Blows to Huawei in UK and NZ, while ZTE may face fresh US probes

The uncertainty about the position of the Chinese vendors in 5G markets continues to mount, with reports that ZTE may have contravened US trade rules again, and New Zealand the latest country to put restrictions on Huawei.

News agency Reuters has obtained a letter from two US senators, requesting that the government investigates whether ZTE worked with individuals on the Department of Commerce’s blacklist. Previously, ZTE incurred sanctions – including a short-lived but disastrous ban on access to US components – for dealing with barred countries such as North Korea. The new reports relate to Venezuela.

The senators claim ZTE has been helping the Venezuelan state build a database to support an ID card called ‘the fatherland card’.

According to another report, this time from Bloomberg Intelligence, the uncertainty about possible sanctions against Huawei and ZTE by various governments is creating a “$5bn sales opportunity for Huawei’s leading networking competitors should geopolitical woes escalate and security concerns play a role in decisions to purchase equipment”.

In the report, the Bloomberg analysts highlight the opportunity for a range of US and European vendors, saying: “Huawei’s market breadth creates opportunities in mobile infrastructure, routing and optical. Ericsson and Nokia would be well-positioned in mobile infrastructure, especially as networks prepare for 5G network upgrades. Cisco and Juniper aim for gains in the router market, with Ciena targeting the optical segment. Nokia’s Alcatel deal gave it presence in both the optical and router markets.”

Citing data from IHS, Bloomberg says Huawei makes $5bn in sales across the mobile networking, optical and routing markets, in regions outside the USA (where it is already excluded from most contracts) and China (where it will never be).

Such pessimism was deepened this week when BT, which has been an outspoken supporter of Huawei, said it was stripping Huawei kit out of the mobile core it acquired with cellular unit EE two years ago.

BT said this was bringing EE into line with its own long-standing policy towards Chinese vendors – to work with them, but keep them away from the core. It said the change in the core was “part of network architecture principles in place since 2006”. The same will apply to the 5G core. “We’re applying these same principles to our current requests for proposals for 5G core infrastructure. As a result, Huawei have not been included in vendor selection for our 5G core,” the spokesman said.

That doesn’t mean that BT/EE cannot continue to work with Huawei in the RAN, as it already does, but it is a sad change of tone from the Chinese company’s point of view. At its own Mobile Broadband Forum event, held last month in London, Neil McRae, MD and chief architect at BT, said in a speech: “Huawei is the world’s one true 5G supplier. The other guys are behind and they need to catch up. The challenge for other network providers is to learn from Huawei.”

The effusion of these words was clearly meant to send a message to the UK government, whose National Cyber Security Centre (NCSC) recently sent a letter – reported by the Financial Times – to mobile operators, urging them to consider their choices of 5G suppliers carefully, ahead of the publication of a review into the security of UK national telecoms infrastructure.

Now it seems that government pressure, and perhaps a desire to please the USA during turbulent times for the UK, have dampened BT’s enthusiasm.

In many other major markets, there is a risk that Huawei (and ZTE) could be restricted or banned from critical infrastructure projects such as 5G roll-out. So far, the USA and Australia have introduced bans, while several European nations are said to be considering sanctions.

And last week, New Zealand followed its neighbor in announcing a bar on Chinese vendors winning 5G contracts. This is a blow for incumbent operator Spark, which had planned to use Huawei 5G gear. That has now been blocked on national security grounds by the Government Communications Security Bureau (GCSB).

“While we are disappointed with this decision, we are confident that the decision will not affect our plans to launch Spark’s 5G network by 1 July 2020,” the operator claimed in a statement, but other MNOs have been far more outspoken about the negative impact of a ban on Chinese suppliers. Hutchison’s Three division has claimed that any restrictions in the UK would significantly increase 5G deployment costs, while its Australian joint venture with Vodafone, which is a Huawei shop for 4G, has lashed out against the ban on its making the same vendor choice for 5G.

“Huawei New Zealand has not had any formal notification or contact from the GCSB, but as the director general has noted publicly, this is an ongoing process,” said Huawei New Zealand’s deputy managing director, Andrew Bowater. “Huawei would welcome the opportunity to actively address any concerns and work together to find a way forward.”

New Zealand is a member of Five Eyes, the signals intelligence alliance that also includes the US, UK, Australia and Canada. It is understood that the USA has been lobbying its allies, and particularly the Five Eyes members, to support its stance on Chinese suppliers. Canada has explicitly said it will not do this, while the UK operators are putting heavy pressure on their government to keep the door open to Huawei.

In the New Zealand Herald, the country’s intelligence agency insisted the Five Eyes membership had no influence over the decision to ban Spark from using Huawei’s RAN equipment, but was related entirely to the question “is there a network security risk here?”.