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21 February 2019

Ericsson, Nokia, Cisco hover for clippings from Huawei’s wings

The Huawei case has split both nations and Telcos with even the US harboring opponents of Trump’s flat out campaign to hobble the company, at least as an international force. It is after all just 13 months since Google struck a deal with Huawei over messaging which has been under review but not yet rescinded since the affair blew up alongside the wider trade war between the US and China during the second half of 2018.

Other countries, notably Japan, Australia and New Zealand, have adopted the strong US stance by banning use of Huawei equipment in 5G networks. Other countries have been caught undecided, as have many telcos, so not surprisingly the issue has dominated the run up to next week’s MWC (Mobile World Congress) 2019 in Barcelona, and will also be prominent on the ground there.

Ironically, Europe could be said to benefit most from bans on use of Huawei equipment in emerging infrastructure billed as 5G, given that it has the two other giants of cellular infrastructure. Ericsson, Nokia and Huawei are very much the big three with almost 80% of the global cellular infrastructure market between them. During 2017, Huawei for the first time nipped just in front of Ericsson, taking around 27.5% each, with Nokia third on 23%. In fourth place is China’s ZTE approaching 14%, a fast riser benefiting from being in Huawei’s shadow and yet also caught by the bans.

Naturally, Nokia and Ericsson have hardly been able to conceal their glee over the crisis threatening to sweep Huawei away as a dominant competitor, with both issuing recent blogs affirming their readiness to fill the breach. These blogs were in partial response to suggestions that European 5G roll out plans would be badly disrupted and delayed in the event of bans on Huawei, on the grounds that other vendors were significantly behind in technology and manufacturing capability. Nokia then chimed in by citing its 18 commercial 5G contracts, including also T-Mobile in the US as part of a $3.5 billion multi-year deal signed in July 2018. Nokia and Ericsson agreed that Europe was in danger of lagging behind on 5G, but not because of unreadiness on their part, instead reflecting dithering by governments with ecosystems still unfinished, while in some cases licensed spectrum has yet to be allocated.

Of course, they both have an axe to grind here with 5G being partly their conception to see off the Chinese invasion on their turf in the first place. Now that the Chinese, spearheaded by Huawei and ZTE, threatened to turn the tables, their stance is to back bans, while presenting themselves as fully ready to step into any prospective infrastructure space being vacated.

Things have got more interesting as MWC approaches because the GSMA has at last climbed down from the fence over the Huawei issue, to some extent at least, and this has itself stoked some controversy.

The GSMA was caught between two stools since it represents the whole mobile industry with Huawei a huge intellectual and financial contributor. It has been evasive over the issue until recently, being unwilling to offend any of its members, just muttering about the need to avoid making hasty decisions that could prove unfounded while jeopardizing 5G roll out and overall competitiveness. Then last week the GSMA finally emerged with some sort of a solution with a call on European governments to help mobile operators establish a testing regime to ensure network security, avoiding the disruptive step of excluding vendors from the market. This was based on the premise that network components can be tested for any vulnerabilities, whether accidental or deliberately engineered, with a guarantee that no backdoors would be left open for future espionage of any sort.

This stance received backing from the National Cyber Security Centre, the IT security arm of the UK’s Government Communications Headquarters (GCHQ), which has claimed it can allay security concerns associated with Huawei after conducting a review of its technology. The GSMA’s security testing center would provide a foundation for ongoing assessment of components before deployment.

This approach was criticized both by many operators and also Ericsson, with the argument such testing itself would impede deployment and put Europe at a competitive disadvantage. Some pointed out that Huawei has yet to be found guilty of any breach and had cooperated with European partners over 5G technology development, including security.

On paper there is now a clear standard after the 3rd Generation Partnership Project (3GPP) – the collaboration between existing telecommunications standards bodies that also specified UMTS (3G) and LTE (4G) – in June 2018 at last approved the 5G New Radio specification. But this was really just the beginning and not the end of 5G technological development, which includes security. The initial default is equivalent to 4G, with a few enhancements such as a new trust model which assumes decreasing levels of assurance with increasing distance from the core. That is one reason why some operators such as BT have banned Huawei from the core of their 5G infrastructures but not further out. At this stage though such actions are not particularly logical, and it would make more sense either to ban Huawei completely or not at all. Even that though could be criticized on the grounds there are already a lot of Huawei handsets out there so the potential for trapdoors would still be there.

In practice though there are unlikely to be any specific threats lurking within Huawei equipment or devices, not least because the whole Chinese enterprise revolves around economic growth sustained by foreign expansion. The problem is more strategic or perhaps cultural in that Chinese enterprises in general and Huawei in particular are conjoined at the hip with the country’s government. And while Huawei’s products may be uncorrupted when deployed with other customers they have certainly been used for espionage. The government also has an intimate understanding of the technology, which could leave it well placed to conduct coercive activities in the future even without specific trapdoors.

Such considerations weigh heavily with US security advisers, which implies only an outright ban would ensure national security – a testing regime would not be good enough because it could not ordain future actions by the Chinese. This, more than competitive considerations, will have been persuasive since we cannot take too seriously suggestions that Cisco stands to benefit from Huawei’s exclusion from the US market, given its miniscule position in the 5G infrastructure market at present. It is possible Cisco will suddenly ramp up 5G development in the light of the Huawei situation, but it has a lot of ground to make up on Nokia and Ericsson.

Meanwhile, we note that one major European telco with at least pan-regional ambitions is left very uncomfortable over the Huawei affair, Deutsche Telekom. The company has Huawei and Ericsson as its two main suppliers of radio access network components but has indicated its preference for the former in early 5G deployments, in its native Germany as well as Hungary and Poland. The situation is the opposite of what was expected a few years ago with Huawei equipment costing more but being considered superior technologically. The operator had been under some pressure at least to delay deployments but has been given some relief by the GSMA’s call for calm.

All this is of great interest for the media content industry given that video is a major driver of 5G developments. Huawei has been involved in various recent developments, featuring in the China Mobile 5G Innovation Center which unveiled the first 5G network based 8K Virtual Reality live broadcast at the fifth World Internet Conference in November 2018.

Huawei had been hoping such show cases would dominate its headlines at MWC 2019 but that will not now be the case. It looks like the testing regime will allow Europe to escape from the dislocation of an outright ban on Huawei and ZTE, leaving Trump estranged, much as he is on some other global strategic issues.