Two of the world’s Top 5 telecom equipment vendors, are in the spotlight again. Huawei (#2) and ZTE (#5), both Chinese companies, produce telecom equipment such as routers and switchers for cellular operators and ISPs. This time around, they are both in the news together, for reasons that could mean trouble for them.

In a report due for release later today, the US House of Representatives’ Intelligence Committee will reportedly recommend that both these companies be barred from mergers and acquisitions in the US, and private American companies be discouraged from working with them. According to the report, which is based on a 11-month investigation, both Huawei and ZTE pose a potential threat to National Security, as they could be possibly be working with the Chinese government for non-commercial reasons, read- against the interests of US National Security

The report also recommends that US government computer systems not include any components from the two firms because that could pose an espionage risk. “China has the means, opportunity, and motive to use telecommunications companies for malicious purposes,” the report says. It is unclear whether the report is directed only towards the telecom equipment arm of both companies, or also includes handsets and other accessories meant for retail consumption that these firms have started venturing into over the past year or so.

Both firms have strongly rebutted the report calling it baseless, and have issued official responses to the same, while co-operating with the investigation in the most transparent manner. Incidentally, this report comes at a time when Huawei has been reportedly considering floating an IPO. This development could have negative ramifications on the growth plans for both companies, within and outside the US.

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