Huawei, the world’s second-largest handset and network equipment maker, has stepped into the local network supply industry, sparking concerns that the move may deal a blow to small and medium-sized manufacturers and pose security risks.

On Wednesday, LG Uplus Corp., the nation’s third-largest mobile carrier by sales, announced its decision to partner with Huawei. The Chinese would reportedly supply equipment for LTE base stations along with Samsung Electronics, Ericsson-LG and NSN.

With the high cost-effectiveness of the Chinese products, an increased market share of the Chinese firm is highly expected, according to experts.

“It is evitable that small companies, whose main business involves supplying network facilities in partnership with big suppliers such as Ericsson-LG to major mobile carriers, could face a loss of market share and decreasing profits due to the increasing Chinese mobile network equipment in the domestic market,” an official from a local mobile network maker Korea said.

“For those small firms, a drop of around 1 billion won to 2 billion won in profit could mean a lot,” another industry watcher said. “The market infiltration will also surely affect the entire ecosystem of the industry and the co-prosperity initiative pursued by the current government.”

Those comments are in line with the one made by Minister of Science, ICT and Future Planning Choi Mun-kee at an audit session on Friday.

When asked by Saenuri Party Rep. Lee Sang-il about the negative impact of the Chinese network facilities used by domestic mobile service providers, he said the matter entails “substantial concern.”

Choi also said that he was concerned about security issues posed by the foreign facilities to some extent, even though he could not stop private firms from using facilities produced by Chinese makers.

“The government’s plan to foster domestic ICT facility makers could be somewhat affected,” the minister said at the audit.

His statement sparked another round of controversy as it runs counter to the argument of the nation’s third-largest mobile service provider, which claimed that the Chinese equipment does not put national security at risk.

“There is no security risk since the mobile networks are managed directly by LG Uplus officials and are separately run by the external Internet networks,” the Korean mobile firm said in a statement Thursday.

LG Uplus reiterated that it would not tolerate groundless allegations.

“Those who raise security issues should present clear evidence or previous attempts to steal information by the Chinese firm before making such allegations,” an official from the Korean telecom firm said.

He said he could not detail any plan on whether or not to increase the Chinese facilities.

Huawei has long been trying to set foot in the U.S. and Australia. But the firm was banned from participating in projects to build a U.S. emergency communications network in the U.S. and was restricted from bidding for a broadband network in Australia, on claims that Huawei’s equipment could pose a threat to national security.

Huawei’s global cyber security officer John Suffolk said in a recent interview with Bloomberg that the Chinese mobile giant was being held to a higher standard on cyber security issues than other companies, and is asked to make a lot more effort to dispel such concerns.

Tony Abbott, the Australian prime minister, reportedly said his government had no intention of reviewing the decision to rule out the Chinese firm’s participation in the national broadband network on national security grounds.

By Kim Young-won (wone0102@heraldcorp.com)