How Huawei used the UK to become a global giant

A sketch on the back of a napkin captured the moment when the global telecoms market opened up to Huawei.

Ben Verwaayen, the former chief executive of BT, drew the sketch to illustrate how he wanted to transform the UK's telecoms network, changing it from an antiquated analogue system to a digital one capable of routing data at speed, one that could even carry television signals.

But when he started contacting BT's traditional suppliers, such as the British equipment maker Marconi, the former telecoms arm of GEC, they were inflexible. By contrast Huawei, an unproven Chinese firm, was willing to work with BT on the £10bn project.

In April 2005, Huawei won a contract to provide devices that aggregate customer lines and connect them to the main part of the network.

“It was the creation of an exit out of China,” said Mr. Verwaayen. “They got a foothold, the rest is history.”

BRITAIN WAS THE SPRINGBOARD

Indeed, while Britain has become one of the most vocal critics of Huawei's penetration into western telecoms systems in the run-up to the arrest of the company's chief financial officer this week, it was also the country where it made its global reputation.

From an obscure equipment maker in southern China with only one international contract of note — with Hong Kong's Hutchison Whampoa — Huawei was able to use its BT work to legitimize its systems in other European markets and become the world's largest maker of telecoms equipment.

The UK also shows the cost borne by legacy equipment makers that have failed to match the speed and aggressiveness of the Chinese upstarts: Marconi shares fell 40% on the day the BT contracts were announced, and the British firm — which traced its roots back to the world's first radio factory in Essex in the 19th century — saw its business decline until it was acquired by Ericsson nine years later.

Ever since the deal, Huawei has used the UK as the base for its international operations, employing 1,500 people. In February Sun Yafang, Huawei's chairwoman, met British prime minister Theresa May to announce that the company would spend £3bn in the UK in the next five years.

UK POLITICIANS HAVE ALWAYS BEEN UNEASY

But the success of the Chinese company has always provoked unease among UK politicians and intelligence agencies, who have fretted over the time its founder, Ren Zhengfei, spent in the People's Liberation Army and a possible risk to national security. Huawei itself has always insisted it is a private company and is not directed by the Chinese state.

Those fears range from eavesdropping to the monitoring of data flow to fears of a backdoor within the code that could be used to shut down the network and cripple the economy. US officials have warned their counterparts in the UK and Germany of national security threats.

In 2013 a report by the Intelligence and Security Committee, headed by Malcolm Rifkind, said that civil servants, wary of the diplomatic and trade consequences of blocking a deal, had not briefed ministers about Huawei's contract with BT until after it had