Huawei has managed to outdo its major rivals in the telecoms equipment market in recent years, despite being effectively excluded from large contracts in the USA. However, it now faces a bar in Australia too, and Japan is reported to be considering similar moves – and there is always the risk, for both Huawei and ZTE, of a domino effect that will spread to other markets.
India introduced restrictions on Chinese (and other) imports a few years ago and could make them more stringent, and while many countries cite security fears when the introduce sanctions on Huawei, there is often a clear dose of protectionism and commercial defensiveness too – which could be mirrored by a tightening of access to China’s own huge markets for western suppliers.
As the pressures mount on Huawei, it has called for the US Federal Trade Commission (FTC) to conduct hearings urgently about its ability to sell into the US telecoms market. Restrictions on Huawei or ZTE bidding for national infrastructure contracts have existed for years, and forced Sprint to change its mind about using Huawei gear in its 4G network back in 2012. But the tensions between the USA and China have worsened under the current administration, leading to the temporary bar on ZTE even procuring components from US firms, and to AT&T and Verizon apparently reversing plans to offer Huawei smartphones.
Huawei is now resisting the latest move against it – an attempt by the FCC to block sales of its equipment to any operators which receive government funding. That would close one of the vendor’s few doors into the US telecoms equipment market – smaller, localized MNOs – such as SI Wireless, Viaero, NE Colorado Cellular and United Telephone Association – which are often recipients of state funding to extend broadband access. These remain a decent source of business for Huawei – according to dell’Oro, it is the fourth largest RAN vendor in the USA, though it has been overtaken, as has ZTE, by Samsung. Indeed, dell’Oro estimates that Samsung surpassed ZTE on a global basis in the wireless equipment market in the second quarter, thanks to the Chinese firm’s enforced suspension of most operations while it sorted out the US dispute; and also to Samsung’s success in early 5G deployments by the US and Korean telcos.
Specifically, the FCC wants to block any operator from using Universal Service Funds to purchase equipment from companies that, in its view, may pose a security threat.
“The FTC’s upcoming hearings are an appropriate forum to address legislative and administrative actions that negatively impact competition in US telecommunications markets,” Huawei wrote in its filing. “While Huawei submits that such concerns are unfounded, the FTC is uniquely positioned to help assess the likelihood and scope of such harm, and to lend its expertise to policy makers.”
It added: “The occasion of the FTC’s hearings on competition and consumer protection in the 21st century provide an opportunity for the FTC to address impending unreasonable restrictions to competition and harm to consumers in the telecommunications industry. Given its longstanding history as an advocate of competition, the FTC is uniquely positioned to help prevent proposed restrictive regulations that would unnecessarily limit consumer choice and create market inefficiencies.”
Meanwhile, Australia has barred Chinese firms from supplying 5G infrastructure to its operators. The Australian government said it would not allow operators to source 5G equipment from foreign equipment suppliers that were “likely to be subject to extra-judicial directions from a foreign government that conflict with Australian law,” and that “may risk failure by the carrier to adequately protect a 5G network from unauthorized access or interference”.
The decision followed a six-month review of 5G security arrangements, launched after senior US security officials shared their views with former prime minister Malcolm Turnbull early this year.
However, operators want the freedom to choose the equipment which best suits their needs in terms of price and capabilities – and Huawei’s often beats the rest on both counts. Vodafone Hutchison Australia (VHA), which is looking to merge with new entrant TPG, said the ruling “undermines Australia’s 5G future”. VHA and the country’s second MNO, Optus, both use Huawei equipment for LTE.
VHA’s chief strategy officer, Dan Lloyd, said in a statement: “This decision, which has been dropped on the eve of the 5G auction, creates uncertainty for carriers’ investment plans. This decision is a significant change which fundamentally undermines Australia’s 5G future, and we will consider what it means for our business.”
Huawei denied it had ever taken instructions from the Chinese government and said customers would be the losers. The head of its Australian business, John Lord, has warned that excluding Huawei from 5G will effectively push it out of the whole market.
But the Turnbull government rejected some compromise proposals, including a split between the core and radio networks to reduce security risks, or creating a dedicated network security agency.
Despite claims to the contrary, no evidence has been found of an intentional breach in any Huawei kit and the Australian decision has been widely interpreted as an attempt to curry favor with the USA.
And one report, highlighted in Japanese business newspaper Sankei Shimbun, suggests that Japan may follow in Australia’s footsteps. It said the Japanese government was considering a ban on Chinese technology being deployed in government systems, and would recommend that the private sector followed suit. If true, that would be a severe blow because the Japanese and US operators will be among the first to deploy large-scale 5G, and so Huawei’s ability to drive its 5G business to critical mass might be delayed (though, of course, its home market will move at a fairly early stage, and is expected to the world’s largest by 2025).