Chinese telecommunications company Huawei was never ruled out of building parts of New Zealand's 5G network, Prime Minister Jacinda Ardern says.
The Government Communications Security Bureau (GCSB) said it had concerns with letting Huawei run the network in November and plans hit a stumbling block.
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Spark wanted to start using Huawei cellphone tower equipment from 2020, and notified director-general of the (GCSB) Andrew Hampton about the proposal last year, as is required by law.
But after carrying out an assessment, the GCSB identified major network security risks if the technology was to be implemented.
China's relationship with New Zealand appearing to sour significantly after the decision, although Ms Ardern said it was simply "complex".
Several other countries have had similar concerns, but on Monday it was revealed the United Kingdom may let Huawei install a network there after all, after work to mitigate security concerns.
Ms Ardern told The AM Show New Zealand was in a similar place to the UK, looking at how it can mitigate any concerns about security, although the process was different.
"How far down the track the UK already is with Huawei, actually is different to New Zealand... we have a different process.
"We have a piece of legislation that says that we go through a pretty rigorous assessment independently via the GCSB, they'll look at concerns or any security issues.
"They have done so and have gone back to Spark... and said to them there are concerns, your option now is to mitigate those and that is the place in the process where we currently are."
But she refused to say the GCSB decision meant the end of Huawei's plans to help build the network, rather it was delayed while Spark looked for a solution.
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"They [Huawei] are back in the running for this?" host Duncan Garner said.
"They never were not, there was a very quick interpretation of what happened, but as I say, the legislation sets out a process.
"The GCSB have raised concerns, that is in the public domain, they have gone back to Spark with those concerns, now the ball is in Spark's court, that is literally where the process sits."
Ms Ardern said she supported the original decision on the network as the GCSB was the best organisation to make the judgement.
"The GCSB is in the best place to make these calls, and this exists for good reason."
A spokesperson for Spark told Newshub the company was still in discussions with the GCSB.
"We are working through what possible mitigations we might be able to provide to address the concerns raised by the GCSB and have not yet made any decision on whether or when we should submit a revised proposal to GCSB."
A difficult decision
Simplicity investment company founder Sam Stubbs told The AM Show the GCSB's decision on the network was likely not made lightly, but clearly embarrassed China.
"China takes these things very seriously, this is a loss of face for them and you know when they're displeased," he said.
"It was a very strong message, although I would also say, don't take it lightly, very rarely would the Government go out and do something like this, clearly there is some substance to this I think."
Commentator Richard Harman agreed the incident was severe and said diplomats he spoke to were concerned by the frosty relations.
"People were saying 'look, this potentially is as big a foreign policy crisis as the 1985 ANZUS crisis'," he said.
The 1985 crisis saw New Zealand's relationship with the US sour significantly over the use of nuclear weapons.