Germany and US rural telcos boost Huawei’s bid to stay in the 5G game

Huawei is fighting back against mounting pressures with bold statements about its 5G leadership, and commitments to convince governments that its security record is “clean”.

The firm’s rotating CEO, Ken Hu, told the Financial Times that Huawei had won 25 5G contracts and was on course to report annual revenues of more than $100bn – in other words, it is the best placed vendor to supply any operator which wants to roll out 5G at an early stage. “Our customers continue to trust us,” he said, hitting out at “efforts in some markets to create fear about Huawei”, and at political interference in business matters.

This was a clear reference to the USA, which has excluded Chinese vendors from national infrastructure contracts, including mobile networks, for years, but under the current administration has been seeking to influence allies to push Huawei and ZTE out of 5G deals. National security, and the fear of these suppliers inserting spyware into their equipment, are given as the reasons, though the stepped-up sanctions also, doubtless, relate to the intensifying trade wars between the USA and China.

Several other countries have cowtowed to the USA in this area. Canada had initially said its security procedures were entirely up to the job of safeguarding it, but earlier this month, Huawei’s CFO, Meng Wanzhou, was arrested in Canada, at the behest of the USA, on charges of fraud and breaking US sanctions against Iran – a hugely provocative move towards China, especially as she is the daughter of Huawei’s founder.

Australia, New Zealand and Japan have excluded Chinese suppliers from some or all 5G projects, while the UK, and some other European countries such as Denmark, are widely expected to follow suit. The UK’s BT, just a week after saying Huawei was the “only 5G supplier”, said it would pull Huawei from the core network of its mobile subsidiary EE. This is in line with BT group policy, and does not necessarily affect the RAN, but the timing and the public announcement point to the operator making a political point, probably under pressure.

Over the Channel in France, Orange dealt another blow when it said it would not use Huawei as a 5G supplier in its home market, though it was not barring the vendor from all its subsidiaries. A spokesperson said there was still “the possibility of deals in other markets and for other technologies”. Orange has not relied heavily on Huawei in France in the past anyway, and most of its 5G trials have been with Ericsson and Nokia. However, having stated a policy of avoiding end-to-end reliance on any one vendor, Orange – like many MNOs – will have a very small choice of suppliers.

Including Orange in France, governments and operators in seven countries have now imposed some restrictions on Huawei and ZTE. These are summarized in the table, compiled by LightReading.

Germany, however, is standing firm. The country’s Federal Office for Information Security (BSI) said last week that it would not ban Huawei unless it sees some firm evidence of espionage. That will be a boost to Huawei not only because Germany is the largest European economy, but because its stance will reduce the much-anticipated outcome of a European Union restriction on Chinese suppliers.

“For such serious decisions like a ban, you need proof,” Arne Schoenbohm, president of BSI, told German newspaper Spiegel.

Even in the USA, Huawei and ZTE have some supporters, despite the rising pressure from many Congress members for the government to impose even harsher sanctions. The Rural Wireless Association (RWA) said it believes about 25% of its members currently use equipment from Huawei and ZTE. The RWA made this claim in a filing with the FCC, petitioning it not to ban Chinese suppliers.

RWA is a trade association representing rural wireless carriers with fewer than 100,000 subscribers. Board members include Sagebrush Cellular in Montana, Panhandle Telephone Cooperative in Oklahoma, NewCore Wireless in Minnesota, Pine Belt Wireless in Alabama, Union Wireless in Wyoming and also Huawei.

In March, FCC chair Ajit Pai proposed rules that would bar the use of money from the FCC’s Universal Service Fund to buy equipment or services from companies that “pose a national security threat to United States communications networks or the communications supply chain”. Smaller operators, such as RWA members, rely on the fund to bring services to rural areas.

“RWA and other commenters have discussed in great detail the substantial harm that the Commission’s proposed rule would cause to rural wireless carriers and their customers,” the body wrote. “RWA estimates that at least 25% of its carrier members would be impacted.”

This would be particularly hard if they were forced to replace existing kit. “Estimated rip-and-replace costs vary by carrier, but are significant across the board. Pine Belt estimates that the purchase price of replacement equipment would be from $6m to $10m, and the downtime from installing new equipment would likely cause Pine Belt to forego another $1 to 3m in roaming fees,” the filing continues. “In total, the proposed rule could easily result in $7 to $13m in direct costs to Pine Belt. Sagebrush estimates the cost of replacing its network at around $57m, and notes that such replacement cost for a small rural carrier is prohibitive without replacement funding.”

Meanwile, Huawei is seeking to reassure governments about its security credentials, given that it stands to lose its chance to sell 5G in a large number of advanced markets. Hu told Reuters that the company would spend $2bn over the next five years to address concerns.

“There isn’t any evidence that Huawei poses a threat to national security to any country,” Hu told reporters. “We welcome any open dialog with anyone that has legitimate concerns … But we will firmly defend ourselves from any ungrounded allegations and we won’t allow our reputation to be tarnished.”

And Huawei’s head of western Europe, Vincent Peng, told the Financial Times that the company was willing to make major changes to its business in order to allay security fears. He said Huawei would do “anything” to prove it could be trusted, including restructuring its business, and rebuilding its processes and products if necessary.

In the USA, Huawei argued in an FCC filing that the USA, and other countries, should define a comprehensive cybersecurity strategy rather than banning selected vendors. “Other countries that adopt a holistic approach to cybersecurity have far less concern, if any, about suppliers such as Huawei—and, resultantly, can reap the benefits of Huawei’s sophisticated technology, dedication to innovation, international presence, and ability to facilitate 5G deployment,” the company wrote.