The ramifications of the Huawei's exclusion from certain markets — including the U.S., Australia and New Zealand — are significant.
Removing Huawei equipment that's already installed is fraught with difficulties. Furthermore, it's not clear removal is necessary, let alone shunning the company's gear from the start. What's a wireless company to do?
“Be careful what you wish for” is the idiom that comes to mind when we – or to be precise mobile network operators — focus on the travails of Chinese mobile infrastructure group Huawei and the global roll-out of 5G networks.
Countries and companies must decide whether to continue to use Huawei equipment. Huawei’s losses will be its rivals’ gains, but should Huawei’s losses mount, there would also be a hidden peril for the Chinese manufacturer’s largest direct competitors. That potential vulnerability tends to get obscured by the more immediate consequences for the network operators who currently depend on Huawei equipment.
Carriers around the world have in Huawei a top-notch supplier. There seems to be consensus within the mobile sector that Huawei’s 5G gear — while not necessarily the cheapest — is of the highest quality and, equally importantly, readily available.
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That is mostly due to the vast resources available to the Chinese behemoth. It conducts market leading R&D and benefits from relatively cheap man-power to make and deploy the specialised infrastructure that will be needed for 5G.
As Bengt Nordstrom, founder and CEO of Swedish telecom consultancy group Northstream told EE Timesrecently in an article on the redemption of Nokia, Huawei’s R&D resources and marketing budgets dwarf those of its two main competitors — Swedish group Ericsson and Nokia of Finland.
These resources may even out-gun those available to South Korea’s Samsung, which is gradually muscling in on the infrastructure business. As always, Samsung has a long term perspective. This has certainly helped in mobile handsets; it has taken a while, but last year the company finally bettered the number of smartphones shipped globally by Apple.
It should also be noted that Samsung is increasing year-on-year the number of Standard Essential Patents (SEP) applications for 5G infrastructure within the 3GPP patents process, which is often credited with making GSM and 3GPP standards the successes they are. And it can’t be a hindrance that Samsung has the facilities to make the key silicon devices needed for 5G gear.
The geo-politics of Huawei’s current dilemma is covered elsewhere in this Special Report. But the ramifications of the company’s exclusion from certain markets — including the U.S., Australia and New Zealand — are significant.
Europe the laggard
As hinted above, Europe is in a difficult and conflicted place, with increasing pressure from the U.S. authorities to block Huawei from 5G contracts. Many European operators are heavily reliant on the company’s gear.
In some cases — notably in the UK with BT — the reliance extends to the core 4G network. In Germany, where the Chinese group has a huge R&D operation, Deutsche Telekom has made Huawei one of the key suppliers of its 4G RAN. Last year, Three UK chose Huawei for deployment of its 5G RAN, rather than its traditional suppliers Nokia and Ericsson, who shared deals in the previous generation 3G and 4G RAN.
Over the last few months, the UK has been sending out decidedly mixed signals.
Late last year, BT suggested it would strip Huawei out of its packet core mobile and long-haul optical networks, and not ask the Chinese group to tender for the core 5G or mobile edge networks. This despite the fact that such swaps can be hugely disruptive operations.
It also assumes a swap is possible. The operator’s chief architect, Neil McRae told a conference late last year that "Huawei is the only true 5G vendor." Admittedly, it was at a meeting organized by the Chinese group.
Then, mid- February, it emerged that the UK National Cyber Security Centre (NCSC) is readying a document that suggests the risks from using Huawei equipment in 5G networks, notably the 5G RAN, can be mitigated. But the NCSC had previously noted some serious security concerns regarding deploying Huawei equipment.
The report could be cited by the Chinese company as evidence that if the UK feels confident it can control any risks. The NCSC’s report could help assure other European countries they could confidently install Huawei gear.
Britain’s signals intelligence agency GCHQ, in collaboration with the country’s major operators such as BT, have for years been tearing apart Huawei equipment and examining the code, and to date have found no evidence that any Chinese technology in any part of a 5G network represents an unacceptable risk.
On the other hand, the influential defence and security think-tank RUSI (Royal United Services Institute) recently said in a hard-hitting report that it would be “naïve” and “irresponsible” for the UK to allow Huawei to provide any equipment in any part of the country’s 5G network. Written by Charles Parton, a former counsellor for the European Union to China, the report warns that “it is possible to conceive that Huawei might, in the future, if it has not already, covertly collect data via the UK’s (communications) systems.”
The RUSI report also considers the even bigger picture: the former diplomat uses strong language to warn that the UK must maintain the same stance as its allies in the so-called "Five Eyes" intelligence regime: Australia, the U.S., New Zealand and Canada. As already noted, three of these countries have already banned Huawei from participating in 5G infrastructure, while Canada is said to be weighing a ban.
The maintenance of a "Five Eyes standard" of cyber security in telecommunications “is a vital strategic and security interest, the loss of which would go far beyond a reduction in intelligence reports exchanges and might lead to the UK being excluded from work on developing future technologies for intelligence collection,” asserts Parton.
This stance is consistent with that of the U.S. National Security Agency.
Coincidentally, the GSM Association, which represents the world’s cellular network operators, urged European governments and carriers to collaborate and create a regional “assurance testing and certification regime” that could offer “confidence in network security while maintaining competition in the supply of network equipment.”
The GSMA statement, not surprisingly, does not actually name Huawei or ZTE, but the clear implication is that a complete ban on gear from the Chinese suppliers would be a mistake. The Association also stresses that network security requires a “fact-based and risk- based approach.”
Coming just before the GSMA-sponsored Mobile World Congress in Barcelona, the proposal should make for interesting exchanges between suppliers, operators and regulators. Should this initiative take off, it is imperative that it be completely transparent, such that all equipment makers submit their gear for scrutiny before being deemed fit for deployment from a security perspective.
The real danger in politicising the infrastructure equipment sector to this extent is that it could lead to a form of balkanization of the industry, with suppliers seeking refuge within their own enclaves. The consequence of that would be the break-up of global supply chains.
Another reason for treading cautiously is the impact this would have on carriers, notably in Europe. They are right to be wary about losing as technologically advanced a supplier as Huawei, which has driven competition in an already hugely consolidated market (witness what has happened for instance with Nortel-Alcatel-Lucent-Siemens = Nokia).
Should all of this trade tension get worse, that will open European equipment suppliers to the potential threat mentioned earlier.
A possible consequence of some countries freezing out Huawei is a Chinese backlash against the European suppliers. If China chooses to retaliate, it could direct Chinese operators to cease buying infrastructure gear from Nokia and Ericsson. Based on last year’s figures, that would mean Nokia taking an 11% hit on global revenues (see accompanying chart, from Dell'Oro Group). Ericsson booked 12% of its sales in the region. Indeed, the Swedish group proudly identified China as one of its two biggest markets — only slightly behind the U.S.
It’s quite a web of intrigue.