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Huawei: You don't need to be afraid of us

CNET dives into the colorful history of the China-based company and its attempts to get into the U.S. market, and where it stands now.

A Pegasus constructed entirely out of Huawei Ascend smartphones sat on the grounds of Mobile World Congress in Barcelona, Spain. It was a major draw at the show a few weeks ago, and highlighted Huawei's brand. Roger Cheng/CNET

For a company that builds telecommunications equipment and smartphones, Huawei has--in its own admission--not been so great at communicating its story.

Huawei's focus on serving its customers in the past came at the expense of establishing any kind of presence with the media or consumers, something its executives believe opened the door to a misinformation campaign that has stunted its progress in the U.S.

"We realized we were not good with communication," said Charles Ding, the senior-most Huawei executive based in the U.S., in an interview with CNET. "We didn't clarify who we are."

As a result, Ding said, fear over Huawei's ties to the Chinese government, and the potential security risk it poses, has dogged the company's ability to get big wins here in the U.S. The company was a virtual lock to win a piece of Sprint Nextel's network upgrade business less than two years ago before politics intervened.

Huawei is trying to calm those fears, and emphatically denies the notion that it is in bed with the Chinese military and government. Ding, a member of the company's joint committee of regions--a group of executives that serve as key figures throughout its global markets--moved to Washington, D.C., in August to help communicate the company's position to the public.

Its most useful tool to gain public recognition: a slowly burgeoning mobile phone business steadily making its way up to the largest carriers. On the global scene, Huawei made a splash at Mobile World Congress in Barcelona last month, particularly with its boast of the world's fastest phone. It hopes to emulate that success in the U.S., but it is extremely slow-going.

Over the past year, the company has added a public relations and lobbying team, standard practice for any multinational company trying to do business in the U.S. The company has been more willing to open up to reporters and analysts, and has been more transparent about its business.

"We're more mature now," said William Plummer, vice president of external affairs for Huawei.

Fanning the flames
That's a far cry from a few years ago, when the company was reluctant to talk to the press and wasn't particularly transparent about its business. That opened Huawei up to the heightened political opposition it faced in its entry into the U.S.

Plummer said he believes Huawei's competitors "fanned the flames" of fear and, in some cases, "lit the match," ultimately torpedoing a multibillion dollar deal with Sprint. Sprint was so keen to use Huawei that it created a startup called Amerilink designed to ease regulator concerns over such a deal. Amerilink proved ineffectual.

In late 2010, Sprint chose Ericsson, Alcatel-Lucent, and Samsung Electronics for its "Network Vision" infrastructure overhaul, which was pegged at the time to cost as much as $5 billion. Huawei, which had made some headway with smaller carriers, was shut out of a top-tier U.S. customer.

It wasn't the first time Huawei was denied a major deal. The company's attempt to buy network gear maker 3Com two years before the Sprint deal was dashed largely because a key unit, TippingPoint, provided intrusion prevention systems to critical government customers. Huawei and partner Bain Capital ended up bailing on the deal after the Committee on Foreign Investment in the U.S. indicated it would block the deal.

Hewlett-Packard bought 3Com for $2.7 billion a year later in 2009.

Even prior to the failed 3Com deal, Huawei had its share of controversy. In 2003, Cisco Systems sued Huawei, claiming the Chinese company had copied source code used in its routers and switches. By the following year, Huawei had admitted to using the copied code, but argued it was inadvertent and downplayed the significance of the actual code. By July, Huawei had removed the disputed code, and Cisco dropped the lawsuit. Both declared a small measure of victory.

Despite the difficulties it has faced in the U.S., it has made its presence felt overseas. The company's equipment serves one third of the population around the world, and counts major global telecommunications companies such as Vodafone and France Telecom's Orange as customers.

A brand in "Ascend"
Huawei has a few options. The company has restructured itself under three different units, focusing on network equipment and the carriers, smartphones and consumers, and large businesses.

Ultimately, the goodwill built up through the smartphone unit, which is Huawei's fastest growing business in the U.S., could eventually lift its other businesses, Ding said.

Huawei has taken a slow-and-steady approach with the smartphone business in the U.S. It initially only supplied low-end devices to prepaid wireless carriers, and with its brand stripped off--a process known as white labeling. More recently, Huawei's name has begun appearing on the devices, although they remain on the affordable end. The Huawei M835 for MetroPCS costs $19 unsubsidized. A higher-end device, the Huawei Ascend II for Leap Wireless's Cricket service is $69.99 without a contract.

The company has made some progress with national carriers as well. T-Mobile USA sells the Springboard, a Huawei tablet sold under the carrier's brand. AT&T sells Huawei's Impulse 4G, yet another unbranded phone.

The Huawei executives were reluctant to talk about Huawei's goals about creating a consumer brand in the U.S., similar to how HTC went from a white-label smartphone maker to a consumer brand over the past few years.

"We ultimately want a flagship phone, but until that happens we need to be as responsive as possible," Plummer said. "Once you meet those demands, you move up. But you need to earn it."

For now, Huawei is content to build affordable phones and getting the next generation of smartphone users to consider one of its devices. At least in that respect, it has some allies; T-Mobile has long talked about the opportunities that come from upgraded basic phone users to affordable smartphones. It's no coincidence that T-Mobile has turned to Huawei for its next series of MyTouch smartphones.

While virtually off the radar in the U.S., Huawei was a main attraction at the Mobile World Congress industry confab. Its logos were everywhere, and the centerpiece of its marketing blitz was a lifesize replica of a Pegasus constructed entirely of Ascend smartphones. The company kicked off the show's media day by unveiling the Huawei Ascend D Quad, using a custom-built processor it boasts is the fastest in the world.

Huawei a one-stop shop
Huawei is one of only a few companies left that can supply nearly everything in the communications and information ecosystem, including phones, network equipment, and mobile processors. The others, including ZTE, Samsung Electronics, and LG, are banking that their comprehensive offerings make them more attractive to their carrier customers.

But the strategy isn't without its risks. There are a number of telecommunications infrastructure companies that sold off or divorced themselves from the mobile phone business because the two don't fit as well as most would think. Ericsson, Siemens, Alcatel-Lucent, and Qualcomm at one point ran mobile phone businesses. Most recently, Sony bought out Ericsson to take control of their former joint venture.

Still, Huawei's ability to provide everything to a carrier has its advantages, Ding said.

With most of the major telecommunications companies locked up in contracts for LTE deployments already, Ding acknowledged that the near-term opportunity for Huawei's communications infrastructure business is limited. He added, however, that Huawei would work to build more trust over the next few years, readying itself for the next big upgrade cycle.

"It's good to improve the brand as a whole," he said.

For now, Huawei is in spin mode. Some of the company's big talking points include its investment in research and development in the U.S., money spent on components built by U.S. companies, and the support for local communities, education, and national charities.

It's unclear whether Huawei will ever lose its negative reputation. Ding acknowledged that his biggest concern in the U.S. was continued misinformation spread by competitors. Given the company's limited market presence here, he believes the reaction has been excessive.

"I don't know why they are so worried about our position," he said.