The crisis facing Huawei and ZTE is deepening. Last week, Huawei’s CFO, Meng Wanzhou – who is also the daughter of the company’s founder – was arrested in Canada, at the behest of the USA. This was a move that dramatically escalated the tensions between China and USA over trade wars and national security claims, which have become heavily centered on 5G.
The USA wants to extradite her, as part of its investigation into Huawei’s alleged use of the global banking system to get round US sanctions and export blacklisted items to Iran. That was the same allegation that led to sanctions and fines – and a temporary bar on any access to US components – against ZTE.
Then Japan became the latest country to impose sanctions against Chinese companies supplying IT or telecoms deployments, following the USA, Australia and New Zealand. The Japanese action is not as broad as the USA’s ban, but the government has forbidden its ministries and defense forces from buying and deploying IT and telecoms equipment from Chinese companies starting in April 2019.
Although the ruling, which cited the usual national and cyber security factors, did not name any particular vendors or technologies, it is likely to have an influence over the 5G choices of the country’s mobile operators, NTT Docomo, KDDI and Softbank, plus 4G newcomer Rakuten Mobile.
The new entrant is working with Nokia, but the established MNOs have all had dealings with Huawei or ZTE in the past. Softbank is the most engaged with the Chinese OEMs, and has 4G technology from both Huawei and ZTE, as well as conducting 5G trials with them, including advanced tests of Massive MIMO. Docomo had also conducted 5G testing with Huawei.
Japanese market research firm MCA estimates that Huawei’s base station market share was 13% last year, up from just 4% the year before, with Softbank the main reason for the growth.
Like MNOs in other countries where restrictions on Chinese vendors are mooted, they have dropped heavy hints that they would not welcome any attempt to reduce their choices in a mobile network where there are already so few mature OEMs to choose from.
However, if they went ahead and procured from a Chinese partner, they could effectively exclude themselves from government communications services contracts in future – the argument that swung Sprint away from continuing to buy from Huawei, when the US authorities brought pressure to bear on the operator, back in 2012.
This will be another blow to Huawei, which must already be bracing itself for similar moves in Europe, under pressure from the Trump administration.
Chinese foreign ministry spokesperson Lu Hao told reporters: “China has consistently encouraged Chinese companies to conduct investment cooperation in Japan in accordance with commercial principles and international rules and in compliance with local laws. At the same time, we have also been asking the Japanese side to provide a fair, transparent and non-discriminatory environment for Chinese companies to operate in Japan. China will pay close attention to the implementation of relevant regulations of the Japanese side. What is important is that the normal business activities of Chinese companies in Japan cannot be treated discriminatorily.”
In Europe, Huawei has seen a strong ally, UK incumbent BT, going cold on it, only a week after a BT executive said Huawei was the only true 5G supplier. BT is pulling the Huawei mobile core from its cellular subsidiary, EE. It says this will just bring EE into line with group policy about Chinese technology in core networks, and would not necessarily affect choices of 5G RAN – but the timing, just after the USA was reported to have initiated another round of lobbying of allied governments to freeze out Chinese firms, suggested the bar will go wider.
Things got worse, when the EU’s technology commissioner said the region should be concerned about Chinese firms. Andrus Ansip said, during a news conference in Brussels last week: “Do we have to be worried about Huawei or other Chinese companies? Yes, I think we have to be worried about those companies.”
Ansip said his main concerns were how Chinese technology suppliers are required to work with the country’s intelligence services, and give them access to encrypted data through back doors.
The EU has not issued any policy statements as a collective in this area, but individual governments, including those of Belgium and Denmark, are said to be considering action, and that could create a domino effect, and even a pan-EU approach.
While Belgium has been tipped to be the next country to ban the use of Huawei equipment in telecoms networks, Germany – the EU’s biggest economy – said on Friday that it opposed banning any vendor from building its 5G networks.
Huawei responded to Ansip’s comments, saying: “We categorically reject any allegation that we might pose a security threat. We are open to a dialog with vice president Andrus Ansip to address these misunderstandings and intend to continue our longstanding cooperation with the European Commission as a private, employee-owned company.
We are part of the solution, not the problem. Huawei has never been asked by any government to build any back doors or interrupt any networks, and we would never tolerate such behaviour by any of our staff.”
Huawei’s loss, Qualcomm’s gain?
Strangely enough, the mounting tensions between the USA and China may benefit one US company, Qualcomm. A Chinese court decision to issue injunctions against various iPhone models (see separate item) was seen by many as retaliation for the arrest of Huawei’s CFO, by attacking the most valuable US company. And White House sources said last week that the Chinese president was open to approving Qualcomm’s acquisition of Dutch chipmaker NXP – a deal which collapsed when China failed to green-light it earlier this year – should Qualcomm reopen proceedings.
The US and Chinese presidents met during the G20 summit in Argentina at the start of the month and apparently the indication regarding NXP came during discussions over tariffs. Trump agreed not to raise duties on a range of Chinese goods, for now at least.