The stand-off between the USA and Chinese telco equipment vendors continued to intensify last week as the US Department of Justice charged Huawei with 10 counts of theft of trade secrets from T-Mobile USA; and with separate charges of wire fraud and obstruction of justice.
Such actions are just the tip of the iceberg of worsening US-China tensions over trade wars and national security claims, but operators round the world are railing against governments’ interference in their 5G supplier choices and their prospects of achieving early-stage 5G roll-out without significant capex increases (see separate item). Deutsche Telekom – Germany’s incumbent and, ironically, TMO USA’s parent – is leading the charge, claiming that, if it is prevented from buying kit from Huawei and ZTE, German 5G could be delayed by two years.
The German government has been holding meetings to discuss whether or not to ban Huawei and ZTE from the country’s 5G networks.
“Deutsche Telekom takes the global debate on the security of network equipment from Chinese providers very seriously,” the company said in a statement. It proposed that all critical infrastructure should be verified by an independent security specialist; and that suppliers should be required to place their equipment’s source code in escrow with a third party regulator (an approach already taken in some countries, such as India)/
Huawei has previously expressed willingness to share its code, and in a recent statement on the German situation it said: “It is up to policymakers, regulators and the industry to work out the details, but such an initiative makes a vital contribution to making the debate about 5G more fact-based.”
Deutsche Telekom (DT), whose RAN is supplied by Huawei and Ericsson, has started some 5G deployment with the Chinese firm, and also uses the vendor’s kit in its core network. Bloomberg reported on an internal assessment carried out by DT, which indicates a Huawei bar would lead to a two-year delay to its 5G plans, and significant additional costs, to replace existing 5G RAN and 4G core equipment and to procure further gear with less price competition among vendors.
Vodafone’s CEO Nick Read recently said that removing Huawei from the core network would be a two-year job because of operational complexity.
“There is a big distinction between radio and core, we are predominantly using Huawei in radio. We are continuing to use them in radio for 5G. However, in the core, we have put them on pause. They are not significant in the scale of our operations in the core. Therefore, there is not a big financial implication, though if we were having to replace them in the core, that would take a couple of years to execute,” Read said.
Vodafone has halted its roll-out of Huawei core network platforms in some of its European markets, including Spain, while it waits for decisions by various government security agencies.
Most governments believe the core, rather than the RAN, provides the best opportunity for vendors to embed spyware. This has led the UK’s BT to start to remove Huawei from the core of its mobile subsidiary EE, in line with its existing corporate policy, even though it has worked extensively with the Chinese firm on 5G RAN trials and recently described the company as “currently the only 5G supplier”. It has also said the core replacement will take at least two years.
Read has called for more intelligent and “fact-based conversation” around the supposed security risks posed by Huawei. “Specifically, on Huawei, what I would really like to make clear is, I think we need to move to a more fact-based conversation. I think at the moment it is at a simplistic, political level,” he said in a recent interview, and indicated that many of the allegations were politically motivated, amid worsening tensions between China and the USA, which have dragged the latter’s allies into the dispute too.
Read warned against a comprehensive ban of Huawei in Europe, saying: “Clearly, if there were a complete ban at radio level, then it would be a huge issue for us, but it would be a huge issue for the whole European telco sector. Huawei probably has 35% of the market share through the whole of Europe. So, I think that is a totally different consideration, but we now need to make it a lot more fact-based conversation, and I think you are going to see more and more operators doing that. We are putting the core on pause, we are not replacing at this stage. Now is the moment to engage with the security agencies, with politicians and with Huawei to improve everyone’s understanding.”
In the USA – whose influence is seen behind the lengthening list of countries considering sanctions against Chinese telecoms vendors, supposedly on national security grounds – the lawsuits are the latest development in a worsening situation for Huawei and ZTE. They are already barred from selling equipment into national infrastructure contracts but now face additional legal challenges – with allegations ranging from illegal trade with Iran and Syria; using equipment to spy on behalf of the Chinese government; and the trade secrets charges. These could even result in a bar on them buying US components – an action which was brought, temporarily as it turned out, against ZTE last year, and forced the company to suspend operations.
Huawei is less reliant than its compatriot on US supplies, but such a bar would still hit its costs and the aggressive pace of its 5G network and device developments – it is ahead of its rivals in several key areas of 5G technology, which is why, along with the need for price competition, many operators want to keep it in play. No doubt the fear of hostility from US chip suppliers is behind Huawei’s decision to come to a settlement with Qualcomm over patent royalties (see separate item).
Now the Chinese firm, whose CFO was arrested before Christmas – in Canada, at the behest of the USA – on charges of illegal trading, faces further indictments. The alleged conduct described in the indictment occurred between 2012 and 2014 and among the documents is an alleged internal Huawei memo, offering bonuses to employees who managed to steal confidential information from other companies.
According to the indictment, in 2012 Huawei initiated a plan to steal information on a T-Mobile USA phone-testing robot called Tappy. Huawei engineers allegedly violated confidentiality and non-disclosure agreements with TMO by secretly taking photos of Tappy, taking measurements and even stealing a piece of the robot, so it could be copied in China.
The indictment also claims that, after the US MNO discovered these activities and then sued Huawei in 2014, the vendor sought to obstruct justice by producing a false report that the theft had been carried out by “rogue actors” and was not officially ordered by Huawei.
A separate 13-count indictment has charged Huawei, as well as its imprisoned Meng Wanzhou (the daughter of the company chairman), with using a shell company, Skycom, to commit bank fraud, wire fraud and money laundering and to deal illegally with Iran and Syria, both of which are subject to US trade sanctions.
Huawei lashed out against the charges and claimed that requests to speak with authorities were denied without explanation, and that it has already been cleared of stealing trade secrets from TMO.
Huawei said in a statement: “The allegations in the Western District of Washington trade secret indictment were already the subject of a civil suit that was settled by the parties after a Seattle jury found neither damages nor wilful and malicious conduct on the trade secret claim.”
It added: “The company denies that it or its subsidiary or affiliate have committed any of the asserted violations of US law set forth in each of the indictments, is not aware of any wrongdoing by Ms Meng, and believes the US courts will ultimately reach the same conclusion.”