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ZTE Device Called American Spurned After China Spy Angst

September 20, 2013 | Telepresence Options

zte china factory

Story and images by Kathleen Miller / Bloomberg

The U.S. government stripped a videoconferencing system contract from a Maryland company after a federal agency said the device marketed as American-made is really Chinese.

The technology is produced by Shenzhen-based�ZTE Corp. (000063),�China's No. 2 phone-equipment maker. It worked with CyberPoint International LLC, a small business based in Baltimore, to make its videoconferencing device available to U.S. agencies via contract. CyberPoint's Prescient unit built and installed firewalls in the system, which it said "substantially transformed" the product.

U.S. Customs�and�Border Protection�disagreed, saying the government should treat the products as Chinese, according to a�ruling�published today in the Federal Register. The decision is the latest impediment to U.S. growth for ZTE, which was effectively blacklisted last year by a congressional committee that said its products may aid Chinese spying.

"It's somewhat devastating for them," said Ray Mota, founder of Gilbert, Arizona-based ACG Research, a networking-equipment industry consulting company. "They'll have to re-strategize on how to approach this market and come up with alternatives."

The customs agency's decision followed Bloomberg News stories last month on ZTE's partnership with Prescient.

'Promptly Removed'

After the ruling, the videoconferencing equipment was "promptly removed" from offerings on a so-called supply schedule contract, Mafara Hobson, a spokeswoman for the�General Services Administration, said in an e-mail.

ZTE's system, using security made by CyberPoint's Prescient unit, had been available for sale to U.S. agencies through the GSA contract since last year. No agencies had ordered the product as of today, Hobson said.

ZTE doesn't plan to give up on its efforts to boost its U.S. sales.

"Over the years, ZTE has invested hundreds of millions of dollars into the U.S.," David Dai Shu, director of global branding and communications for the company, said in an e-mailed statement. "We are committed to serving the U.S. market and will continue to grow the business."

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