Why Is the US Government Really Afraid Of a Qualcomm-Broadcom Merger? – Slate Magazine

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Hock Tan, CEO of Broadcom, speaks after President Donald Trump delivered remarks about the situation of the job market, in the Oval Office of the White House on Nov. 2.

Carlos Barria/Reuters

If you want to make an unpopular policy decision and avoid answering any questions about it, the easiest justification is often some top-secret, very definitely real national security threat that no one outside of the government knows about. This was exactly the White House’s strategy this week when it blocked the planned takeover of U.S. chip manufacturer Qualcomm by Broadcom, a competitor currently based in Singapore but in the process of moving its headquarters to San Jose, California. The proposed $140 billion takeover “threatens to impair the national security of the US,” according to President Trump’s executive order blocking the deal. How do we know? Well, according to the same order, there is “credible evidence” of that threat.

When it comes to national security issues, it’s often hard to challenge government decisions. They have access to so much classified intelligence about security threats, information that the rest of us, by nature, can’t see. Is it conceivable that there is, in fact, some credible evidence of an imminent national security threat lurking somewhere in the prospect of a Qualcomm-Broadcom merger? Sure. But there is still reason to be skeptical in this case, because the actual concerns we know about appear to be so far removed from the companies and countries involved.

Ostensibly, the big security threat posed by Broadcom’s takeover of Qualcomm was the risk that China—a country in which neither company is based—would have an edge in the race to develop new 5G technologies for the next-generation wireless networks scheduled to deploy in 2020. The logic was laid out earlier this month in a letter from Deputy Assistant Treasury Secretary Aimen Mir about the reactions to the deal by members of a panel called the Committee on Foreign Investment in the United States. Most of the concerns he airs in the letter seem based on the assumption that technology manufactured by U.S.-based companies is inherently more secure than that manufactured by companies in other countries.

The clearest signal the U.S. is sending is that it is terrified of how successful Huawei has been at designing smartphones and 5G technologies

“Having a well-known and trusted company hold the dominant role that Qualcomm does in the U.S. telecommunications infrastructure provides significant confidence in the integrity of such infrastructure as it relates to national security,” Mir wrote. Aside from suggesting no concrete evidence of any specific threat, other than the looming danger of other countries and their suspect technologies, this is a strange claim on two levels. First, it appears to completely disregard the fact that Broadcom is in the process of moving its headquarters to California and that most of its workforce is based in the U.S. Second, it also disregards the fact that nearly every piece of technology in the United States contains at least some components that were manufactured abroad.

To explain why this deal between a Singaporean and a U.S. company is, in fact, all about the national security threat posed by China, Mir makes a somewhat convoluted series of assertions that mostly serve to indicate how deeply the United States believes the Chinese firm Huawei is winning the race for 5G dominance. Currently, Qualcomm invests significantly in research and development—the kind of activity that might enable it to compete in developing next-generation 5G technologies—Mir writes, calling Qualcomm “the current leading company in 5G technology development and standard setting.”

But the government is concerned that Broadcom CEO Hock Tan would reduce that R&D investment—not because Tan has said he would cut R&D spending, but because he has said he would like to change how Qualcomm licenses its patents. And since those patent licenses help fund Qualcomm’s R&D investments, Mir concludes that “changes to Qualcomm’s business model would likely negatively impact the core R&D expenditures of national security concern.” Mir also points out that since Broadcom would take on $106 billion of debt financing to acquire Qualcomm, the company might cut long-term investments (like R&D) to focus on short-term profitability.

But back to China: All of this hypothetical cutting of the Qualcomm R&D budget would, Mir alleges, create an opening for Huawei to swoop in and dominate the market for 5G technologies in the coming years. “China would likely compete robustly to fill any void left by Qualcomm as a result of this hostile takeover,” Mir writes. “Given well-known U.S. national security concerns about Huawei and other Chinese telecommunications companies, a shift to Chinese dominance in 5G would have substantial negative national security consequences for the United States.”

This is the second time this year the U.S. government has intervened to try to stymie Huawei’s growth—in January it pressured AT&T to pull out of a planned partnership to offer Huawei smartphones to U.S. customers, again citing vague concerns about national security. But while the United States seems to believe it has credible evidence that Huawei’s technology poses a great threat to its national security, many of its allies seem very willing to get on board with the Chinese firm’s push into 5G. Huawei has 5G partnerships with mobile carriers in Canada, the United Kingdom, Spain, and France, to name just a few. If the United States has compelling, classified reasons to believe that the Huawei 5G technology is compromised, or under the control of the Chinese government, it appears to have either decided not to share that information with other governments, or failed to convince those governments of its credibility.

The clearest signal the United States is sending as it continues its crusade against Huawei technology—a fight now reaching far beyond just that one company to affect the business dealings of other firms, like Qualcomm and Broadcom—is that it is terrified of how successful Huawei has been at designing smartphones and 5G technologies. It is perhaps the strongest sign to date that the administration has lost confidence in its own, domestic tech sector and believes the next generation of wireless devices, technical standards, and networks is perilously close to being dominated by the Chinese firm. That’s an economic threat, for sure, but not necessarily a national security one.

Josephine Wolff

Josephine Wolff is an assistant professor of public policy and computing security at Rochester Institute of Technology and a faculty associate at the Harvard Berkman Center for Internet and Society.

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