Germany refuses to ban Huawei, as US considers financing its rivals

Germany is the latest country to refuse to bow to US demands to bar Huawei from 5G contracts, but the USA is not giving up on its fight to weaken the Chinese giant, and is reported to have been considering financing to help Nokia and Ericsson compete more aggressively with their arch-rival.

According to reports in the UK’s Financial Times, one of several ideas being considered by the Trump administration is some form of financial assistance which would enable the European vendors to offer more competitive payment terms and vendor financing. This would level the playing field against Huawei (and ZTE), which can offer very attractive financing deals, underwritten by China’s state banks, argue US officials.

Support for new financing options, to be offered by Nokia and Ericsson, would particularly help them to win deals with regional and local telcos in the USA. Unlike the national MNOs, which have been barred since 2013 from using Huawei in their networks, many small operators do use Chinese equipment, and the cost for them to migrate, should Huawei be banned outright, would be considerable. That could be offset if other vendors could offer better payment terms to replace their networks.

FCC Commissioner Geoffrey Starks recently said that, in discussions about how to address the problem for the small telcos, both Nokia and Ericsson offered to create products and financing options which were tailored for small players. US incentives might make that easier to achieve.

Other proposals include offering direct government funding for operators to rip and replace their Huawei networks; direct funding for a domestic new entrant; or new incentives for US companies to develop open source, affordable equipment which would be particularly geared to small operators.

Joe Madden, founder of analyst firm Mobile Experts, told SDxCentral that government-backed funding of Huawei’s competitors would contradict normal economic policy. “I don’t think that subsidizing Nokia and Ericsson through the American operators would be an effective policy,” he said. “Today, the US government has the moral high ground, sanctioning Huawei and pushing back against Chinese government subsidies. If we start to offer our own government subsidies then we erode our moral high ground. Further, I don’t believe that it would change the market share in the [United States].”

In Germany, the government has finished its security review and plans to publish it soon, but even before that, a spokeperson confirmed that there would be no pre-emptive ban on any company from providing next generation mobile network equipment.

Under the updated German rules, critical network equipment will need to be certified by the Federal Office for Information Security (BSI). Operators will need to implement enhanced security standards for critical parts of the network, and suppliers could be legally excluded, or subject to fines, if proof of spying were discovered after the vendor was certified as trustworthy.

The German decision, which mirrors that of several other markets in Europe, is the latest blow to US hopes of encouraging allied countries to follow its lead and bar Huawei from 5G networks, following the USA’s decision to place the Chinese firm on its entity list in April (that means any US company can only trade with the listed company with a special licence, and none has reportedly been issued for Huawei partners yet, despite many applications).

Last week, the European Union published its own long-awaited report assessing the security risks of 5G networks. It did not refer specifically to China or Huawei as threats, but did warn of the risk posed by state-backed actors, and by reliance on a single vendor in any major network.

Just as the EU made it clear it would look unkindly on single-vendor 5G contracts, Telia announced that it would rely on Ericsson alone for its 5G build-out. But generally, operators are looking to diversify their supply chain, and even to introduce multivendor equipment into the same zone (multivendor contracts currently tend to mean that each supplier provides the gear for a particular geography).

The report states: “The risk of national dependency from a single supplier is particularly acute in the access part of the network where there are fewer market players.”

Roger Entner, founder of market research firm Recon Analytics, told LightReading: “Europe is finally understanding how single-vendor systems pose grave threats to 5G security. Single-vendor deployments are exposing operators to incalculable risks as operators tie their success to the viability of their vendors … The next step is to translate the concerns the European Commission has into binding rules that prevent 5G networks from becoming controlled by criminal and state actors alike.”

Huawei said it was pleased the EU had taken an “evidence-based approach, thoroughly analyzing risks rather than targeting specific countries or actors”.