Is Huawei’s 5G dream about to crumble?

When the head of Huawei’s 5G product line, Chaobin Yang, showed up for a press briefing on the sidelines of an IT event in Latvia in September, he soon had to address a question regarding the decision by US and Australian authorities to lift restrictions on the use of the company’s equipment in the rollout of their countries’ 5G networks. A communications official promptly came to his rescue, saying: “We are here to talk about technology, not politics.”

Little did anyone know that in a few weeks’ time politics would come to dominate any talk regarding Huawei’s 5G plans. US president Donald Trump openly asked the country's allies to shun Huawei’s 5G equipment on security grounds, prompting a number of countries around the world to fall in line. Then Meng Wanzhou, Huawei's chief financial officer and deputy chair (and daughter of founder Ren Zhengfei), was detained in Canada in December for allegedly violating sanctions against Iran. A few weeks later, a company employee, Weijing Wang, was arrested in Poland on spying charges. The company denies any wrongdoing, but the mounting pressure it is facing risks overshadowing the technological edge it has gained in the 5G space.

A 5G leader

“Right now Huawei is the undisputed leader when it comes to 5G networks,” says Paolo Pescatore, a tech, media and telecommunications analyst. “It’s extremely hard for the other network vendors to compete head-on with Huawei right now.”

Almost unknown at the beginning of the century, Huawei has experienced tremendous growth in the past 10 years offering existing technology at convenient prices to become the world’s largest supplier of equipment for telecommunications infrastructure, and one of the largest manufacturers of handset devices. The whole group has become a giant able to turn over about $109bn in 2018, up by 21% from a year earlier.

Massive investment programmes have been instrumental in the company’s rapid rise to global prominence. Huawei has been by far and large the most active foreign investor in the field of telecommunications in the past 15 years, according to greenfield investment monitor fDi Markets, with the company opening offices, manufacturing facilities, support and R&D centres in more than 170 countries. Overall, it has announced 252 investment projects worth $9.3bn since 2008, fDi Markets figures show.

Huawei's early move into the 5G space, where its equipment is already available on the market, has now provided the company with a technological edge over its competitors that it seldom had before.

“There is only one true 5G supplier right now, and that is Huawei – the others need to catch up,” BT’s chief architect, Neil McRae, said at an event in London in November. If that represented music to the ears of Huawei’s executives, it was nothing short of noise for authorities in the West.

Security red flags

“5G will be the pillar for the future digital network in every single country,” says Mr Pescatore. “Hence why governments are hugely concerned that decisions are made in a manner that not only safeguards the competitive nature of securing business, but also the national security. As we move towards an all-IT future, we become much more reliant on software-driven networks, hence the huge amount of concern, not only for what Huawei brings, but just a general concern [regarding the safety of these 5G networks].”

Despite being a private company, authorities in the West, particularly those from the US, have often suspected the company of being a backdoor for Beijing’s spying activity and tried to limit its growth in the past. The dispute reached new heights in January when US attorney-general Matthew Whitaker officially pressed charges against the company for alleged violations of sanctions against Iran, directly involving Ms Meng (who is on bail and under house arrest in Canada facing an extradition request from the US), and industrial espionage – this latter indictment traces back to a civil lawsuit settled in 2017 where a jury confirmed that an employee of Huawei had stolen parts of a robot in a laboratory run by T-Mobile in Seattle, but also found neither damages nor wilful and malicious conduct on the trade secret claim.

Waiting for a court to hear the case Mr Whitaker is bringing forward, Huawei has denied any wrongdoing on both fronts. At the same time, a verdict is still pending in Poland, where Mr Wang is accused of spying – in this case though the company fired the employee and distanced itself from his actions.  

“The espionage allegations are another blow against Huawei’s 5G ambitions in Western markets,” says Hugo Brennan, a senior Asia analyst with risk consultancy Verisk Maplecroft. “The Wang case will only fuel suspicion that there is a national security price to pay for using Huawei technology. The international blowback against Huawei has so far been confined to Western markets, but developing countries may also start to examine the pitfalls associated with a reliance on Chinese technology.”

Investment concerns 

With a growing number of countries acting at a political level to restrict Huawei’s access to their future 5G networks, telecommunications companies are inevitably falling in line. Among others, Vodafone and BT announced they would bar Huawei’s equipment from the backbone of their future 5G networks, although the restriction does not apply to access infrastructure, which delivers the last mile connection from the network to final users. In Australia, TPG Telecom halted the rollout of its 5G network following a ban of Huawei’s equipment in August 2018.

Yet countries deciding to stay away from Huawei equipment face a major trade-off between security and technological competitiveness.

Banning Huawei from the list of potential 5G network suppliers may cost Europe a delay of two years in the rollout of 5G networks, Bloomberg reported an internal assessment by Deutsche Telekom, the largest telecommunications company in Europe, as saying.

Huawei is going to great lengths to reiterate this point.

“Barring Huawei from participating in various 5G markets is like an NBA game without all-stars,” the company’s rotating chairman, Guo Ping, said in his New Year letter sent to nearly 180,000 employees globally. “You can’t play to the highest possible technical standards.”

However, politics has taken over technology in the debate over the future development of 5G networks, and even more so as these allegations come at a time when the White House and Beijing are locked in very sensitive talks over trade and investment, which risks Huawei becoming another pawn in a bigger negotiation that goes well beyond 5G networks. It will take another few years for the mass deployment of 5G networks to come through. This gives other equipment suppliers such as Ericsson and Nokia some time to catch up. It also gives Huawei a chance to stop focusing on technology, and instead put some effort into addressing the suspicions the company has raised around the world.