbplrcbd.blogspot.hk/2013/03/ten-days-ago-i-posted-on-what-i-called.html), Rogers claimed that he had secured Sprint and Softbank promises to not deploy Huawei gear in its U.S. networks, and that he expected the same to be codified in any Government approval of the deal (industry scuttlebutt has it, by the way, that certain of the commercial parties that Rogers references were puzzled by his comment, given that they don't recall having such conversations with him).

While it’s unclear whether anyone has any real visibility into the Sprint-Softbank deliberations, it’s fair to imagine that the path will follow the trail blazed by the T-Mobile/MetroPCS model.

Now, while all of this was going on, the U.S. Administration and Congress were struggling to agree a budget so that a full-fledged Federal Government furlough might be avoided come the end of March (for more on this, see my whimsical February 28th post: http://mbplrcbd.blogspot.hk/2013/02/of-furloughs-past-and-future.html).

Tucked inside the 240-page spending bill approved by the Congress and signed by the President in the waning days of March was a tiny little paragraph (Section 516) which, riding the wave of cyber-histrionics, would preclude select Federal Government Agencies from procuring information and communications technology (ICT) gear from companies "owned, directed or subsidized" by the Peoples' Republic of China.  This little seed of a potentially disastrous trade war was reportedly tacked on late-in-the-day by none other than Rep. Frank Wolf (Remember him? See my blog post from April 29, 2012: http://mbplrcbd.blogspot.hk/2012/04/fun-with-facts-featuring-rep-wolf-r-va.html).

After two years of escalating U.S. Government cyber-veiled China-bashing, the end of March 2013 seems to have defined an inflection point, at least in terms of holding hostage legitimate commercial entities and activities in vain attempts to change Chinese Government behavior.

At a March 28 press conference China's Foreign Ministry Spokesperson Hong Lei responded to a question about Section 516: "The bill uses cyber security as an excuse to take discriminatory steps against Chinese companies.  It does not help with the mutual trust between China and the United States and will interfere with bilateral economic and trade relations.  We urge the U.S. to abandon the practice and do more that is conducive to China-U.S. mutual trust and development of bilateral relations."

But the real heavy-hitters weighed in just a week later.   

In an April 4 letter addressed to House and Senate leadership, The U.S. Chamber of Commerce, Information Technology Industry Council, Business Software Alliance, and eight other prominent industry and technology associations communicated American industry's sympathy for the Government's IT security concerns but further expressed its strong belief that "geographic-based restrictions are ineffective and promote a false sense of security."  The letter further warned that "Section 516 creates challenges that could undermine U.S.-based companies global competitiveness," citing specific concerns that other countries might borrow from the U.S. model and adopt similar restrictions targeting U.S. companies.

(Aside: Gee, all of that sounds remarkably familiar.  Check out the tail end of this Bloomberg TV interview from last October: (http://www.bloomberg.com/video/huawei-s-plummer-says-house-report-almost-reckless-wdjt~TtIS6GcjZBX5ANMUA.html); or note my quote in the more recent January 2013 Reuters article on related matters: "Blackballing legitimate multinationals based on country of origin is reckless, both in terms of fostering a dangerously false sense of cyber-security and in threatening the free and fair global trading system that the U.S. has championed for the last 60-plus years."  (http://www.reuters.com/article/2013/01/07/us-huawei-alamos-idUSBRE90608B20130107)

Things got even more interesting when - a mere day after the U.S. industry missive to Congress was delivered - The Hill (a D.C.-based political trade pub) reported that the White House had come out against Section 516 (I know, I know - they signed the bill and now are opposing a provision in the bill.  Lets not go there right now...).  Link to The Hill's report: http://thehill.com/blogs/hillicon-valley/technology/292153-white-house-criticizes-ban-on-chinese-tech-products, which includes the following key quotes from a White House spokesperson:

"The undefined terms of this provision will make implementation challenging."

"It could prove highly disruptive without significantly enhancing the affected agencies’ cybersecurity. While the Administration has raised concerns about the cyber threats emanating from China, resolving this issue requires open dialogue between the U.S. and China."

(To that latter point: Check out my March 28, 2012 post on this topic: http://mbplrcbd.blogspot.hk/2012/03/mad-about-cyber-security.html).

It would seem that rational thought is breaking out all over the place.

But, let's not get head-faked again.

Zip back up to the opening paragraphs of this post.  The wink-and-nod FCC provisions attached to the T-Mobile/Metro and, presumably (not-yet-confirmed), Softbank/Sprint deals are no less market-distorting, anti-competitive and trade-war incendiary than Section 516 of the budget bill.  And, the sentiments from U.S. industry and the White House expressed in relation to Section 516 are no less relevant to the FCC provisions.  

As long as we're cleaning house, we would be remiss if we were not to get to all of the nooks and crannies…  

This will bear watching.