New Zealand's intelligence agency has rejected the telecom industry's first request in the country to use 5G equipment provided by China's Huawei Technologies, citing concerns about national security.
Telecommunications services provider Spark New Zealand, which made the request, said on Wednesday it would review the reasoning before considering any further steps.
The decision comes as Western nations become increasingly wary of what they say is possible Chinese government involvement in fifth-generation mobile and other communications networks. Huawei has repeatedly insisted Beijing has no influence over it.
Earlier this year, Australia banned Huawei from supplying 5G equipment, also citing security risks. Last week, the Wall Street Journal reported the US government was trying to persuade companies in allied countries to avoid Huawei.
"I have informed Spark that a significant network security risk was identified," Government Communications Security Bureau director-general Andrew Hampton said separately on Wednesday.
Intelligence services minister Andrew Little told Reuters that Spark - whose request was part of the country's first 5G application - could work with the agency to mitigate risk. He declined to specify the concerns, citing classified information.
Huawei said in a statement that it will "actively address any concerns and work together to find a way forward", adding it has signed more than 20 5G contracts with carriers worldwide.
Speaking in Beijing, Chinese Foreign Ministry spokesman Geng Shuang expressed "serious concern", and said China-New Zealand business ties were mutually beneficial and win-win.
"We hope the New Zealand government provides a fair competition environment for Chinese companies operating in New Zealand, and does more to benefit bilateral mutual trust and cooperation," he told a daily news briefing.
Huawei has been involved in other telecommunications systems in New Zealand such as its 4G mobile network, and is investing NZ$400 million into research and development.
Little said each decision regarding telecom technology was made separately under telecom and security legislation.
"The difference between 5G networks and conventional 4G and 3G networks is the configuration of the technology," Little said. "With 5G technology, every component of the 5G network means every part of the network can be accessed."
That echoed Australian concerns that, with 5G, it was difficult to confine vendors considered high risk to a network's less sensitive parts.
Spark rival 2degrees said it had noted the decision and was "seeking clarity on it".
"The importance of multiple vendors to deliver price competitiveness still stands, so if this announcement has a similar impact on 2degrees it will be a real disappointment for competition," 2degrees corporate affairs chief Mathew Bolland told Reuters.
Vodafone New Zealand Ltd declined to comment on the matter.
(Reporting by Charlotte Greenfield in WELLINGTON and Aditya Soni in BENGALURU; Additional reportng by Anne Marie Roantree in HONG KONG and Ben Blanchard in BEIJING; Editing by Muralikumar Anantharaman and Christopher Cushing)