The Wall Street Journal on Friday reported that Sprint Nextel is excluding Chinese vendors Huawei Technologies and ZTE Corp. from its network modernization project because of national security concerns in Washington, D.C.
Citing people familiar with the matter, the report noted the Defense Department and some U.S. lawmakers have been increasingly concerned about the companies’ ties to the Chinese government and military. Some officials believe China’s military could use Huawei or ZTE equipment to disrupt or intercept American communications.
Citing an administration official familiar with the conversation, the report said Commerce Secretary Gary Locke called Sprint CEO Dan Hesse last week to discuss concerns about awarding the work to a Chinese firm, but didn’t ask Sprint to exclude the Chinese suppliers. Hesse declined comment to the WSJ.
Both ZTE and Huawei have said their equipment does not pose a threat to U.S. security, noted the article, which also cited a source who said security wasn’t the only reason in Sprint’s decision. Some Sprint executives reportedly also were worried about the ability of the Chinese companies to execute the required work.
In a blog post today, BTIG Research analyst Walter Piecyk said the more interesting aspect of the WSJ article was the reference to the contract size of $8.5 billion, which is well above their estimated size of $3 billion. “The difference between estimates could be the more expensive cost of electronics referenced in the article but that seems a bit dramatic,” Piecyk said. “Sprint has never officially commented on the price of the project and the $8.5 billion seems high at $34 per covered POP.”
The WSJ report says Sprint is now renegotiating with two finalists, Samsung and Alcatel-Lucent.