2018 hasn't been a particularly good year for Chinese telecommunication behemoth ZTE, who risked losing their Android license thanks to a ban imposed on them by the US Department of Commerce. Following the ban, the company tried to negotiate with the US government to get it revoked but faced stiff resistance along the way. Even direct intervention by the president didn't do much. The ban was temporarily lifted last week to facilitate routine maintenance of equipment. They even rolled out an Android security patch for good measure.
However, it looks like their perseverance paid off and the US Department of Commerce agreed to lift the ban. ZTE agreed to pay an additional $1 Billion on top of the $900 Million they paid earlier as a part of the settlement. An additional $400 Million is to be put in an escrow, along with a complete upper management change. The US Department of Commerce further states:
ZTE will also be required by the new agreement to retain a team of special compliance coordinators selected by and answerable to the Department’s Bureau of Industry and Security (BIS) for a period of 10 years. Their function will be to monitor on a real-time basis ZTE’s compliance with U.S. export control laws. This is the first time BIS has achieved such stringent compliance measures in any case. The new agreement once again imposes a denial order that is suspended, this time for 10 years, which BIS can activate in the event of additional violations during the ten-year probationary period. Finally, ZTE also has replaced the entire board of directors and senior leadership for both entities. While we lifted the ban on ZTE, the Department will remain vigilant as we closely monitor ZTE’s actions to ensure compliance with all U.S. laws and regulations,” said Secretary Ross. “Three interlocking elements – a suspended denial order, the $400 million in escrow, and a compliance team selected by and answerable to the Department – will allow the Department to protect U.S. national security.”
What does this mean for the future of ZTE?
ZTE is by no means off the hook. It will operate for the next ten years under a suspended ban which can be revoked if they're caught breaking the terms of the agreement again. While they get to resume business operations, they'll still be closely monitored by the Department of Commerce via a third-party compliance monitor. Additionally, ZTE has to grant the US government unrestricted access to their facilities and infrastructure.
It is estimated that ZTE incurred a loss of about $3 Billion due to the ordeal. To make matters worse, their stocks have been frozen for about two months and have lost half their value since. Re-establishing itself in the market again will be an uphill task now that they have their name dragged through the mud time and again. It will take months, even years, for ZTE to undo the damage.
For those out of the loop on this, ZTE was banned from conducting business in the US after it was revealed that they violated the terms of an agreement they had with the government. The company was found illegally shipping technology and equipment to Iran earlier in 2012. The ongoing tug-of-war has also had geopolitical implications as it raised tensions between China and the White House.
As an external observer, it is impossible to know what is really going on behind the scenes. Prima facie, it seems like a case of ZTE getting punished for several trade violations, which is warranted. There have been allegations of the company using their equipment for espionage and those need to be investigated too. All of the accusations aside, ZTE makes excellent phones, and they deserve another chance to continue doing so. I agree that national security is of the utmost importance and must not be taken lightly. It's best to reserve judgment until the investigation is complete.
News Source: US Department of Commerce