US companies stopped from selling to Chinese phone maker ZTE for Iran sanctions violations

Visitors pass in front of the Chinese telecoms equipment group ZTE Corp booth at the Mobile World Congress in Barcelona, Spain, on February 26, 2018. (REUTERS File Photo)
Updated 17 April 2018
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US companies stopped from selling to Chinese phone maker ZTE for Iran sanctions violations

LONDON/NEW YORK: The US Department of Commerce has banned American companies from selling components to Chinese telecom equipment maker ZTE Corp. for seven years after breaking an agreement reached after it was caught illegally shipping goods to Iran, US officials said on Monday.
The US action could be devastating to ZTE since American companies are estimated to provide 25 percent to 30 percent of the components used in ZTE’s equipment, which includes smartphones and gear to build telecommunications networks.
The ban is the result of ZTE’s failure to comply with an agreement with the US government after it pleaded guilty last year in federal court in Texas to conspiring to violate US sanctions by illegally shipping US goods and technology to Iran, the Commerce Department said.
The Chinese company, which sells smartphones in the United States, paid $890 million in fines and penalties, with an additional penalty of $300 million that could be imposed.
“If the company is not able to resolve it, they may very well be put out of business by this. Many banks and companies even outside the US are not going to want to deal with them,” said Eric Hirschhorn, a former US undersecretary of commerce who was heavily involved in the case.
As part of the agreement, Shenzhen-based ZTE Corp. promised to dismiss four senior employees and discipline 35 others by either reducing their bonuses or reprimanding them, senior Commerce Department officials told Reuters. But the Chinese company admitted in March that while it had fired the four senior employees, it had not disciplined or reduced bonuses to the 35 others.
ZTE, whose Hong Kong and Shenzhen shares were suspended on Tuesday, said it was assessing the implications of the US decision and was communicating with “relevant parties.”
The Commerce Department order quoted a ZTE official’s letter admitting it “had not executed in full” some disciplinary measures and that there were “inaccuracies” in a 2017 letter. But, the Commerce order said, ZTE “argued that it would have been irrational for ZTE to knowingly or intentionally mislead the US government in light of the seriousness of the suspended sanctions.”
Under terms of the ban, US companies cannot export prohibited goods, such as chip sets, directly to ZTE or via another country, beginning immediately.
Shares of big US ZTE suppliers fell sharply on the Commerce ban. Optical networking equipment maker Acacia Communications Inc, which got 30 percent of its total 2017 revenue from ZTE, tumbled 35 percent, hitting a near two-year low. Acacia said it was suspending affected transactions and assessing the impact.
Shares of optical component companies including Lumentum Holdings Inc. fell 8.9 percent and Finisar Corp. dropped 4.0 percent. Oclaro Inc, which got 18 percent of its fiscal 2017 revenue from ZTE, lost 14.1 percent.
ZTE “provided information back to us basically admitting that they had made these false statements,” said a senior department official. “That was in response to the US asking for the information.”
The ban on supplying ZTE comes two months after two Republican senators introduced legislation to block the US government from buying or leasing telecommunications equipment from ZTE or its Chinese rival Huawei Technologies Co. Ltd. , citing concern the companies would use their access to spy on US officials.
“China does not play by our rules, and we must be vigilant against Chinese threats to both our economic security and national security,” said Republican Representative Robert Pittenger after the Commerce announcement. Pittenger is sponsoring legislation that would strengthen the US national security review process for foreign investments.
Meanwhile, Britain’s main cybersecurity agency said on Monday it has written to organizations in the UK’s telecommunications sector warning about using services or equipment from ZTE.

'Devastating'
Douglas Jacobson, an exports control lawyer who represents suppliers to ZTE, called the ban highly unusual and said it would severely affect the company. “This will be devastating to the company, given their reliance on US products and software,” said Jacobson. “It’s certainly going to make it very difficult for them to produce and will have a potentially significant short- and long-term negative impact on the company.”
ZTE has sold handset devices to US mobile carriers AT&T Inc, T-Mobile US Inc. and Sprint Corp. It has relied on US companies including Qualcomm Inc, Microsoft Corp. and Intel Corp. for some components.
Shares of Taiwan’s MediaTek Inc, which sells smartphone chips and competes with Qualcomm, were not trading when the announcement was made.
The US action against ZTE is likely to further exacerbate current tensions between Washington and Beijing over trade. After the US placed export restrictions on ZTE in 2016 for Iran sanctions violations, China’s Ministry of Commerce and Foreign Ministry criticized the decision.
A five-year federal investigation found last year that ZTE had conspired to evade US embargoes by buying US components, incorporating them into ZTE equipment and illegally shipping them to Iran.
ZTE, which devised elaborate schemes to hide the illegal activity, agreed to plead guilty after the Commerce Department took actions that threatened to cut off its global supply chain. The US government had allowed the company continued access to the US market under the 2017 agreement.
The new restrictions stem from a Jan. 16 report by a US monitor appointed by a federal judge in Texas who accepted the guilty plea in March 2017. Although Commerce Department officials would not discuss the report, they said the department followed up in February.
The US government’s investigation into sanctions violations by ZTE followed reports by Reuters in 2012 https://reut.rs/2H3p0Vl that the company had signed contracts to ship millions of dollars’ worth of hardware and software from some of the best known US technology companies to Iran’s largest telecoms carrier.


Shopping ‘Star Trek’ style becomes next frontier for most major brands

Updated 5 min 37 sec ago
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Shopping ‘Star Trek’ style becomes next frontier for most major brands

  • The use of smart speakers has expanded the possibilities available through smartphone chatbots or text-based systems, including those from Facebook and Apple.
  • Voice shopping is expected to jump to $40 billion annually in 2022 in the US, from $2 billion today, according to a survey this year by OC&C Strategy Consultants.

WASHINGTON: Voice shopping using smart speakers and smartphone apps is starting to gain traction among consumers, opening up a new “conversational commerce” channel and potentially disrupting the retail sector.

Devices such as Amazon’s Alexa-powered speakers and Google Home, which use artificial intelligence to respond to voice commands, are offering new choices to consumers who are looking for more convenient ways to order goods and services.

Voice shopping is expected to jump to $40 billion annually in 2022 in the US, from $2 billion today, according to a survey this year by OC&C Strategy Consultants.

“People are liking the convenience and natural interaction of using voice,” said Victoria Petrock of the research firm eMarketer.

“Computing in general is moving more toward voice interface because the technology is more affordable, and people are responding well because they don’t have to type.”

A recent eMarketer survey found 36 percent of US consumers liked the idea of using a home-based assistant such as Amazon Echo for making a purchase.

Amazon’s devices, which hit the market in 2015, were designed in large part to help boost sales, and Google Home was launched a year later.

“This is growing exponentially,” said Mark Taylor, an executive vice president at consultancy Capgemini and co-author of a study on conversational commerce.

“We’re getting very used to asking Alexa or Google to do something on our behalf, which makes it simple to switch and say, ‘Hey Alexa, buy me dog food.’”

Capgemini research shows many consumers are satisfied with voice interactions and that this is growing for search and information as well as for purchases and that this is likely to become a “dominant” mode of consumer action within a few years.

“It’s becoming part of the fabric of our lives,” Taylor said.

The most commonly shopped categories through voice are groceries, entertainment, electronics and clothing, according to OC&C.

For now, Taylor said, most voice-based purchases have been “low consideration goods” such as items consumers have purchased before.

But as people grow comfortable with voice assistants, Taylor sees a potential for growth in “higher consideration” items including insurance or financial services.

An important element will be the tonality and personality established by intelligent assistants that will help companies establish an image or brand.

“People like to talk to human beings because humans give insight and guidance, and AI can do the same thing,” he said.

The “conversational interface” is a tremendous advantage in some situations, said Manlio Carrelli, executive vice president at Live Person, which provides technology for firms in online platforms.

“This is like ‘Star Trek,’” Carrelli told AFP. “I can just say what I want and get it. Consumers don’t care what’s on the back end, they just want to be able to get what they want.”

Carrelli said these systems are important not only for sales, but for customer service — reducing the need for dreaded call centers and saving millions for businesses.

“We’re now entering the mainstream for this market,” Carrelli said. “I don’t think you’ll find a single major brand that isn’t looking at this.”

Walmart last month launched a text-based concierge shopping service called Jetblack, which uses both artificial intelligence and professional assistants offering buying suggestions as part of its effort to compete with Amazon.

But Walmart is one of dozens of retailers offering voice-based shopping through Google Express as well, along with sellers of flowers, hardware, groceries and other goods.

Domino’s Pizza has embraced this technology, allowing orders through Amazon Alexa, Google Home, Facebook Messenger and other platforms.

In France, Google Home devices can be used to shop at the giant retailing group Carrefour. And retailers in China have been partnering tech firms for similar services.

According to OC&C, Amazon Echo speakers are used in around 10 percent of US homes, with 4 percent for Google Home.

According to the report, Apple is lagging behind in this sector as its Siri assistant lacks the AI capabilities of Google, and the new HomePod has only just hit the market.

Apple just this year rolled out “business chat,” enabling consumers to ask questions and place orders through iPhone text or voice commands, and see images of products on the iMessage service. Retailers Lowe’s and Home Depot are among the partners.

Some analysts, however, expect more players to enter the market, with speculation rampant about a speaker from Facebook, which now is allowing business and consumers to connect through Messenger chatbots.

“Voice commerce represents the next major disruption in the retail industry, and just as e-commerce and mobile commerce changed the retail landscape, shopping through smart speaker promises to do the same,” said John Franklin of OC&C.