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12 December 2019

Huawei ends the year without clarity on its position in Europe’s 5G roll-out

It has been a tumultuous year for Huawei and its position in the European 5G market remains almost as confused at the end of 2019 as it was at the start.

It has been a year when the USA has tightened its own restrictions on Chinese vendors, citing national security concerns but against the backdrop of escalating trade wars, and an ‘America first’ policy which is throwing a spotlight on homegrown 5G suppliers like JMA and Parallel Wireless, as well as the USA’s biggest network equipment supplier, Cisco.

The Trump government has put pressure on allied countries to follow its lead and exclude Huawei and ZTE from 5G networks and other critical infrastructure. Only Australia has fully complied, with more limited support from Japan and New Zealand, and some European countries have refused to toe the US line. Many, however, are still investigating the issue, and political changes may affect the outcome – Huawei is likely to be watching the progress of the UK election this week, for instance.

The European Union, and several of its members such as Germany, have called for a tighter policy to guard against spyware and other national security threats in 5G equipment, while most operators – which certainly do not want their choice of established macro network vendors reduced to just three – are saying they can protect their platforms, and should be free to choose the best supplier while implementing rigorous security protections.

For Huawei, it is still a story of uncertainty and changing outcomes, which is creating uncertainty, too, for operators and potentially delaying their investments in the next wave of 5G RAN and core systems. For those with substantial investment in Huawei kit for 4G (which often includes 5G-ready base stations), or for the first wave of 5G and SingleRAN roll-outs, there is the unwelcome prospect of having to rip out existing kit or change finalized procurement plans.

With all MNOs currently deploying 5G New Radio in Non-Standalone (NSA) mode, with the existing 4G core, it is complex and expensive to introduce a new vendor for the 5G base stations. That means most operators, if they want to change to a new RAN vendor, will wait until they deploy Standalone NR and a 5G core, which could come in several years’ time.

In the latest developments, Portugal is the latest western European country to refuse to ban Huawei from its 5G network. The country has formally notified the USA that it will allow Chinese vendors to bid for 5G contracts. Portugal’s foreign minister Augusto Santos told the US secretary of state, Mike Pompeo, that bids would be assessed on a case-by-case basis.

Its operators already have substantial investment in Huawei equipment. In particular, the country’s largest operator, Altice Portugal, has partnered with Huawei for 5G trials and aims to launch commercial services next year.

Meanwhile, Telefónica told Reuters that it will continue to use Huawei for its 5G core. The telco already has core network deals with Huawei, but its new statement is significant for two reasons. One, it indicates that the Spanish government has no plans to bar Chinese suppliers. Two, it shows both a major operator, and a government, being prepared to allow Chinese equipment into the core. Several telcos and policy makers in Europe have indicated that they will allow Chinese systems in the RAN, but not the 5G core, where the main opportunities exist for security breaches.

However, it does seem that Telefónica is moving from a Huawei-dominated policy in 4G to a multivendor approach. This reflects how operators are growing nervous of relying too much on one supplier in case government policy changes, or hard evidence of Chinese government-sponsored hacking emerges (this accusation, hotly denied by Huawei, lies at the heart of the US restrictions, but no evidence has been presented).

Other European players, like Italy’s Wind Tre, which had originally planned to rely on ZTE for its new networks, are moving to multiple vendor strategies. This is not all about Chinese risks, though those have been a trigger – most MNOs are keen for their next generation networks to support multivendor interoperability, which will increase price and feature competition in their supply chains and end lock-ins.

While the Iberian nations seem positive about Huawei still, there is less good news for the vendor in the major economies of Germany and the UK. Both of these have been conducted evaluations over many months, but have refused to accept US policies too hastily. Germany took the lead in insisting on a security framework that applies to all suppliers, rather than excluding any  particular vendor; the UK indicated it would allow 5G in the RAN but not the core (incumbent BT, which has worked extensively with Huawei for its 5G RAN trials and early roll-outs, has been removing the Chinese company’s kit from the core network of its mobile unit, EE).

Now, the leaders of both countries are under political pressure at home and perhaps more amenable to the USA’s demands. German Chancellor Angela Merkel has backed a common regulatory framework but reports now indicate that Germany lawmakers are calling for a ban on Huawei equipment. That would be a significant challenge for the operators, with Huawei kit estimated to make up about 70% of current mobile networks.

Deutsche Telekom is in a particularly difficult political position with regards to the USA because its proposed acquisition of Sprint, to merge with its T-Mobile USA unit, is under threat from a series of state-based lawsuits. A Deutsche Telekom spokesperson told local reporters: “In light of the unclear political situation, we are not currently entering into any 5G contracts – with any vendor. We are currently informing vendors of this.”

Such actions will be bad news for all the vendors, because they may defer hoped-for 2020 contracts.

In the UK, prime minister Boris Johnson said that the government would revisit its stance on Huawei after the forthcoming general election. “I don’t want this country to be hostile to investment from overseas. On the other hand, we cannot prejudice our vital national security interests nor can we prejudice our ability to cooperate with other Five Eyes security partners. That will be the key criterion that informs our decision about Huawei,” he said.

Five Eyes is a security and intelligence sharing alliance between the USA, UK, Australia, New Zealand and Canada, which has often been cited by the USA as a reason for members to exclude Chinese kit to avoid potential compromising of the alliance. Of course, Johnson has the added pressure of needing a good trade deal with the USA after the UK exits the European Union.

Vodafone and Three also have heavy reliance on Huawei, with the latter naming Huawei as its sole supplier for 5G RAN. The least affected operator would be O2. Once BT completes its removal of Huawei equipment from EE’s core, none of the UK MNOs will have Chinese core systems.

EU member states are due to agree on EU-wide measures to mitigate 5G cybersecurity risks by December 31, based on a report published in October. Member states will the have until October 1 2020 to determine whether further action is needed.

Across the Atlantic, Huawei will relocate its North American business unit to Canada, according to the company’s founder, Ren Zhengfei. The last straw, he told Chinese reporters, was an FCC ruling that Huawei equipment must be removed from rural fixed line networks, a decision the company is opposing in a lawsuit (see separate item).

Huawei has significantly reduced its US operations in recent months, with headcount falling from over 600 to 250 already.

The announcement came a month before the planned extradition hearing of Sabrina Meng Wanzhou, Huawei’s CFO, who has been under house arrest in Canada for a year, fighting extradition to the USA to face allegations against her company, of violating international sanctions against Iran.