Banning us could hand China victory in the 5G race – Huawei

Reading between the lines, Huawei is asking the US a new question; banning us will make deployment slower and more expensive, so how will that help in the 5G race against China?

In a filing with the FCC, Huawei has put forward a pretty in-depth argument against prohibiting it from business in the US. Ranging from economic considerations, such as the price and speed of deployment, to the ‘critical’ support it provides smaller telcos in the rural regions, and questions the basis of why the US shouldn’t trust Huawei.

It is a comprehensive and logical plea to the FCC, but since when did sensible decision making factor into politics? The other point to consider is this is PR propaganda from Huawei. There will of course be truth to the statements, though everything will have to be taken with a pinch of salt.

“Huawei urged the Commission to consider the substantial costs of the NPRM, in particular its impact on carriers in rural and remote areas, many of whom are attracted to Huawei as a result of Huawei’s commitment to affordable, quality products and attentive customer service,” the filing states.

As it stands, Huawei is banned from participating from the 5G euphoria in the US. Back in August, President Trump signed the Defense Authorization Act into law with Huawei banned from providing any components or services to processes or infrastructure which would be considered ‘essential’ or ‘critical’. Should the components be used to route or view any data on the network, they are disqualified, which essentially translates to a total ban from US shores. Huawei has been fighting against this ruling both pre and post Trump signature.

Slower and more expensive

This is the main point of the filing and will hit the telcos where they worry the most; their bank accounts. The argument here is simple; without Huawei as a potential vendor, competition is limited, therefore prices go north. The more expensive projects become, the greater the due diligence which will slow down the process, and the fewer which can be run at the same time. Without Huawei, 5G deployment slows down.

This is a logical conclusion to make, but it is far from certain. The negotiating abilities of the procurement teams might shine through. It assumes Ericsson and Nokia will essentially hold the telcos to ransom.

Tom Dowding, SVP of the Wireless Business, argues as a result of the lack of competition, equipment prices in the US market in general tend to be about 20-30% higher than they are in other developed regions, for example in Europe. Allan Shampine of Compass Lexecon is also quoted, suggesting Huawei is outspending competitors on R&D and the increased competition should be welcomed ahead of the anticipated surge of spending on 5G infrastructure.

Speed is key for the US as it battles the Chinese for technology leadership in the 5G world of tomorrow. The US wants 5G to provide a competitive edge on the global stand and maintain its lofty position, though Huawei is arguing these actions undermine the ambition. The US is clearly prepared to make big decisions is defending its leadership position, the Executive Order blocking Broadcom’s acquisition of Qualcomm is a good example, though Huawei questions the logic of this ban.

We’re not dodgy when you think about it

The second aspect of the filing attacks the US justification for the ban. Huawei has pointed out it has more than 500 telco customers around the world in more than 170 countries, many of which are allies of the US. The US government might be doing a good job in convincing some to combat the Chinese threat, Australia and Korea are two examples, though many are continuing business with Huawei. The implication here seems to be they cannot all be wrong.

Another interesting point raised is research from the Rural Broadband Alliance which suggests the US is focusing too much on China. The Domain5 Whitepaper suggests banning Chinese vendors will have little impact on securing US networks as threats can emerge anywhere in the international supply chain. The focus should be on creating a more resilient security framework as opposed to targeting companies from a single nation. This is a very good point to make. Even in the most trusted of allies, there will be nefarious individuals who crave the opportunity to attack the US. This is a country which has enemies everywhere, a laser focus on one area might open up opportunities for hackers with a grudge sitting in Copenhagen.

Finally, Huawei asks why Nokia has been excluded from the Chinese witch hunt. Its joint venture in the country is supervised by a state-owned asset, which has perfect visibility into activities. If Huawei is being banned on the grounds of collusion with the Chinese government, shouldn’t Nokia suffer the same fate?

The little guys actually like us

Perhaps the most interesting aspect of the filing is the support Huawei has managed to muster from various US telcos and associations, each of which suggest banning the company would have a detrimental impact on their business. These might be small telcos, but they are important ones. They plug the connectivity holes in rural US which have been forgotten by the major players. With the digital divide a political ping-pong ball, these voices might be small, but they are weighty.

Michael Beehn, CEO of MobileNation, states the cost effectiveness of Huawei is critical for the business to operate with its small footprint of 20,000 customers. Viaero Wireless CEO Frank DiReco said he had worked with other more expensive vendors in the past, though deployments were never successful. James Valley Telecommunication (JVT) CEO James Groft claims Huawei was 40% more cost effective than the next best option for its wireless core and wireless radios. The Rural Broadband Association worries the US would be left behind in the 5G race because of the attention Huawei and ZTE give the smaller vendors. Finally, the Western Telecommunications Alliance states:

“[A] WTA member chose Huawei four years ago when another vendor fell behind on a critical network upgrade, and the member added that Huawei put an emphasis on getting the problem fixed  before worrying about getting paid. The member added ‘Huawei has treated us better than anybody’. The member also lamented about the lack of competition in the market noting that four years ago, there were five suppliers, but today there are only two.”

This is a very interesting tactic from Huawei. Rousing support of smaller organizations, the supposed ‘backbone of America’, is a PR gurus dream.

Will this actually make a difference?

We suspect not. The approach is interesting, suggesting the ban would help China win the 5G race, though there is too much at stake. Politicians have managed to make an enemy of Huawei and whipped the anti-China rhetoric up into a frenzy. How can these people go back on the condemning testimonies which they have made in the past. They are too proud and self-righteous.

Even if those in power see logic and decide increased competition is better, the smaller telcos need the attention of the Chinese and the bad guys are everywhere not just in China, it might be too late. Too many speeches have been made by President Trump and his supporting cast creating an enemy in China. If it was to let Huawei back into the fray, it would perhaps hand too much ammunition to political opponents.

What is worth noting is that this is PR from Huawei. It might not turn out to be true, but there is certainly a compelling case put forward.

Aussies ban Huawei from throwing 5G on the barbie

In what could be described as an incredibly passive aggressive move, the Australian government has effectively banned Huawei from joining the Australian 5G bonanza.

In a joint statement released by Mitch Fifield, Minister for Communications and the Arts, and Scott Morrison, Acting Minister for Home Affairs, the Australian government has not specifically named Huawei, simply mentioning dodgy governments. A Huawei tweet confirms it is on the wrong side of the line and will not be able to supply Australian vendors with its 5G equipment.

“The Government considers that the involvement of vendors who are likely to be subject to extrajudicial directions from a foreign government that conflict with Australian law, may risk failure by the carrier to adequately protect a 5G network from unauthorised access or interference,” the statement reads.

The rules, which will come into place on September 18 2018, set new legal obligations on security for telcos and are based on the idea 5G networks will have a fundamentally different architecture to the networks of today. With the core and edge merging closer together, and more sensitive processes and applications moving closer to the end-user on the edge, the Australian government is yet to be convinced there are any solutions or approaches which mitigate this security risk. The belief the edge is less secure than the core is a justified one.

The new landscape will provide the Australian government much more influence over the deployment and management of telecommunications networks throughout the country. Not only will the telcos have to offer the government considerably more access to the inner on-goings of operations, the rules essentially give the government the power of veto when it comes to selecting vendors. Huawei has stated it has been barred from the 5G euphoria, and while ZTE is yet to comment, it would be a fair assumption this ban extends to all Chinese companies.

Reading between the lines, the Aussies seem to be saying they don’t trust the Chinese government, or Chinese companies. There is little, if any, concrete proof Huawei is a government puppet, but this seems to be a blanket policy covering all Chinese companies and a message to President Xi Jinping; if you want to play in the global markets, you have to adhere to the same rules as the rest of us, irrelevant of the size of your economy, you can’t have it both ways.

Of course, such actions have been bubbling below the surface for some time. Several countries around the world, with the US being the most vocal, have been airing their suspicions of eavesdropping from the Chinese government, though this is one of the first cases which is seemingly directed at China as a whole. The US did temporarily ban ZTE of course, while it and Huawei are barred from government contracts. There does seem to be an unofficial policy to screw China as hard as possible, though little has translated into hardcore, sector-wide legislation keeping the pair from getting involved with 5G networks on every front.

The UK is another which has its own concerns over Chinese companies, there is a division in GCHQ which is specifically tasked with making sure Huawei doesn’t do anything suspect, though a full ban doesn’t seem like a realistic possibility right now. The Aussies making the first move worldwide is an interesting development however.

China is Australia’s biggest trading partner, accounting for 29% of exports and 17.7% of total imports across 2016-17, creating a tricky diplomacy situation. Banning one of China’s most successful players on the international trade scene is hardly going to make for comfortable discussions in the future. It’s a bold move from the Aussies.

Perhaps this is an indication the Australian government sees profit in cosying up to the Trump administration. President Trump has been incredibly combative in dealing with the Chinese government, or governments in general, and such action might get Australia in the good books of the US authorities. The US would certainly be a successful trading partner should the Australia be able to gain favourable terms, and a ban on the US’ biggest rival on the global stage could be viewed as Trump stroking.

While losing one market is not ideal for Huawei, and presumably ZTE, it is not the end of the world. What will be a worry is the domino effect. Governments around the world, especially those who would consider themselves ‘western’, have a tendency to lean on each for guidance in creating legislation. Precedent and trends are dangerous terms for Huawei here. With the 5G bonanza set to create fortunes, it will be interesting to see how many follow the Australian trail.

Theories and predictions over the potential implications will be plentiful, but one thing you can almost guarantee is Ericsson CEO Börje Ekholm and Nokia CEO Rajeev Suri will both be smiling quite contently over the news, even if neither is prepared to take their joy public.

US effectively bans ZTE and Huawei from any valuable government work

President Trump has now signed the Defense Authorization Act into law, effectively banning the use of ZTE and Huawei components in many government or state-funded projects.

The new rules should hardly come as a surprise considering the political paranoia which has been swelling to tsunami levels over the last couple of months. With Republicans checking under their bed every night for the naughty Chinese government, it was only going to be a matter of time before the vendors were officially banned from US projects.

Although the vast majority of the bill is directed towards more traditional aspects of national security, a few clauses, specifically sections 886 and 889, point the finger at the two Chinese vendors. The bill had been working its way through the legislative red tape maze for months, with the House hitting back at measured included in the text which would have overruled the President’s olive branch extended to ZTE when turning over the ban. While Congress wanted a more extreme ban on the two companies, this is the new rules are somewhat off a compromise, but just as damning.

The ban will be rolled out over the next two years, with the pair effectively not being allowed to provide any components or services to processes or infrastructure which would be considered ‘essential’ or ‘critical’. Should the components be used to route or view any data on the network, they hit the sh*t list. Companies or departments which currently have these components in their networks have been instructed to remove and replace them. The FCC will be prioritising funding to assist with these projects.

Legal action will of course be launched over the coming months, the US is a big prize for the Chinese vendors, though we ponder how effective any challenge from Huawei and ZTE, or protests from the Chinese government, will actually be. The duo have been in the sights of the isolationist-inspired government for some time, with this bill perhaps being a critical blow.

Although the ban does seemingly go against the wishes of President Trump, who had worked to overturn the ZTE ban, we suspect the White House will be secretly happy with the outcome. Tensions between the US and Chinese governments have been on the rise again in recent months, primarily due to the anti-foreigner rhetoric which is being championed by the ‘Leader of the Free World’ in the Oval Office.

Confusion, contradiction and chaos; the three Cs of the Trump administration.

The new rules should hardly come as a surprise considering the political paranoia which has been swelling to tsunami levels over the last couple of months. With Republicans checking under their bed every night for the naughty Chinese government, it was only going to be a matter of time before the vendors were officially banned from US projects.

Although the vast majority of the bill is directed towards more traditional aspects of national security, a few clauses, specifically sections 886 and 889, point the finger at the two Chinese vendors. The bill had been working its way through the legislative red tape maze for months, with the House hitting back at measured included in the text which would have overruled the President’s olive branch extended to ZTE when turning over the ban. While Congress wanted a more extreme ban on the two companies, this is the new rules are somewhat off a compromise, but just as damning.

The ban will be rolled out over the next two years, with the pair effectively not being allowed to provide any components or services to processes or infrastructure which would be considered ‘essential’ or ‘critical’. Should the components be used to route or view any data on the network, they hit the sh*t list. Companies or departments which currently have these components in their networks have been instructed to remove and replace them. The FCC will be prioritising funding to assist with these projects.

Legal action will of course be launched over the coming months, the US is a big prize for the Chinese vendors, though we ponder how effective any challenge from Huawei and ZTE, or protests from the Chinese government, will actually be. The duo have been in the sights of the isolationist-inspired government for some time, with this bill perhaps being a critical blow.

Although the ban does seemingly go against the wishes of President Trump, who had worked to overturn the ZTE ban, we suspect the White House will be secretly happy with the outcome. Tensions between the US and Chinese governments have been on the rise again in recent months, primarily due to the anti-foreigner rhetoric which is being championed by the ‘Leader of the Free World’ in the Oval Office.

Confusion, contradiction and chaos; the three Cs of the Trump administration.

ZTE fears for its very survival following US export ban

Following the decision from the US government to activate the Suspended Denial Order, ZTE has hit back with the threat of a lawsuit, claiming the order not only threatens its own survival but that of its suppliers.

While the order might have had the objective of knee-capping a specific Chinese company, the fallout has also sent shockwaves through the US technology scene. Companies like Acacia Communications, Oclaro and Lumentum Holdings, all of whom are US companies reliant on ZTE as a major customer, have seen share prices plunge. The US government might have hit bullseye when it comes to tackling ZTE, but the friendly-fire has been spraying all over the country.

“The Denial Order will not only severely impact the survival and development of ZTE, but will also cause damages to all partners of ZTE including a large number of US companies,” ZTE said in a statement. “In any case, ZTE will not give up its efforts to resolve the issue through communication, and we are also determined, if necessary, to take judicial measures to protect the legal rights and interests of our Company, our employees and our shareholders, and to fulfil obligations and take responsibilities to our global customers, end-users, partners and suppliers.”

It is difficult to get a handle of the damage which has been done at ZTE primarily because there are so many moving parts and a huge number of possible scenarios. The loss of customers in the US is only the tip of the iceberg, ZTE is huge reliant on US technology and intellectual property. Some estimates say 80-90% of ZTE technology is reliant on some form of US input, while Qualcomm supplies around 70% of the chips used in its smartphones.

This is devastating for ZTE. Who knows how long recrafting the supply chain to make sure there are no US components involved would take. It is a task which has probably never been undertaken before.

That said, the lobbyists in Washington must be hammering the front door of the White House. Anti-China sentiment has been a long-standing tradition of US governments, but this order takes the stakes up who-knows how many levels. In trying to cripple a Chinese beast, the White House has possible resigned hundreds, if not thousands, of employees to the dole queue within its own borders. Acacia Communications, Oclaro and Lumentum Holdings are the three companies who have been hit hardest, but there will of course be dozens of firms who are less reliant on the firm, though the order will still have a material impact on the business. ZTE is after all one of the world’s largest telecommunications vendors.

Legal action will potentially follow, though ZTE might be able to negotiate its way out. Judicial action does not necessarily mean lawsuit, there will be steps to take before this point is reached, including an appeal. Before too long, assume the Chinese government will wade into the mediation mess, while ZTE will be calling on its US suppliers for backup as well. That said, don’t expect the US to have a sympathetic ear. The US government is going to try and make an example of ZTE as it flexes its muscles over China

US takes technology battle up a notch with ZTE export ban

The US Department of Commerce’s Bureau of Industry and Security (BIS) has imposed a denial of export privileges order against ZTE, after coming to the conclusion it lied to the committee on numerous occasions.

The false statements allegedly occurred while the US was investigating ZTE exports to Iran and North Korea, a bit of business which landed the firm in hot water to start with, collecting a $1.2 billion fine in the process, but buying US components, incorporating them into ZTE equipment and shipping them to the countries was not something which was accounted for in the original punishment.

As part of the original settlement with the US, ZTE agreed to a seven year suspended denial of privileges sentence. This probation period has now been violated after the three instances of false statements were unearthed. The company will now be banned from incorporating any commodity, software or technology from US companies in any of its products.

“ZTE made false statements to the US Government when they were originally caught and put on the Entity List, made false statements during the reprieve it was given, and made false statements again during its probation,” said Secretary of Commerce Wilbur Ross Jr.

On top of the false statements regarding US components, Ross also claims ZTE did not live up to promises when it came to firing or disciplining employees who were directly involved with the initial complaint. Four senior managers and 35 members of staff were supposed to either be shown the door or had their bonuses removed, though the firm apparently paid the full amount to the nefarious employees further infuriating Ross.

While choking the ZTE supply chain is another step towards full-scale trade war between the US and China, this is not the only PR battle being faced by ZTE. In a letter seen by the FT, Ian Levy, Technical Director of The National Cyber Security Centre in the UK, has written to UK telcos, ZTE and Ofcom warning of the dangers of using ZTE products and services.

“Mitigating the risk of external interference with equipment supplied by a particular vendor depends in significant part on telecommunications equipment being present from other vendors who are not subject to the same risk of external interference,” the letter reads.

“The UK telecommunications network already contains a significant amount of equipment supplied by Huawei, also a Chinese equipment manufacturer. Adding in new equipment and services from another Chinese supplier would render our existing mitigations ineffective.”

The National Cyber Security Centre, which is part of the GCHQ (home of the UK’s spooks), currently monitors Huawei equipment to ensure the prying eyes of the Chinese government are kept off sensitive matters and information, but the inclusion of ZTE infrastructure would add too much to the workload of paranoia. While this should not be viewed as an official ban in the UK, it will make it significantly more difficult for the firm to do business on the British Isles. It might also be the first steps through the bureaucratic box ticking mission to officially ban ZTE.

The ban in the US should not really come as a surprise to anyone as steps have been taken over the last few months to make it as unattractive, or illegal, to do business with Chinese firms. The protectionist and isolation agenda in the White House has been set, so we suspect officials were looking for any reason whatsoever to slap further difficulties on the ZTE table. What probably didn’t help the situation was a Bloomberg report claiming the Chinese government was imposing a more direct influence on its tech giants and investment funds by installing Communist Party committees within the organizations.

The UK will be less of a concern for ZTE, as its presence within the Isles is less prominent than elsewhere, though there are plans to expand. ZTE and BT have had a partnership in place since 2007, though it has been expanded in recent years in BT’s research centre at Adastral Park in Martlesham and at ZTE’s research centre in China. Some might also be a bit surprised about Levy’s actions, though when you consider the UK is trying to brown-nose its way into favour with the US government ahead of Brexit isolation, the two announcements coinciding makes much more sense.