Attorney General Barr Suggests U.S. Firms Take Financial Interest in Huawei Rivals -- 2nd Update

By Drew FitzGerald and Sadie Gurman

The U.S. and its allies should consider countering the might of Chinese electronics giant Huawei Technologies Co. by taking a financial interest in competitors Nokia Corp. and Ericsson AB, Attorney General William Barr said Thursday.

The suggestion from Mr. Barr, a former general counsel to cellphone carrier Verizon Communications Inc., represents one of the Trump administration's most aggressive proposals yet for pushing back against Shenzhen-based Huawei.

"We have to make a decision on the 'horse' we are going to ride in this race," Mr. Barr said during a speech at the Center for Strategic and International Studies in Washington, where law-enforcement officials described the challenges of combating China's threats to U.S. economic and national security.

The Federal Bureau of Investigation has more than 1,000 open cases involving China's attempted acquisition of U.S. research and technology "spanning almost every industry and sector," FBI Director Christopher Wray said. Mr. Barr warned that allowing China to dominate 5G networks poses a "monumental danger" not just for security but for the future of the U.S. economy.

U.S. officials have long worried that Huawei's dominance of the telecommunications-equipment market poses a threat to national security. Nokia and Ericsson also supply cell-tower gear to the world's network operators but have struggled to deliver reliable profits as Huawei gains a greater share of the global market each year.

"Some propose that these concerns could be met by the United States aligning itself with Nokia and/or Ericsson through American ownership of a controlling stake, either directly or through a consortium of private American and allied companies," Mr. Barr said. "Putting our large market and financial muscle behind one or both of these firms would make it a more formidable competitor and eliminate concerns over its staying power."

The Trump administration has been weighing several anti-Huawei proposals, including some of the ideas Mr. Barr floated Thursday. White House officials have discussed incentives for U.S. private-equity firms to buy stakes in Ericsson or Nokia, a person familiar with the matter said.

Mr. Barr's speech came after White House officials told The Wall Street Journal this week that they are working with U.S. technology companies on a separate plan to create advanced software for next-generation 5G telecom networks to jump-start a market for viable alternatives to Huawei. The plan aims to establish common engineering standards that would allow 5G software developers to run code atop machines that come from nearly any hardware manufacturer to reduce or eliminate reliance on Huawei equipment.

Mr. Barr, a former Central Intelligence Agency official who earned his master's degree in Chinese studies, said the "open" software model would take too long to deliver results.

"This is just pie in the sky," he said. "This approach is completely untested and would take many years to get off the ground, and would not be ready for prime time for a decade, if ever."

The attorney general's skepticism shows Trump administration officials remain split on the best combination of policies to counterbalance Huawei, the world's top telecom equipment seller. Decision makers within the White House and several U.S. agencies have clashed over decisions involving telecom regulations, export controls and wireless spectrum rules.

It remains unclear whether any potential suitors would consider Sweden-based Ericsson or Finland's Nokia attractive acquisition targets. Both tech firms are their home countries' national champions. Each firm's market capitalization sits well above $20 billion. Shares of both companies rose Thursday after Nokia reported better-than-expected fourth-quarter earnings.

Blair Levin, an analyst for advisory firm New Street Research who led the Obama administration's National Broadband Plan, said Mr. Barr's comments could grease the wheels for any corporation that might take an interest in the Scandinavian electronics giants.

The attorney general "appears to be signaling that to the extent companies who are competitors need some kind antitrust waiver to form a more competitive alternative to Huawei, the DOJ will be quick to grant it," he said.

A White House spokesman declined to comment. Representatives of Nokia and Ericsson declined to comment. A Huawei spokesman didn't immediately respond to requests for comment.

Mr. Barr also urged policy makers to offer U.S. companies licenses to use the "L-band," a swath of radio frequencies cellphone carriers could use to transmit more data over future wireless networks. The prospect of ground-based use of those airwaves has remained in limbo for years as Federal Communications Commission officials weigh whether to authorize its use.

Allowing cellphone carriers to use the L-band would offer a windfall to troubled telecom firm Ligado Networks LLC. The company, formerly known as LightSquared, has faced opposition from the radio channel's existing users, which include Global Positioning System users and weather researchers.

"While some technical issues about using the L-band are being debated, the FCC needs to resolve this question," Mr. Barr said.

Mr. Barr also urged the commission to quickly sell off licenses for cellphone service in the "C band," another set of frequencies considered useful for 5G technology. FCC Chairman Ajit Pai, speaking at a separate event held hours later in Washington, unveiled a proposal to start auctioning that spectrum in December. Mr. Pai declined to comment on Mr. Barr's call to action.

Mr. Barr's involvement in this issue is somewhat unusual given that the FCC directs most federal telecom policy, though other U.S. agencies, including the Commerce Department and Pentagon, also influence government decisions. The Justice Department tends to play a less direct role regulating cellular and landline networks, though Mr. Barr's years in the private sector made him well-versed in telecom matters.

On Thursday, the top U.S. law-enforcement officer said both policy ideas could help American firms regain an edge atop faster fifth-generation wireless networks. Telecom companies say their networks will run hundreds of times faster with 5G upgrades, but the technology is only beginning to become commercially available.

--Parmy Olson contributed to this article.

Write to Drew FitzGerald at andrew.fitzgerald@wsj.com and Sadie Gurman at sadie.gurman@wsj.com

(END) Dow Jones Newswires

February 06, 2020 17:43 ET (22:43 GMT)

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