The U.S. Wants to Ban Huawei. But in Some Places, AT&T Relies On It.

The Wall Street Journal

U.S. company and rivals use Chinese vendor’s equipment to run wireless networks across Mexico; ‘We just continue supplying them’

ByDrew FitzGeraldUpdated April 16, 2019 12:03 p.m. ET

U.S. officials have told telecommunications executives around the world to steer clear of Huawei Technologies Co., calling the company a national-security threat, but that hasn’t prevented AT&T Inc. T -0.51% from using the Chinese company’s equipment in Mexico.

While AT&T has kept Chinese equipment out of its domestic networks, industry executives say the U.S. company uses Huawei’s gear to run a large part of the wireless network in Mexico, where the electronics giant is as welcome as any other supplier.

Huawei boxes sit atop cellphone towers across Mexico, where AT&T is the No. 3 provider in terms of wireless subscribers. The Dallas company inherited much of its Mexican gear through acquisitions, though executives say it also has used the Chinese supplier to upgrade its 4G network in recent years.

“We are the most significant vendor in this country,” Cesar Funes, a Huawei vice president in Mexico, said in an interview. “We respect, of course, headquarters’ discussions with their governments. We just continue supplying them what we are asked to supply.”

An AT&T spokesman said U.S. officials haven’t asked the company to remove its Huawei gear in Mexico, though the carrier already replaced some hardware at the heart of its cellphone network for business reasons.

“When we upgraded our Mexico network to 4G LTE, we replaced Huawei in our data core network with equipment from the same suppliers we use in the United States, because it gave us consistency in design and scale in purchasing,” the spokesman said. “We expect to harmonize our networks in the same way when we upgrade to 5G in Mexico.”

Huawei has won at least four wireless infrastructure contracts since 2011 to enhance cellphone service for Mexican carriers, according to industry research firm Ovum. They include half of the machinery for Red Compartida, a new 4G network shared by several companies that the Mexican government launched to spur competition.

Mr. Funes declined to provide details about AT&T or other clients, though he said his company runs more than half of the 4G cellular gear in Mexico.

Huawei competes with Sweden’s Ericsson AB and Nokia Corp. of Finland to equip cellphone network operators. Most large telecom companies keep two or more suppliers in the mix to maintain leverage in future negotiations.

In January, the U.S. Justice Department unveiled criminal charges against Huawei, accusing the company of stealing trade secretsCanadian authorities arrested the company’s finance chief at the request of U.S. prosecutors alleging the company violated sanctions against Iran.

Huawei has repeatedly said it operates independently from the Chinese government and its equipment is safe.

AT&T Chief Executive Randall Stephenson, when asked whether he might use Huawei’s technology to build the company’s 5G network, was unequivocal.

“Our government has told us not to, so I get it. We are not using Huawei,” Mr. Stephenson said in March at an Economic Club of Washington, D.C., luncheon, adding that U.S. officials are “very aggressive on this, that this is a security risk.”

Huawei’s success in Mexico shows the uphill climb U.S. officials face convincing private-sector leaders that the Shenzhen-based telecom giant poses an imminent threat to their information security. The State Department has stepped up its campaign in recent months to persuade allied countries to avoid doing business with Huawei, with limited success.

A State Department spokeswoman declined to comment on diplomats’ discussions with Mexican authorities. Department official Robert Strayer said in a recent press conference the U.S. has “encouraged countries to adopt risk-based security frameworks, and we think that a rigorous application of those frameworks…will lead inevitably to the banning of Huawei,” as well as ZTE Corp., another Chinese electronics maker.

Huawei is the world’s top telecom supplier, according to market analyst Dell’Oro Group. Its success abroad has alarmed American officials who fear that telecom executives won’t be able to avoid using Chinese producers, especially in countries with close economic ties to the U.S.

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Today’s 4G networks are linked across borders, but future 5G networks could make national boundaries even less relevant. Mr. Strayer said newer cell-tower equipment will be more than “dumb” conduits for information, leaving a broader swath of cellphone networks vulnerable to potential snooping.

AT&T entered Mexico in late 2014 after the Mexican government enacted legislation to enhance competition in a famously concentrated telecom market. The Dallas company pieced together a wireless company by snapping up two smaller players, Iusacell and Nextel Mexico, inheriting a dense network of machinery bought from Huawei, among other suppliers.

AT&T doubled down on Huawei over the next four years as it upgraded the infrastructure it acquired to support 4G service. A senior AT&T executive in 2016 told an industry publication that the supplier’s performance was “excellent.” The company has estimated the price of replacing the Huawei electronics it has in Mexico and found the cost prohibitive, according to a person familiar with the matter.

The Chinese company, which also makes cellphones, has spent years raising its profile in Mexico. It had its brand name splashed across jerseys for the popular soccer team Club América—until the AT&T logo took its place. When AT&T’s Mexican headquarters moved into a glassy tower finished in 2016, Huawei moved into a satellite office a floor away to stay close to its client.

“Huawei today is one of the main providers of infrastructure for the Red Compartida, which is the biggest communications infrastructure project in the country in the last five or 10 years,” said Mony de Swaan, former head of Mexico’s telecom regulator, the Federal Telecommunications Institute.

AT&T has bet that a Mexican middle class can boost its future profits. The company invested more than $7 billion, including the $4.4 billion spent to acquire Nextel and Iusacell, over the past four years to improve its network there.

The investments appear to have worked: AT&T ended 2018 with more than 18 million wireless lines in Mexico, trailing billionaire Carlos Slim’s América Móvil SAB , which has 75 million, and Spain’s Telefónica SA . The U.S. company’s executives say the business will start turning a profit this year.

—Robbie Whelan contributed to this article.