Sprint Merger Complicated by U.S. Distrust of Huawei, ZTE

Sprint's deal with Softbank is expected to include a condition that the U.S. government has equipment-purchasing approval.

Sprint's $20.1 billion deal with Softbank, Japan's third-largest wireless carrier, is being complicated by the U.S. government's distrust of China-based telecom equipment providers ZTE and Huawei.

In October 2012, the carriers penned a deal in which Softbank would receive a 70 percent stake in Sprint in exchange for $20.1 billion—money that Sprint has already begun spending on its growing Long Term Evolution (LTE) network.

As a condition of approving the telecoms' deal, the U.S. government says it wants the right to approve network-equipment purchases, The Wall Street Journal reported March 28.

While the government didn't expressly state that its interest in equipment purchases stems from a fear of the Chinese government using the Huawei and ZTE technology to spy on the United States, the motivation behind the request wasn't missed by the Chinese government or the equipment providers.

A Chinese Foreign Ministry spokesperson at a March 28 press briefing urged the United States to "abandon this approach," The Journal reported. The spokesperson added, "This doesn't help mutual trust between the U.S. and China, and interferes in the trade and economic relationship between the two countries."

The U.S. House Intelligence Committee released a report in October 2012 that likely also didn't warm relations between the nations. Following a nearly two-year investigation, the report warned that Huawei and ZTE posed a threat to national security and urged branches of the government overseeing sensitive systems to refrain from purchasing equipment from the pair.

"Any bug, beacon or backdoor put into our critical systems could allow for a catastrophic and devastating domino effect of failures through our networks," Rep. Mike Rogers (R-Mich.), chairman and ranking member of the committee, said in a statement at the time.

"We have serious concerns about Huawei and ZTE, and their connection to the communist government of China," Rogers continued. "China is known to be the major perpetrator of cyber-espionage, and Huawei and ZTE failed to alleviate serious concerns throughout this important investigation."

Huawei spokesperson William Plummer said at the time that the idea that Huawei equipment was "somehow uniquely vulnerable" to security issues ignored "technical and commercial realities" and threatened American jobs and innovation.

Responding to the government's repeated concern regarding the brand, Plummer told the The Journal, "The adoption of such a policy would seem little more than a market-distorting political or protectionist exercise."

ZTE spokesperson David Dai Shu took a gentler approach, telling the The Journal that the company understands that the situation is "complicated" and "we are trying to prove that ZTE's equipment is safe and poses no threat to U.S. security."

Softbank and Sprint have agreed not to use equipment from ZTE and Huawei in their U.S. network, and even to replace Huawei equipment in the Clearwire network, Rep. Rogers said in a statement to The New York Times. Sprint currently owns a majority share of the 4G provider and is in the processing of acquiring the rest of it.

Rogers said he was pleased with carriers' cooperation and will continue to try to improve the government's authority "to thoroughly review all the national security aspects of proposed transactions."