European governments are becoming more cautious about their policies towards allowing Huawei equipment into 5G networks, whether in response to the UK’s recent adoption of a more hardline approach, or because of escalating geopolitical tension which may lead to Chinese retaliation for US-inspired 5G sanctions. The major economies of France, Germany and Italy had stood against US pressure to ban Huawei outright, and had argued that they would conduct full security risk assessments and base policy on those. However, few of these assessments have been published (except the UK’s, which did not advocate a full ban in the RAN), but the major economies are sending out more US-compliant signals, while their operators may be inclined to play it safe and avoid major commitments to Huawei, as Deutsche Telekom has done (see separate item).
In France, the director general said earlier this month that there would be no “total ban” on Huawei, but reports indicate that the country will adopt de facto restrictions. According to Reuters sources, the French cybersecurity agency ANSSI wants a “ban in all but name”. The agency is reportedly suggesting that it will not allow operators to renew licences to implement Huawei equipment once they expire. With licences varying in length between three and eight years, depending on the region and network type, that could see Huawei kit phased out of the 5G networks by 2028.
As in the UK, where operators have been given until 2027 to phase out any Huawei equipment they have already installed, that provides significant breathing space, but French MNOs are unlikely to want to instal new Huawei base stations if they may have to replace them before they are fully depreciated, or while they are still performing well. There is added uncertainty surrounding multimode 4G/5G equipment, especially where 5G has been deployed in a single RAN solution to support Non-Standalone mode – any replacement, especially in areas where licences are due to expire within a few years, could affect 4G performance and run the risk of black spots or outages.
France’s second and third MNOs, Bouygues Telecom and SFR, rely on Huawei for about half of their network infrastructure. Orange mainly uses Ericsson and Nokia 4G kit, and recently awarded its 5G contract to these two vendors also. The fourth player, Iliad’s Free, also uses the two Nordic suppliers.
Meanwhile, the Huawei battles are spreading beyond the USA and Europe and affecting decisions in south east Asia. There, Japan, Australia and New Zealand have already introduced varying levels of restrictions on Huawei equipment, and other heavily US-aligned markets like Vietnam and Taiwan are also likely to eschew the Chinese supplier.
However, in other parts of the region, Huawei looks set to dominate, which will be a boost to its survivability outside China, but also reinforces the idea that the world will split into two 5G technology zones, not just in terms of 5G suppliers, but also future development of platforms and standards.
Huawei is in pole position, local reports indicate, in many south east Asian countries where 5G contracts will be awarded this year, including US allies such as The Philippines and Thailand. In the former, market leader Globe Telecom is already using Huawei equipment to support a fixed wireless home broadband service. This month, Jaime Augusto Zobel de Ayala, CEO of Globe’s parent company Ayala, told lawmakers that his firm had “an excellent relationship” with the Chinese firm. “I do think they are a leader in 5G technology and we should be allowed to use their facilities,” he said.
Another operator, PLDT, has selected Huawei and “a bit of Ericsson” for its 5G roll-out; while new Philippines entrant Dito is a joint venture with China Telecom, and almost certain to choose Huawei, and possibly ZTE too, for its delayed 5G roll-out.
In response, the USA’s under-secretary of state, Keith Krach, has been trying to change the operators’ minds, luring them with the possibility of US financing to help them switch to new vendors. Krach told Philippines media that the USA had “a lot of financing tools” to help operators make the transition away from Huawei, “because we recognize this danger”.
In Malaysia, the three operators are all planning to use Huawei 5G equipment. Maxis selected the vendor last autumn and U Mobile has issued a letter of intent, while Celcom has so far only signed a memorandum of understanding for a 5G city project, but that is expected to be a proving ground for a bigger engagement.
Meanwhile, in Thailand, market leader AIS has said it will invest up to 45bn baht ($1.42bn) in infrastructure this year and will soon award its 5G contracts. It has shortlisted all five major suppliers – Huawei, Ericsson, Nokia, ZTE and Samsung.
As the cards fall in more and more countries, as 5G auctions and deployments mount up, the next steps taken by both the US and Chinese governments are being closely watched. Even if there is a change of US government after November’s election, there is unlikely to be a sudden thawing of relations with China, and there is wide anticipation that the Asian country will toughen its own stance, with 5G as a key weapon.
According to the Wall Street Journal, China may ban the export of Ericsson and Nokia equipment manufactured in China in retaliation for European blocks on Huawei equipment. The report said China’s Ministry of Commerce is considering export controls on the kit that the European vendors make in China, though this is likely to be a worst-case scenario, only deployed if more governments follow the UK in imposing full bans on Huawei equipment. It is not clear whether the de facto restrictions that France and others appear to be introducing would be enough to avert the action.
Although Nokia and Ericsson are from countries which have not banned Chinese 5G equipment, blocks on the movement of their equipment from Chinese factories would hit the other European nations too, by disrupting their operators’ ability to deploy 5G networks at the planned pace and scale. However, the threat may well be a bluff – China would not want Nokia or Ericsson to pull out, since they employ 16,000 and 14,000 people respectively in Greater China.
According to the WSJ, Nokia has already moved some production out of China as a precautionary measure, and also to allay US fears about networks manufactured in the country.
Ericsson has also been shifting production closer to customers, partly in response to changing geopolitics and the rising US desire to have a ‘made in America’ 5G network. Last year it opened a new factory in Texas to serve all North American contracts and it has also opened a facility in Estonia for some European customers. Of the seven manufacturing sites listed in Ericsson’s last annual report, only one is in China, along with one of its four service delivery centers and one of its 15 R&D centers. However, the Chinese facility serves some critical Ericsson customers, such as Australia’s Telstra, one of its most loyal clients.
Nokia said one of its 10 factories is in China and that accounted for 18% of its radio network production in 2019. One of its 18 R&D centers is in China.
Escalating Chinese retaliation for US and European bans would also hurt local partners of Ericsson and Nokia. Ericsson owns 51% of Nanjing Ericsson Panda Communications, while Panda (a company on the USA’s entity list) has a 27% share, China Potevio a 20% stake, and Yung Shing Enterprise has 2%.
Nokia owns 50% plus one share of Nokia Shanghai Bell and its joint venture partner is China Huaxin Post and Telecom Technologies, a state-owned firm.