U.S. panel to probe new wave of complaints against Huawei, ZTE

* House panel receives "dozens" of calls on Huawei

* Huawei, ZTE deny panel's allegations

* Intelligence officials split on evidence of espionage

* Committee staffer cites incident with Cricket

By Jim Wolf

WASHINGTON, Oct 9 (Reuters) - A U.S. congressional reportthat urged American companies to stop doing business withChinese telecom equipment makers Huawei and ZTE

has triggered a fresh wave of complaintsagainst the firms, opening a second phase to the panel'sinvestigation.

A staff member of the House of Representatives IntelligenceCommittee said the panel has been receiving "dozens and dozens"of calls from current and former employees and customersreporting supposedly suspicious equipment behavior, chieflyinvolving Huawei.

"I don't think the companies should expect our attention tostop," the staff member told Reuters, adding that the panelwould follow up on new leads. The staffer was not authorized tospeak publicly on the matter.

In a report issued on Monday after an 11-monthinvestigation, the House committee warned U.S. industry thatBeijing could use equipment made by the two companies to spy oncertain communications and threaten vital systems throughcomputerized links. It urged network providers to seek othervendors.

The report also advised the Committee on Foreign Investmentsin the United States (CFIUS), an inter-agency government panelthat vets foreign deals for security concerns, to block anyfuture business tie-ups involving Huawei or ZTE and U.S.companies.

Huawei, the world's second-largest maker of routers andother telecom gear, and ZTE, the fifth-largest, both rejectedthe allegations. China's Commerce Ministry said the U.S.committee had "made groundless accusations against China."

Adding to Huawei's problems, Canada indicated on Tuesdaythat it would exclude Huawei from firms allowed to build asecure Canadian government communications network, citingpossible security risks.

In March, Australia barred Huawei from seeking contracts forthe country's National Broadband Network due to cyber securityconcerns.

By contrast, the European Commission has delayed a tradecase against the two Chinese telecom equipment makers, easingtensions between the European Union and its second-biggesttrading partner.

Huawei is employee owned, has operations in more than 150countries, with more than two-third of its annual revenue of$32.4 billion earned outside of China.

In early trade on Wednesday, ZTE's Hong Kong-listed shareswere up as much as 4 percent after having fallen 11 percentduring the previous two days. Several brokerages said theinvestigations were likely to have minimum impact on ZTE'sbottom line, with investors switching their focus to 4Gspending, which is expected to benefit the company.


For a graphic of Huawei e-govt projects, click:


The U.S. panel's 52-page report did not present concreteevidence that the companies' equipment had been used forespionage, but a classified annex provides "significantly moreinformation adding to the committee's concerns," it said.

Current and former U.S. intelligence officials said Huaweiand ZTE, both based in Shenzhen in southern China, posepotential national security threats, but there did not appear tobe a consensus about whether security breaches involving theirequipment had been confirmed.

One former U.S. official said there were "smoking guns" thatjustified suspicions about Huawei, noting that the defenseindustry was a primary target. Another former senior U.S.intelligence official said the threat of illegal eavesdroppingmay be more theoretical than actual.

On Monday, House Intelligence Committee Chairman Mike Rogersreferred to alleged instances of "beaconing" of information toChina, though he did not name any specific users of Huawei'sequipment that had been affected.

When asked for examples of such unauthorized transfer ofinformation stored on a network, the staff member referred to anincident involving wireless operator Cricket, which is theoperating subsidiary of Leap Wireless International Inc. Cricket uses Huawei to deploy its wireless network.


In May this year, unusual activity was observed on a Cricketnetwork node in San Antonio, Texas, while Huawei equipment wasbeing used there, the staff member said. According to thisaccount, there was concern that information from the network wasbeing sent without authorization to China.

Greg Lund, a spokesman for Cricket, said that some of itscomputers had been infected with viruses earlier this year, andan investigation revealed they were related to Huawei personnelworking in the company's facilities. However, the investigationfound no evidence that Cricket or its customers' proprietary orconfidential information had been accessed, Lund said.

"There is no evidence suggesting that these incidents werethe result of malicious activity on the part of Huawei," hesaid, adding that Cricket was not contacted by the committeeduring the course of its investigation, and the company did notcomplain to the committee.

William Plummer, a Huawei spokesman in Washington, recounteda San Antonio incident in a conference call with reporters onMonday, without naming Cricket or Leap.

He said that two independent security experts "were able toidentify to the moment that that laptop was infected with avirus by a WiFi access point at that Texas hotel."

"Those are facts and to the extent the committee has anyfamiliarity with those facts, then they also know that they havemisrepresented them," said Plummer, a Huawei vice president forexternal affairs.

(Additional reporting by Jim Finkle, Sinead Carew, MarkHosenball and Joseph Menn in Washington and Chyen Yee Lee inHong Kong; Writing by Paul Eckert; Editing by Karey Wutkowskiand Ken Wills)