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To Ban, or Not to Ban Huawei

Munish Sharma is Consultant at the Institute for Defence Studies and Analyses, New Delhi. Click here for profile
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  • April 03, 2019

    Well before 5G could make its first full-scale commercial deployment,1 it is caught in a global spat over alleged snooping charges which saw Chinese telecommunication equipment manufacturers being banned from the international markets. More than half a dozen countries have either got Huawei off their 5G trials or are revisiting the company’s role in their 5G roll-out plans. American prosecutors have pressed criminal charges against Huawei for bank fraud, theft of trade secrets and breach of American sanctions on Iran, and even arrested the company’s Chief Financial Officer Meng Wanzhou2 in December 2018. In a pushback, Huawei filed a lawsuit earlier this month, challenging the US law that bans federal agencies from buying its products and services.

    It is noteworthy that 5G has set global players such as Cisco, Samsung, Ericsson, Nokia and Huawei scrambling to secure their share of the pie. The GSM Association forecasts 5G connections to reach 1.1 billion, around 12 per cent of total mobile connections by 2025.3 The competition is not immune to politics and power play, especially when it is destined to be a money spinner and an enabler for a host of much-awaited next generation applications including self-driving cars and the Internet of Things.

    Chinese telecom players however have had a troubled history. The US had blacklisted Huawei and ZTE Corporation way back in 2012,4 when the House Intelligence Committee concluded that they pose a national security threat on account of spying, stealing of intellectual property and potential ties to the Chinese Government.5 The House Intelligence Committee could not ascertain the corporate structure, history, ownership, operations, financial arrangements and the management of Huawei, and recommended that the Committee on Foreign Investment must block acquisitions, takeovers or mergers involving Huawei and ZTE and government systems. In particular, sensitive systems should not include Huawei or ZTE equipment including component parts. The National Defense Authorization Act – signed in August 2018 – forbids government agencies from procuring telecommunications equipment or services produced or provided by Huawei and ZTE Corporation.6

    Apprehensions over State influence in Huawei’s operations and products also stem from its founder Ren Zhengfei’s close ties with the Chinese Government and his previous employment with the engineering corps of the People’s Liberation Army (PLA) and thereafter in a state owned enterprise. Ren is not an ordinary serviceman; he was invited to the 12th National Congress of the Communist Party of China in 1982. Huawei is the face of China’s growing technology prowess that was initiated in 1978 under Deng Xiaoping. Founded almost a decade later in 1987 at Shenzhen coastal special economic zone, Huawei now supplies products and builds solutions for around 1500 telecom networks in 170 countries, which helps connect one third of the world’s population.7

    Figure 1: Mobile Infrastructure Market Share - 2017

    Source: IHS Markit

    Over the last three decades, Huawei has carved out largest share in the global cellular base station market, pegged at 28 per cent8 (see Figure 1) with its telecom equipment revenue as large as Nokia and Ericsson put together.9 More than technology, cost effectiveness has helped Huawei a great deal; its equipment is said to be 20 to 30 per cent cheaper than the ones Nokia and Ericsson have to offer. Apparently, the US led allegations have not made any significant dent in Huawei’s revenue but has certainly kept Huawei on its toes all the while.

    A Desperate Bid

    As a fallout of the American ban, States both within and outside the “Five Eyes” (an intelligence alliance comprising Australia, Canada, New Zealand, US and UK) are revisiting their relationship with Huawei and ZTE Corporation. These entities, over the years, have made inroads not just in the telecom equipment manufacturing segment, but also in research and development,10 and a host of operations and business support services. In a bid to address the mounting concerns of the United Kingdom (UK) Government and intelligence agencies, Huawei had even set up a Cyber Security Evaluation Centre (HCSEC) in 2010 – an independent security testing lab – entirely at its own cost. Huawei has left no stone unturned to assure Western governments and law makers that it is not a security threat. In 2011, it had published an open letter addressed to the US Government denying allegations levelled against it and reassuring that Huawei equipment is not a threat to its national security. The letter had clarified that it receives tax incentives from the Chinese Government, similar to the US companies, as support for some research and development initiatives.11

    A similar letter addressed to Australian members of parliament (MPs) had surfaced in June last year12, amidst espionage concerns and possibilities of exclusion from the 5G roll-out from Australia. More recently, the UK House of Commons Science and Technology Committee asked Huawei for an explanation to both: the rising security concerns among members of “Five Eyes” alliance13 and the technical issues in its engineering processes raised in the report of HCSEC Oversight Board in July 2018.14 Again, in an open letter, Huawei refuted the concerns, and the reply was no different from its previous attempts to douse the fire. However, Huawei promised to invest US$ 2 billion over the next five years to improve its software engineering capabilities.15 Table 1 summarises the status of Huawei in the 5G roll-out across different countries, both within and outside “Five Eyes” alliance.

    Table 1: Status of Huawei on 5G

    Country

    Impacted TSPs

    Status of Huawei on 5G

     

    US

    AT&T, T-Mobile US, Verizon

    Recommendations of the House intelligence committee in 2012 led to a ban on Huawei and ZTE Corporation on account of spying, stealing of intellectual property and potential ties to the Chinese Government.

    National Defense Authorization Act of August 2018 forbids government agencies from using technology from Huawei and ZTE Corporation.

    Australia

     

    Vodafone, Optus and TPG

     

    In 2012, Huawei was blocked from the bidding for the Australian National Broadband Network.
    One of the first responders, Australian Government blocked Huawei and ZTE from providing 5G technology equipment in August 2018.16

    New Zealand

    Vodafone NZ, Spark

    New Zealand's Government Communications Security Bureau blocked its top telecom firm from using Huawei equipment for its 5G mobile network in November 2018.17

    However, there has been no final decision and New Zealand still has not ruled out Huawei from 5G network upgrade.18

    UK

     

    O2, Vodafone UK, BT

    In December 2018, British Telecom said it would remove Huawei’s equipment from its existing 3G/4G mobile operations.

    UK maintains the stance that any risks posed by Huawei can be mitigated.

    Canada

    Telus, Bell Canada

    Canada is currently considering whether to Huawei from providing equipment for 5G cellular networks.19

    Germany

    Deutsche Telekom, Vodafone, Telefónica

    Germany’s 5G spectrum auction began on March 20, 2019, and the government has not excluded Huawei from providing networking equipment.20

    Germany has been vocal about its unwillingness to ban Huawei from building its 5G networks.21

    France

    Orange, Iliad

    France does not plan to ban Huawei. Instead, it is stepping up controls and safeguards in telecom infrastructure for the next-generation networks in the form of a new amendment to draft business legislation.22

    Orange has confirmed it will not be using Huawei as a 5G kit supplier in France.

    Japan

    NTT DoCoMo, KDDI, Rakuten

    In December 2018, Japanese Government banned Huawei and ZTE Corporation from official contracts for its upcoming 5G infrastructure. The top three telecom operators followed suit.23

    India

    Airtel, Vodafone Idea Ltd.

    Huawei had received an invitation from the government in September to conduct 5G trials in India, along with Ericsson, Nokia, Samsung and Cisco.24

    There is ambiguity as in late February the Telecom Secretary said that the government is yet to take a decision on whether to allow Chinese equipment makers or not.

    A Power Play?

    The global response to Huawei’s role in 5G implementation has been mixed. The US is both persuading and pressurising its allies and members of the “Five Eyes” to do away with Huawei from their 5G deployment plans. During the 2019 Munich Security Conference, US Vice President Mike Pence called on security partners of the US to reject Huawei and other Chinese telecom companies.25 Within the “Five-Eyes”, Australia was quickest to follow suit. Germany and UK on the other end do not seem to be caving in to the American pressure, although the US has threatened to restrict intelligence sharing with allies who do not comply with its call for a ban on products and services from Chinese telecom majors. Meanwhile, China’s Ambassador to Canada has warned Ottawa of “repercussions” if it drops Huawei from its 5G plans. Both Canada and New Zealand, caught in a tug of war between China (economic reasons) and US (security reasons), are playing their cards cautiously and buying time before taking the final call.

    From business point of view, the US does not have much to lose as 90 per cent of its wireless infrastructure rests on equipment from Ericsson and Nokia.26 For over six-seven years US has kept Huawei and ZTE Corporation at bay, although they are much more integrated to the telecommunications infrastructure among other countries listed in Figure 1, especially Huawei. Out casting Huawei and ZTE Corporation from the international market will have consequences both for the developed and developing economies. A retrospective ban means telecom service providers would need to spend a fortune in retro-fitting network gear. Already skewed profit margins mean that telecom service providers will quite likely pass on the cost to the customers. Taking a major player down can also shoot the prices up for 5G deployment, which is not a favourable case for developing economies.

    If the US dogma is fuelled by technology competition, then this certainly is not the right way to quell the competitors. If it is about technology protectionism, then it may seriously undermine global technology research, innovation ecosystem and supply chains. And, if it is about power politics, then middle powers and growing economies are going to pay the price. Germany and UK stand out in this brawl, with a relatively mature and thoughtful approach. A threat to the US does not necessarily equate to a threat to other countries. There is no apparent reason for India either to blindly ban Huawei from its own 5G roll-out plans. However, the final decision should be based on an independent review of Huawei’s telecommunications equipment and the respective security situation. As the negative sentiment against Huawei grows, India can perhaps leverage the opportunity to bargain a better price from the global players for the roll-out of its 5G services. It could also be used as a bargaining chip to correct the trade imbalance vis-à-vis China.

    India however would need to tighten few lose ends at the security front domestically and walk a tight rope at the political front internationally. The Indian Telegraph (Amendment) Rules 2017 provision mandatory testing and certification for telecom equipment prior to sale or import in India, under the Mandatory Testing and Certification of Telecom Equipment (MTCTE) rules of the Telecom Engineering Centre (TEC).27 Performance testing encompasses safety of the equipment with radio interface, its immunity to electrostatic discharge, operating frequency, output power and conformance to receiver and transmitter parameters.28 The deadline for enforcement of MTCTE procedure has already been pushed from April 01 to August 01, 2019.29 Moreover, there is acute ambiguity over the status, functioning, capacity and competence of Security Lab under the TEC30, whose role is critical in the aftermath of snooping allegations on Chinese equipment manufacturers. Security lab of such significance and scope should possess the competence to rip apart a telecom gear and review the components at both source-code and hardware levels.

    India’s decision to allow Huawei to bid for India’s 5G infrastructure development and continue its investments in manufacturing and R&D should be in line with its own national interest, rather than taking sides and constraining options. For India, whose 90 per cent of telecom equipment (worth US$ 21,847.92 million31) is imported,32 the concerns over foreign surveillance would always loom large, whether it is Huawei (China), Nokia (Finland) or Ericsson (Sweden). Since domestic production is a bridge too far, it is the ability to test and verify security aspects of the imported equipment that can mitigate the risks and instil confidence in the near term.

    Views expressed are of the authors and do not necessarily reflect the views of the IDSA or of the Government of India.

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