Huawei will have its usual massive presence at Mobile World Congress next week, and the stakes will be higher than ever because of the political battles it is fighting, trying to preserve its access to infrastructure deals in USA-allied countries at a crucial time, with big 5G contracts imminent.
The saga continues to twist and turn, though there are signs that most countries are reluctant to impose an outright ban on Chinese vendors, and want a compromise which would involve tougher measures to protect against spyware. This is partly because of pressure from their operators, which have been vociferous in arguing that their right to choose their own suppliers, and manage their own security, must be protected – otherwise they face higher prices, with only three major network suppliers left in the game, and for current Huawei users, the prospect of a tougher migration to 5G.
Ericsson’s head of Europe and Latin America, Arun Bansal, hit back at reports that the firm would lack the manpower or product portfolio to replace Huawei in European networks if that became necessary. This came after a major operator from the region told Light Reading that neither Ericsson nor Nokia would be up to the job. “That is a myth,” said Bansal. “There are more than 35,000 people employed in Europe, which is by far the largest number in any region.”
But even if the operator’s claims are indeed false, there will be legitimate concerns about how easily vendors and MNOs can adapt to a situation where a leading supplier has been removed overnight. The situation may prove a dampener on early 5G deployment, while operators wait for clarity on the situation.
No doubt these arguments will be heard even more loudly at MWC, where the GSMA is reportedly holding a summit of key interested parties.
The GSMA has warned that banning specific vendors just limits competition, and argues that what is really needed is a standardized safety certification process for all 5G network equipment being used in Europe.
“European mobile operators already have established working relationships with national security agencies across Europe. These operators stand ready to work with policy makers now to agree on further proportionate and risk-based methods, not least a common, consistent and agreed security assurance, testing and certification regime for Europe,” said the GSMA statement. “This will give confidence in network security while maintaining competition and innovation in the supply of network equipment and data affordability to end users.”
The GSMA pointed to the Network Equipment Security Assurance Scheme (NESAS), which it developed with the 3GPP. It said it was building a taskforce of European operators to identify ways to extend existing schemes.
However, this idea was not universally welcomed. Arun Bansal, head of Europe and Latin America at Ericsson, said the network has shifted from hardware to software, and
testing software in live networks as part of such a program would “slow down innovation”. In a post on the company website, Bansal argued: “Post-development testing is sometimes brought forward as a means to achieve security assurance of live telecom networks. This is a decision for the policy makers, and if it is mandated we will of course comply. However, we see it as an insufficient tool since lab testing only reflects a limited representation of a network, at a given point in time in a specific test configuration. It also risks slowing down innovation and delaying time to market, including new security updates while leading to extra costs in the entire system as modern software development builds on continuous deployments of new releases and functionality. In particular critical 5G use cases, such as autonomous driving and manufacturing, will potentially require expanded scope of testing further slowing down the development of new industrial business cases.”
For now, though, there has not been the long line of governments introducing bans, which some had anticipated – apart from the USA, which has effectively barred Huawei and ZTE from national infrastructure contracts, including mobile networks, for a decade, only Australia and Japan have brought in 5G bans. New Zealand, which was reported to have followed its neighbour, now says there is no block on the Chinese vendors, and the UK has issued a security update which is more positive than expected towards Huawei.
New Zealand insisted it hadn’t banned Huawei from 5G deals and was still in the process of reviewing a potential deal between the vendor and the incumbent operator, Spark. Similarly, Germany said it was still considering the issue and had made no decisions. Economy minister Peter Altmaier said that, whatever Germany decides, it plans to implement stronger oversight over any companies deploying 5G networks.
In the UK, sources familiar with the National Cyber Security Centre (NCSC) review of the supposed Huawei threats told the Financial Times that it would be possible to mitigate the risks of using Chinese 5G kit. This was a more positive message than many had expected from the review, and flew in the face of a recent warning from a UK security thinktank, Royal United Services Institute (RUSI), which said that “allowing Huawei’s participation [in 5G networks] is at best naïve, at worst irresponsible”.
But of course it is too early for Huawei to feel relieved. Some governments are still considering their next steps, including those in some large telecoms economies like Germany (and indeed, the European Union as a whole). And the USA is still pressurizing its allies to take action, and could introduce more stringent restrictions itself on Huawei and ZTE – even potentially reviving a bar on them acquiring components from US firms, a move which was temporarily imposed on ZTE last year and almost brought the company to its knees before it was reversed.
Just as the conversation seemed to have become more rational and less heated, US Secretary of State Mike Pompeo changed all that by issuing a warning that the USA might refuse to work with other countries which use Huawei technology.
“If a country adopts this and puts it in some of their critical information systems, we won’t be able to share information with them,” Pompeo told Fox Business Network. “We won’t be able to work alongside them.” Asked about Europe’s apparent reluctance to accede to US wishes over Huawei, he said: “In some cases, there’s risk that we won’t be able to collocate American resources… an American embassy, an American military outpost.”
He said: “We’ve been out around the world just making sure everybody had the same information, that countries understand the risk of putting this Huawei technology into their IT systems. We think they’ll make good decisions when they understand that risk.” He also repeated US claims that Huawei works closely with the Chinese People’s Liberation Army, an accusation that the vendor categorically denies.
The uncertainty around Huawei may already be affecting its financial performance. Of course, the lack of access to US markets is already factored in, but its 2018 sales figures, revealed at a pre-MWC event for media and analysts in London this week, show that most of its growth is coming from its devices and enterprise divisions. That will not only be about the political and trade wars, which mainly came to the fore in the last quarter of 2018 – all the network vendors have suffered from slow operator spending and two difficult transitions, from 4G to 5G (with the inevitable hiatus while MNOs wait for the new generation), and to software-driven networks.
But the security problems will only make it harder to revitalize growth in the carrier division (and of course, Huawei will be hoping the scrutiny does not extend to its enterprise unit too). Huawei’s 2018 sales were $108.5bn, up from $92.5bn the year before. The enterprise group is the smallest, but its revenues are doubling every two years. According to LightReading calculations, it now tops $10bn in sales, up from $8.4bn in 2017, and Huawei expects to maintain this pace of growth until 2023, which would make it a $40bn business at the start of 2023.
The Carrier division, by contrast, saw sales grow by only 2-3% in 2018, equating to about $47bn. Ryan Ding, the president of that unit, expects sales growth to improve in 2019 despite the security rows but it is falling as a percentage of Huawei’s sales – from 73% in 2012 to 43% in 2018. He said only 5% of Huawei’s geographic markets are affected by the security disputes.
The consumer group, which mainly makes handsets, is now the biggest unit with an estimated $49.4bn to $49.8bn in sales.