For months, the U.S. government has pushed other countries to block the use of Chinese telecom giant Huawei Technologies Co. Ltd. for 5G infrastructure build-outs.
The reason is because of an agreement between the Chinese government and countries that allow Beijing to use its companies to spy on other countries through software backdoors.
While they have denied it, in August 2019, Huawei employees were caught using cellular data to track the location of political officials in Africa. Though an investigation found no ties to the Chinese government, it opened the door of possibility.
U.S. officials have gone so far as to attempt to persuade foreign governments like the U.K. to halt the use of Huawei for 5G infrastructure. The U.K. went ahead and decided to use Huawei anyway.
On Thursday, U.S. Attorney General William Barr suggested a path that would lead the U.S. into a similar situation to China and Huawei.
What Barr Said
In a speech, Barr said the U.S. and its allies should consider taking a “controlling stake” in two of Huawei’s rivals, Ericsson or Nokia — or even both. The two companies are working on 5G infrastructure build-outs.
“Putting our large market and financial muscle behind one or both of these firms would make it a far more formidable competitor and eliminate concerns over its staying power, or their staying power,” Barr said.
Barr gave no indication of how the U.S. would be involved or how it would pay for a stake. There’s also no indication such a move would be approved by either U.S. or foreign regulators.
The U.S. has rarely invested in public companies — mostly in bailout situations. But with the stakes high in the race to build out 5G infrastructure and the potential for that infrastructure to be used for spying, the possibility is there.
Scandanavian Open Arms
One shareholder in the Nordic-based companies actually welcomed the idea.
Crister Gardell, who works with activist fund Cevian Capital and is a shareholder of Ericsson, said the idea of the U.S. investing directly in the company isn’t a bad idea. He went so far as to suggest Ericsson executives to consider the idea.
“This is real, I think the U.S. would do whatever it takes — and costs — to get their hands on Ericsson,” Gardell told the Financial Times. “For the board of Ericsson, it is almost impossible not to engage in these discussions. (It would be) very risky not to.”
Shares of both Ericsson and Nokia rose by more than 4% in their respective country’s markets Friday. In the U.S., shares of Telefonaktiebolaget LM Ericsson (Nasdaq: ERIC) were up 6% and Nokia Corp. (NYSE: NOK) jumped 4% in Friday midday trading.
While the idea may seem like an interesting one to debate, there’s an elephant in the room: Would U.S. government investment in a company building 5G infrastructure at home and abroad present the same situation the U.S. is suggesting is possible with China and Huawei — spying?
There would be nothing preventing the U.S. government from either directly including stipulations that any infrastructure built to be used for government purposes.
Of course, having knowledge of proprietary technology could lead to it being done indirectly.
And what would it say to U.S. companies that don’t get the benefit of U.S. government investment?