Huawei's global ambitions hit by AT&T phone distribution deal's collapse

HONG KONG (Reuters) - Huawei Technologies Co Ltd’s [HWT.UL] planned deal with U.S. carrier AT&T Inc to sell its smartphones in the United States has collapsed at the eleventh hour, people with knowledge of the matter said, in a blow to the Chinese firm’s global ambitions.

A separate person familiar with the discussions said that security concerns had arisen, without elaborating further.

AT&T was pressured to drop the deal after members of the U.S. Senate and House intelligence committees sent a letter on Dec. 20 to the Federal Communications Commission citing concerns about Huawei’s plans to launch consumer products through a major U.S. telecom carrier, online tech news site The Information reported.

Huawei said in a statement to Reuters on Tuesday that its flagship premium smartphone Mate 10 Pro - Huawei’s challenger to the iPhone - will not be sold in the United States via a telecoms carrier but only through open channels.

“The U.S. market presents unique challenges for Huawei, and while the HUAWEI Mate 10 Pro will not be sold by U.S. carriers, we remain committed to this market now and in the future,” it said.

Huawei is the world’s third largest smartphone vendor by volume after Samsung Electronics and Apple Inc, but it has a mere 0.5 percent share of the U.S. smartphone market, compared with 39 percent for Apple and 18 percent for Samsung, according to industry tracker Canalys.

In the United States, where telecom carriers dominate the distribution channel by typically providing subsidies and special package deals, Huawei had been unable to make any significant inroads due to national security concerns.

Huawei was poised to announce a partnership with AT&T to distribute its phones in the United States this year, said the people with knowledge of the matter, who declined to be identified as the talks were private. AT&T declined to comment.

The flagship Mate 10 Pro that was to be introduced is Huawei’s most high end product to date, equipped with its own AI-powered chips that Huawei says process data much faster than those used by Apple and Samsung. It was launched in Europe in October with a price tag of 799 euros ($955).

Huawei’s smartphone chief Richard Yu flagged Huawei’s ambition to become a truly global smartphone brand in 2018 in his New Year address to staff, and also told The Information in an interview in late December that it planned to spend $100 million on marketing to raise brand awareness in the United States.

But the collapse of the deal with AT&T, first reported by the Wall Street Journal, will mean that Huawei will likely struggle to make a hit of its smartphones there.

“This makes it very difficult for Huawei to get significant in the US as the open channels account for only about 10-11 percent of the market,” said Canalys analyst Mo Jia, referring to sales channels outside telecom carriers and vendors’ own stores.

He said Huawei’s proprietary mobile chips may have presented a bigger regulatory hurdle for its U.S. market entry in the current political climate, compared with other Chinese vendors’s entry strategy that relies on U.S. chip suppliers.

“Whatever they have spent on US marketing is a waste now, and the letdown this time may also deter other potential carrier-partners in the future,” Jia said.

In 2012, Huawei and ZTE Corp were the subject of a U.S. investigation that looked into whether the companies’ equipment provided an opportunity for foreign espionage and threatened critical U.S. infrastructure - a link that Huawei has consistently denied.