Pixel Envy

Written by Nick Heer.

The Collapse of Nortel and the Rise of Huawei

Natalie Obiko Pearson, Bloomberg:

Nortel’s giddy, gilded growth also made it a target. Starting in the late 1990s, the Canadian Security Intelligence Service, the country’s version of the CIA, became aware of “unusual traffic,” suggesting that hackers in China were stealing data and documents from Ottawa. “We went to Nortel in Ottawa, and we told the executives, ‘They’re sucking your intellectual property out,’” says Michel Juneau-Katsuya, who headed the agency’s Asia-Pacific unit at the time. “They didn’t do anything.”

[…]

No one knows who managed to hack Nortel or where that data went in China. But Shields, and many others who’ve looked into the case, have a strong suspicion it was the Chinese government, which weakened a key Western rival as it promoted its own technology champions, including Huawei Technologies Co., the big telecom equipment manufacturer. Huawei says it wasn’t aware of the Nortel hack at the time, nor involved in it. It also says it never received any information from Nortel. “Any allegations of Huawei’s awareness of or involvement in espionage are entirely false,” the company says in a statement. “None of Huawei’s products or technologies have been developed through improper or nefarious means.”

What isn’t in dispute is that the Nortel hack coincided with a separate offensive by Huawei. This one was totally legal and arguably even more damaging. While Nortel struggled, Huawei thrived thanks to its unique structure — it was privately held, enjoyed generous credit lines from state-owned banks, and had an ability to absorb losses for years before making money on its products. It poached Nortel’s biggest customers and, eventually, hired away the researchers who would give it the lead in 5G networks. “This is plain and simple: Economic espionage did in Nortel,” Shields says. “And all you have to do is look at what entity in the world took over No. 1 and how quickly they did it.”

This is a Bloomberg story about Chinese spycraft so, you know, but it is entirely fascinating.

The Nortel accounting scandal was a formative event when I was pretty young; it happened around the same time as Enron and the September 11 attacks. One thing unmentioned in Pearson’s article is that, about seven years ago, long-dormant bugging devices were found at Nortel’s former headquarters.