China remains of concern in Sprint-Softbank deal

As a condition for the merger to go ahead, the U.S. may ask for supervision over the purchase of network equipment, which may be a way to keep Chinese suppliers out of the equation.
Written by Charlie Osborne, Contributing Writer

Concerns remain over integrating Chinese technology within U.S. infrastructure, and so the government is seeking ways to stop the process as politically as possible.

In order to approve Softbank's acquisition of Sprint, the U.S. government may require the oversight of network equipment purchases, as reported by The Wall Street Journal. Chinese suppliers Huawei Technologies and ZTE have been under scrutiny for some time, with concerns raised over their ties to the Chinese government and that their networking equipment could be used as a springboard for the country's alleged espionage activities.

Two reports released last year by the U.S. House of Representatives Intelligence Committee and the European Commission suggested that Huawei and ZTE could represent a threat to both the United States and Europe, as it is possible that malicious code is being built into telecoms equipment which could be used to infiltrate other countries' networks.

The American report urged businesses not to buy the two firms' equipment, however, Chinese officials have said in response that such reports violate free-market principles -- and warned that it could cause a political divide between the two nations. Huawei and ZTE have both continually denied that their networking equipment is a security risk.

In January this year, the FCC was asked to delay the Softbank-Sprint deal on the basis of national security concerns. Citing sources familiar with the situation, the publication says that in order for the $20 billion merger to go ahead, it is possible that suppliers originating from China could be kept out of the equation. In order to avoid political confrontation, supervision wouldn't specifically exclude gear from Huawei or ZTE, but as one source said, "You have to find a way to say, 'Don't buy from the Chinese,' without saying, 'Don't buy from the Chinese."

In addition, one anonymous source said that both firms would be willing to stop using gear from both companies within their U.S. network if it meant the deal would receive the blessing of U.S. officials.

Japanese wireless carrier Softbank intends to help fund the acquisition of the 70 percent stake in Sprint by releasing bonds worth $4 billion to investors. If the merger goes ahead, the firm's customer base will swell to 96 million subscribers in the U.S. and Japan, whereas its closest rival, DoCoMo, has approximately 60 million users.

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