(solution) China Aims to Build Its Own Secure Smartphones State-owned and

(solution) China Aims to Build Its Own Secure Smartphones State-owned and

attached is articles 5 &6 same directive as the other four, a few sentences. articles 7 and 8 won’t come at least until friday this will be due by the 30th.

China Aims to Build Its Own Secure
Smartphones
State-owned and private tech firms team up to cut cord to U.S.
suppliers
An employee inspects a circuit board in a manufacturing facility at ZTE's headquarters in the Nanshan
district of Shenzhen, China. Photo: Brent Lewin/Bloomberg News
By
Eva Dou in Beijing and
Juro Osawa in Hong Kong
Updated Nov. 20, 2015 6:02 p.m. ET
18 COMMENTS China is seeking to make its own secure smartphones, in an attempt to insulate its handsets from
U.S. surveillance.
The effort involves both state-owned companies and some of the country?s savvier technology
firms and marks the latest step in Beijing?s quest to build a homegrown tech industry that cuts
out U.S. suppliers.
Chinese officials have long chafed at U.S. companies? dominance in smartphone operating
systems and processors?the parts of a handset most vulnerable to hacking. In China, the world?s
largest smartphone market, almost all handsets are either Apple Inc. iPhones or are powered by
Google?s Android operating system.
For years, China?s lagging technology meant there was little it could do. The country?s first lady,
Peng Liyuan, last year switched publicly to a Chinese-made smartphone, the ZTE Nubia Z5,
after being criticized for using an iPhone, yet the Chinese device ran on Android and included a
Qualcomm Inc. processor, according to its specifications list.
Now, a number of Chinese technology companies are making progress toward cutting the cords
to Western technology. China is encouraging that effort, spurred by revelations in 2013 from
former U.S. National Security Agency contractor Edward Snowden that the NSA had placed
surveillance ?back doors? in some American gear sold overseas.
Advertisement Chinese smartphone maker ZTE Corp. is working on a secure smartphone for government
agencies using an operating system developed in-house, and a processor chip from a Chinese
supplier, a spokesman said. The country?s largest chip-design company, Spreadtrum Communications Inc., separately said it would begin mass producing a set of chips that run a
Chinese operating system by year-end.
Chinese e-commerce company Alibaba Group Holding Ltd. has joined with China?s Ministry of
Public Security to develop a mobile operating system for police officers that it bills as more
secure.
ENLARGE
A worker examines machinery used to adhere components to smartphone circuit boards at ZTE?s
headquarters in Shenzhen, China. Photo: Brent Lewin/Bloomberg News All of the efforts target a niche group of government agencies and state-owned enterprises and
are unlikely to appeal to the average consumer. ZTE?s secure phone, for example, will come
without camera, GPS, Wi-Fi and Bluetooth wireless connections to minimize security risks.
The trend is unlikely to have much impact on the market share in China of U.S. mobile
components and software. Analyst James Yan of market-research firm IDC estimates secure
phones might make up 3% of China?s smartphone sales next year, or about two million units. But
if more made-in-China operating systems and processors make their way into consumer
handsets, that could potentially pose a challenge for Google?s Android and for Qualcomm.
Qualcomm, whose processors accounted for 52% of the smartphone market last year, according
to Strategy Analytics, declined to comment.
Alphabet Inc. ?s Google, whose Android system ran 82.8% of the world?s smartphones in the
second quarter of this year, according to IDC, didn?t immediately have a comment.
Other U.S. tech companies already are feeling a chill in China. U.S. networking- and computinggear makers such as International Business Machines Corp. and Cisco Systems Inc. have
recorded sales declines, as government agencies and state-owned enterprises buy more from
domestic counterparts such as Chinese server maker Inspur Group Co. and telecommunicationsgear supplier Huawei Technologies Co.
Cisco doesn?t provide sales figures for specific countries, but has said the Snowden disclosures
affected its China sales. IBM has attributed sales setbacks to China?s economic slowdown. Both
companies say they don?t build ?back doors? into their technology.
In smartphones, Chinese banks have begun to buy more domestic brands, though formal quotas
were suspended earlier this year because of U.S. pressure. China had wanted to require that 50%
of new smartphone purchases at financial institutions meet ?secure and controllable? standards,
according to a copy of the suspended rules reviewed by The Wall Street Journal.
China?s push to build homegrown secure handsets also has economic benefits: The components
that are crucial to security are also some of the most profitable. But even with made-in-China processors, modems and operating systems, Chinese secure phones
will likely include plenty of foreign components, albeit less-sensitive ones.
A spokesman for ZTE said it isn?t possible to use exclusively Chinese-made hardware and
software in a smartphone, but to meet the needs of government agencies it is trying to use
domestic suppliers as much as possible.
Other Chinese phone makers, including Coolpad Group Ltd. and Qihoo 360 Technology Co. , are
scrambling for a piece of the market too, touting security features such as data encryption in their
new handsets this year.
?Right now the security sector is very hot,? said Chris DeAngelis, Beijing-based general
manager at consultancy Alliance Development Group. ?The government is looking for
nonforeign technologies as much as possible to prevent various back doors.?
Leo Li, chief executive of Spreadtrum, said his company will begin sales this year of special
chipsets that will let phone users switch between Android and an encrypted operating system
made by Chinese company Yuanxin Technology Co.
?Your voice is encrypted. Your data is encrypted. It is very secure,? he said.
But just because a phone has domestically made guts doesn?t mean it is secure, said Bryce
Boland, Asia chief technology officer for network-security company FireEye Inc. A hacker could
still siphon data directly from a telecom operator, he said. New operating systems are also likely
to have more vulnerabilities.
China isn?t alone in seeking a high-security smartphone for government work. The U.S. NSA
developed its own domestic version in 2009, although it this year switched to a new system
based on Samsung Electronics Co. smartphones with customized secure software. The NSAdeveloped phone was ?overtaken by technology by the time it was actually delivered,? Debora
Plunkett, the NSA?s information assurance director, told National Defense Magazine in 2012.
Lao Yao, secretary-general of the China Smartphone Alliance, said some Western governments
work with BlackBerry Ltd. of Canada to custom make high-security phones for their officials,
but that China and Western companies don?t trust each other enough for this to be an option.
?China has no choice but to develop its own operating system to maintain security,? he said.
?Gillian Wong in Beijing contributed to this article.
Write to Eva Dou at [email protected] and Juro Osawa at [email protected] Sprint to Get Cash Infusion With Deal to Sell
and Lease Back Devices
Transaction, for $1.1 billion, would essentially act as a loan
ENLARGE
Sprint, the No. 4 wireless carrier in the U.S. by subscribers, has been working to improve its network.
Photo: mike blake/Reuters
By
Ezequiel Minaya and
Ryan Knutson
Updated Nov. 20, 2015 1:54 p.m. ET
2 COMMENTS Sprint Corp. took a big, if unusual, step on Friday to address its cash woes and take some risk off
its books.
The carrier, which has been losing customers and money for years, said it would get a $1.1
billion cash infusion through a deal to sell certain handsets and other devices it has leased to its
customers. The purchaser is a newly formed entity?backed by Sprint parent SoftBank Group
Corp.?that will rent the devices back to the carrier.
Sprint said the transaction essentially serves as a loan that will cost it less than tapping debt
markets, freeing up much-needed resources for network investment and operations.
Sprint, the No. 4 wireless carrier in the U.S. by subscribers, has struggled with competition and a
difficult network overhaul. Its network has improved recently, and in the most recent quarter,
Sprint added 237,000 of the more desirable postpaid phone subscribers, although 199,000 of
those came from converting its own customers from prepaid arrangements. In an effort to boost
subscriber gains, Sprint also launched a promotion this week to sell wireless service for half the
price charged by rivals.
The carrier, which is based in Overland Park, Kan., has more than $30 billion in total debt, and
hasn?t posted an annual profit since 2006. It reported a loss of $585 million for its latest quarter.
In September, Moody?s downgraded Sprint?s bonds to B3, citing concerns about the company?s
turnaround plan. The carrier has said it has no plans to tap debt or equity markets in the
foreseeable future.
Advertisement The deal to sell 2.5 million device leases to the new entity, called Mobile Leasing Solutions
LLC, will help reduce one of Sprint?s biggest expenses: the cost of purchasing millions of new
iPhones and other devices. The carrier in turn leases them to individual subscribers, who must
either return the phone at the end of the lease or pay extra to buy it outright.
Sprint?s relationship with SoftBank, which owns more than 80% of Sprint, as well as with
phone-distribution firm Brightstar Corp., which was founded by Sprint?s CEO, helps give the
carrier access to favorable terms on the deal with Mobile Leasing Solutions. The latter was
formed by a group of equity investors including SoftBank, and has secured debt financing from
several lenders, including international banks and leasing companies.
Sprint Chief Financial Officer Tarek Robbiati said Sprint expects to execute additional deals
roughly every quarter, and is also working on a similar structure to finance network construction.
Mr. Robbiati said the implied cost of funds was in the ?mid-single digits,? which is well below
the carrier?s high-yield alternatives, although he wouldn?t provide a specific number.
Reaction to the deal was mixed. Analysts at Evercore said they were ?cautious of whether the
deal improves [Sprint?s] actual business model or instead just moves some of the risk off balance
sheet.? Analysts at Macquarie Securities said the deal was ?a major positive for Sprint shares?
and would dramatically improve the company?s cash-burn rate, helping it focus on new growth.
Sprint shares fell more than 5% on Friday.
The newly formed entity will rely on Brightstar to resell the used devices at the end of each
lease. Sprint said it envisions the deal including only high-end devices, which have the highest
resale value. Used phones are easily sold in developing markets overseas; they are also useful for
insurance programs that replace broken phones.
In the wake of the deal, Sprint revised its annual outlook for adjusted earnings before interest,
depreciation, taxes and amortization to a range between $6.8 billion and $7.1 billion, down from
a previous forecast of $7.2 billion to $7.6 billion. The transaction is expected to close in early
December.
Write to Ezequiel Minaya at [email protected] and Ryan Knutson at
[email protected] 2 COMMENTS Sprint Corp. took a big, if unusual, step on Friday to address its cash woes and take some risk off
its books.
The carrier, which has been losing customers and money for years, said it would get a $1.1
billion cash infusion through a deal to sell certain handsets and other devices it has leased to its customers. The purchaser is a newly formed entity?backed by Sprint parent SoftBank Group
Corp.?that will rent the devices back to the carrier.
Sprint said the transaction essentially serves as a loan that will cost it less than tapping debt
markets, freeing up much-needed resources for network investment and operations.
Sprint, the No. 4 wireless carrier in the U.S. by subscribers, has struggled with competition and a
difficult network overhaul. Its network has improved recently, and in the most recent quarter,
Sprint added 237,000 of the more desirable postpaid phone subscribers, although 199,000 of
those came from converting its own customers from prepaid arrangements. In an effort to boost
subscriber gains, Sprint also launched a promotion this week to sell wireless service for half the
price charged by rivals.
The carrier, which is based in Overland Park, Kan., has more than $30 billion in total debt, and
hasn?t posted an annual profit since 2006. It reported a loss of $585 million for its latest quarter.
In September, Moody?s downgraded Sprint?s bonds to B3, citing concerns about the company?s
turnaround plan. The carrier has said it has no plans to tap debt or equity markets in the
foreseeable future.
Advertisement The deal to sell 2.5 million device leases to the new entity, called Mobile Leasing Solutions
LLC, will help reduce one of Sprint?s biggest expenses: the cost of purchasing millions of new
iPhones and other devices. The carrier in turn leases them to individual subscribers, who must
either return the phone at the end of the lease or pay extra to buy it outright.
Sprint?s relationship with SoftBank, which owns more than 80% of Sprint, as well as with
phone-distribution firm Brightstar Corp., which was founded by Sprint?s CEO, helps give the
carrier access to favorable terms on the deal with Mobile Leasing Solutions. The latter was
formed by a group of equity investors including SoftBank, and has secured debt financing from
several lenders, including international banks and leasing companies.
Sprint Chief Financial Officer Tarek Robbiati said Sprint expects to execute additional deals
roughly every quarter, and is also working on a similar structure to finance network construction.
Mr. Robbiati said the implied cost of funds was in the ?mid-single digits,? which is well below
the carrier?s high-yield alternatives, although he wouldn?t provide a specific number.
Reaction to the deal was mixed. Analysts at Evercore said they were ?cautious of whether the
deal improves [Sprint?s] actual business model or instead just moves some of the risk off balance
sheet.? Analysts at Macquarie Securities said the deal was ?a major positive for Sprint shares?
and would dramatically improve the company?s cash-burn rate, helping it focus on new growth.
Sprint shares fell more than 5% on Friday.
The newly formed entity will rely on Brightstar to resell the used devices at the end of each
lease. Sprint said it envisions the deal including only high-end devices, which have the highest resale value. Used phones are easily sold in developing markets overseas; they are also useful for
insurance programs that replace broken phones.
In the wake of the deal, Sprint revised its annual outlook for adjusted earnings before interest,
depreciation, taxes and amortization to a range between $6.8 billion and $7.1 billion, down from
a previous forecast of $7.2 billion to $7.6 billion. The transaction is expected to close in early
Verizon Communications Inc. VZ (U.S.: NYSE)
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