China's Huawei looks on Ottawa to smooth entry into US market

Jamie Sturgeon | Financial Post | Aug. 28, 2010

Huawei Technologies Co. may be looking to the city of Ottawa and the domestic telecom market to help ease tensions between the Chinese network-maker and Washington.

Huawei strengthened ties with the city by taking membership in tech incubator Ottawa Centre for Research and Innovation. The move follows the opening of research labs in the region this spring and a commitment of $50 million to R&D.

Huawei's immediate interest in Canada stems from contracts with BCE Inc.'s Bell Canada, Telus Corp. and SaskTel. But the deepening connection likely holds another motive, analysts suggest -- establishing a beachhead for entry into the United States, a market the Chinese firm has coveted for years but has faced stiff opposition from some U.S. lawmakers.

"Their eyes have been set on cracking the (U.S.) telecom sector forever," said Jon Arnold, principal analyst at Arnold & Associates Ltd. in Toronto.

The need for Shenzhen-based Huawei to make inroads in North America is increasing. In the last year, chief competitors have taken major positions in Canada as U.S. carriers move to upgrade mobile networks and Canadian providers such as Bell, Telus and Rogers Communications Inc. prepare to follow suit.

Last summer, Sweden's Ericsson AB, the largest telecom equipment maker in the world, outbid European rival Nokia Siemens Networks for Nortel Networks' wireless division. In July, NSN enlarged its presence by gobbling up Motorola Inc.' s network operations (and was rewarded with a $7-billion U.S. deal from Harbinger Capital Partner to build a next-generation network).

Huawei's biggest opponents may reside in Washington, where deep skepticism persists over the company's rumoured ties to Chinese military, among other allegations.

Last week, senior Republicans advised the White House to block Huawei from supplying Sprint Nextel with network equipment because of national security concerns. Similar warnings forced Huawei to drop a bid for 3Com in 2008.

"Every time they've tried to gain entry into the American market, they've been almost completely unsuccessful," said Lee Ratliff, analyst at iSuppli Corp.

Now, Huawei is pursuing deeper ties in Canada. Since winning contracts with Bell and Telus to build their joint 3G+ network last year, the firm established R&D facilities in Ottawa in April. It is hiring from the talent left behind from Nortel's departure.

Membership into OCRI gives Huawei "an opportunity to show they're committed and here for the long term," said Claude Haw, chief executive of the regional trade body. Fellow members include Telus, Rogers and Research In Motion Ltd.

Yet some, like Arnold, see the aim of the moves as a way to smooth relations with the United States. By establishing a record north of the border, fears may be allayed, he said.

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