China and the World, Talking Point, Telecoms

My way or the Huawei

Has Europe become the key battleground for the Chinese giant’s 5G future?


Ready to fold: Huawei’s new Mate X on display at the Mobile World Congress in Barcelona this week

The Consumer Electronics Show in Las Vegas is still the world’s most important tech fair but for people in the telecoms sector the biggest event on the calendar is the Mobile World Congress (MWC).

The gathering is organised by the GSM Association, which was created in 1982 to promote the GSM standard.

When the meeting was launched in 1987 it was called the GSM World Congress. In the same year the European Union ruled that its member states had to adopt the GSM format, closing the market to alternatives such as CDMA, developed by Qualcomm of the United States. This helped GSM dominate in the era when phones were mostly about making voice calls or sending text messages.

Chinese support for CDMA technology – partly horse-traded in exchange for Washington’s backing for China’s WTO entry in 2001 – tilted the balance back towards CDMA in the 3G and 4G era, helping it become the dominant standard (see WiC401). Hence the rebrand to the Mobile World Congress (and the dropping of ‘GSM’ from the annual event’s original name).

But when it comes to setting new 5G standards, the power plays between the US, Europe and China have realigned. The MWC was held in Barcelona this week at a time when Chinese telecoms equipment giant Huawei is staging a fightback against an American-led campaign to stymie its commercial advance. But this time round Europe could play the role of game changer. Are European governments going to respond to Washington’s plea to shun Huawei’s 5G equipment?

‘The Battle of Barcelona…’

That was how some industry executives dubbed this year’s MWC. The event ran from Monday to Thursday and attracted some 100,000 delegates from more than 2,400 telecoms firms. Huawei had a major presence, booking three separate show halls and a huge stand. As one of the event’s main sponsors, its red logo (which netizens in China compare to a sliced apple) adorned the main entrance.

Lining up against China’s biggest telecom equipment maker was a larger-than-usual delegation from Washington. These government officials were dispatched to persuade telcos and governments from around the world to drop Huawei from their 5G plans over ‘national security concerns’.

In 4G networks, data typically flows through a central core. But in 5G, it will be channelled between multiple points in a way that makes it harder to detect weaknesses or hacks.

Hence US Secretary of State Mike Pompeo’s warning last week that European countries that did not block Huawei 5G infrastructure could risk being kicked out of the American circle of trust.

“If a country adopts this [Huawei’s equipment] and puts it in some of their critical information systems, we won’t be able to share information with them, we won’t be able to work alongside them,” he said in an interview on Fox Business Network. “We’re not going to put American information at risk.”

One of the key attendees at the MWC this year was Robert Strayer, America’s top cyber official. He described Huawei to reporters as “duplicitous and deceitful”. He also called on US allies not to do deals with Chinese firms that could be forced to hand over data to the Communist Party.

Huawei has continued to deny accusations that it has an ultimate allegiance to the Chinese state (more on its fightback later). Yet the intensity of Washington’s lobbying push has been heaping pressure on its senior executives, with one telling the Financial Times that the MWC is turning into a “referendum on Huawei”.

Is Europe listening?

Strayer told reporters that his US government delegation has been successful in convincing European allies to stay away from Huawei.

The Czech Republic and Poland, where a Huawei executive was arrested last month on espionage charges, have already voiced their concerns. But the larger countries seem to be sitting on the fence and allowing themselves the leeway to go either way.

In France, where Huawei made €1 billion ($1.14 billion) in sales revenue last year, a legislative amendment was proposed last month to toughen checks on telecom equipment deployed in core networks. However, the proposal was rejected by lawmakers, who want more time to evaluate the issue.

The German government has also decided to amend its telecoms laws to require that suppliers share source codes and provide guarantees that no information will be shared with other governments. That looked to be a form of sanction against Huawei, as China’s own 2018 National Intelligence Law has been interpreted as meaning that Chinese firms have to cooperate with Beijing on sharing data in cases of national security.

(Huawei insists its critics have misunderstood the law and to prove that its networks don’t support snooping it opened a lab in Bonn last November, where it makes its programming language for its network gear available to German telecoms regulators.)

All the same, Germany’s interior minister told broadcaster Deutsche Welle this week that there is no deadline for a decision on how to treat contracts with Huawei, even though the Germans are likely to hold the first auction for 5G frequency this month.

One challenge for the American delegation is that Huawei is already widely embedded in Europe’s telecom networks, which is not the case in the US.

Another difficulty in dissuading other countries from doing deals with Huawei, a US official at the MWC told the FT, is that the Americans are lobbying on the basis of intelligence they “might not even be able to share”.

This has weakened Washington’s argument and the German media has also reminded its citizens that the authorities in the US have been all too ready to compromise information security when it suits them (see WiC198).

“Publications by whistleblower Edward Snowden showed that US intelligence employees had gained access to sensitive data from companies through software backdoors – that is they had done exactly what Washington is accusing China of,” Deutsche Welle noted.

The American response to this is that its espionage efforts, which included tapping Angela Merkel’s phone, collected information for security purposes – but weren’t aimed at giving its domestic firms a competitive edge.

Deutsche Welle says it is ultimately “a matter of what political system you believe in and who you trust”. China isn’t a democracy nor one of Germany’s defence allies, the broadcaster noted. But the reality check is that sanctions on Huawei could provoke retaliation against German businesses in China or the country’s exporters.

Moreover, as the business daily Handelsblatt has pointed out, a total ban on Huawei’s components being used in Germany’s telecoms infrastructure would be nearly impossible. And excluding the Chinese firm from the 5G build-out could also result in a two-year delay in getting new-generation systems ready – putting German firms at a disadvantage in capitalising on some of the new applications that 5G will support, such as self-driving cars and the Internet of Things.

Has Huawei put the ‘special relationship’ under stress as well?

In 2015 when China was planning the launch of the Asian Infrastructure Investment Bank, it was given a boost by the British, who asked to become an AIIB member. That was seen as a coup as the new institution was regarded as a rival to US-backed supranationals like the World Bank. The UK’s decision to join irked Washington so much that the American government put out a statement warning against Britain’s “constant accommodation of China” (see WiC275).

Huawei’s cause has received some much-needed support from the UK as well. The Chinese firm runs a lab in the UK where professionals from the Government Communications Headquarters (GCHQ) can scrutinise its equipment. The centre’s last report on the risks associated with Huawei was far from glowing, because of what it identified as a series of serious problems with security and engineering processes. However, the report said the flaws weren’t indicators of hostile activity by China, and Ciaran Martin, a member of GCHQ’s board and the boss of the testing centre, told a security conference in Brussels last week that the British were confident that its arrangements could contain any spying threat.

“Because of our 15 years of dealings with Huawei… we have a wealth of understanding of the company,” Martin said. “And, based on our hard-headed assessment of risk and our detailed knowledge of how networks work, we are putting in place our own plans for helping our operators to manage these risks.”

The spy chief’s comment looks likely to weigh on the UK’s final decision on whether to block bids from Huawei when Britain’s 5G spectrum goes on the auction block in late April.

Similar to Germany, telecom operators in the UK have voiced concerns about excluding Huawei entirely, saying that would mean costly delays (much of Britain’s 4G infrastructure was built by Huawei and it is more cost-effective to lay its 5G solutions on top of existing networks rather than start from scratch).

There have been warnings too that a ban would darken UK-China relations and make the post-Brexit world even more challenging for British firms.

Speaking at the MWC, Nick Read, boss of Vodafone, the world’s second biggest mobile carrier by subscribers (after China Mobile), urged Washington to share any evidence it has about Huawei’s cyber threat, and warned against premature decisions based on fear rather than fact.

Read’s firm, along with fellow British mobile operators BT and Three, then hinted at their collective disdain for the idea of a ban by conducting the first video call across a 5G network with Huawei’s Ryan Ding at the Barcelona event (but Vodafone said in January it would stop deploying Huawei kit in its core networks in Europe until Western governments came to a firm view on the issue.)

Three is controlled by CK Hutchison, the listed flagship of Hong Kong’s richest man Li Ka-shing. Hong Kong media outlets reported earlier this year that Three has reached a deal to purchase $25 billion worth of equipment from Huawei for its 5G build out in the UK.

What about the ‘Five Eyes’?

The ‘Five Eyes’ alliance originated in an intelligence-sharing pact during the Second World War and it now links the security agencies of the US, the UK, Canada, Australia and New Zealand.

Australia has ruled out using Huawei in 5G – although some analysts have predicted that stance may be reversed once the general election is over in May.

New Zealand’s Prime Minister Jacinda Ardern has said her government is undecided about Huawei, although the country’s spy agency did ban telecom firm Spark from using Huawei 5G equipment in November.

The Chinese firm reacted to this ban with full-page newspaper ads last month that wittily warned that “5G without Huawei is like rugby without New Zealand”.

“They can bark as long as they like, but we have decisions to make about New Zealand’s national security interests. That’s the only thing upon which we will make a decision,” New Zealand’s intelligence minister told the Wall Street Journal.

Canada is in the trickiest position after its detention of Huawei’s CFO Meng Wanzhou, also the daughter of Huawei’s founder and generalissimo Ren Zhengfei.

In fact Ottawa has an imminent decision to make aboutwhether to extradite her to the US – it is now three months since Meng was arrested on Canadian soil.

Another variable is whether Washington and Beijing are about to seal a deal on their trade and tech row, which might draw some of the sting out of the campaign against Huawei.

An executive order to prevent Huawei from selling 5G gear in the US is still possible, Trump said this week during a meeting with Chinese Vice Premier Liu He. However, he also appeared to admit that American firms have fallen behind Huawei in the 5G race, and challenged them to boost their efforts to catch up. “I want the United States to win through competition, not by blocking out currently more advanced technologies,” he tweeted.

Smartphone wars

Trump could be right in his concerns about the 5G race. In smartphones too, the likes of Apple had little to show at the MWC, where the focus was on new 5G phones launched by Huawei and South Korean rival Samsung.

Both of these concept phones have foldable screens but Huawei’s Mate X generated the most hype. The $2,600 smartphone is the most expensive Huawei has ever made and is expandable to an 8 inch tablet screen (when folded to ‘smartphone size’ it is 6.6 inch).

“It feels like you’re holding the future in your hand,” said one reviewer from Techradar in the kind of verdict once reserved for an Apple product, not a Chinese company that few outside China had heard of just a few years ago.

Paradoxically Huawei says it has the US government to thank for making more people aware of its existence. Indeed, in his first exclusive TV interview with international media, Huawei’s boss told the BBC that repeated criticism of Huawei from US officials was providing “very great but cheap commercial advertisement” for his company worldwide.

“There’s no way the US can crush us,” Ren went on defiantly. “If the lights go out in the West, the East will still shine. And if the North goes dark, there is still the South. America doesn’t represent the world.”

Ren’s executives have also gone on the offensive in Barcelona. “Let experts decide whether networks are safe or not. The US security accusation of our 5G has no evidence, nothing,” said Guo Ping, who currently holds the rotating chairman role at Huawei.

Guo also pointed out that US federal law compels American firms to give its government access to data stored on servers.

“PRISM, PRISM on the wall, who is the most trustworthy of them all?” he added, poking fun at the US data gathering programme of the same name. “It is a very important question and if you don’t understand that, you can go and ask Edward Snowden.”

Guo added that Huawei has already won contracts to roll out its 5G technology in nearly 30 countries. It scored another minor victory at the MWC this week, as the United Arab Emirates, another American ally, said it would use equipment from the Chinese firm for its own high-speed 5G network.

And guess where the revolutionary Mate X will launch this summer? Not in China, but in the UK via Vodafone, Three and EE. Huawei reps then told Techradar that there are no plans to release the Mate X in the US…

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