Huawei facing US trade secret theft indictment and ZTE-style ban

The US Department of Justice is rumoured to be pursuing charges relating to trade secrets theft against Huawei, while four politicians have tabled a bill for a ban similar to what ZTE faced last year.

Leaving the Department of Justice for the moment, a bi-partisan collection of politicians have tabled the so-called ‘Telecommunications Denial Order Enforcement Act’, a proposed bill which would compel the White House to ban Huawei from using US components and IP within its supply chain. The ban would be the same punishment ZTE faced early last year.

“Huawei and ZTE are two sides of the same coin,” said Democratic Senator Chris Van Hollen. “Both companies have repeatedly violated US laws, represent a significant risk to American national security interests, and need to be held accountable. Moving forward, we must combat China’s theft of advanced US technology and their brazen violation of US law.”

Aside from Van Hollen, Republican Senator Tom Cotton, as well as Representatives Mike Gallagher (Republican) and Ruben Gallego (Democrat) are also supporting the proposed bill. This should hardly come as a surprise as the ZTE ban was imposed for violating the exact same trade sanctions which Huawei has allegedly ignored.

The saga surrounding the ZTE ban was short-lived, incredibly volatile and almost fatal. After being found violating trade sanctions, US Department of Commerce’s Bureau of Industry and Security (BIS) imposed a denial of export privileges order against the firm, denying it access to any US suppliers. President Trump stepped in to save the firm, which looked doomed as a result of the ban, before Congress blocked his efforts. Eventually a resolution was reached, though ZTE has been skating on thin ice since.

If precedent is anything to go by, Huawei should face the same punishment should it be found guilty of the same activities. Last month, Huawei CFO Meng Wanzhou was arrested in Canada, accused of violating the same trade sanctions with Iran using a suspect firm known as Skycom. Meng has been released on bail and awaits trial, though it appears the four politicians are already presuming guilt. Or maybe they are just being prepared.

Perhaps this is a sign the politicians do not believe President Trump is committed to precedent and appropriate action. The actions against ZTE smelt suspiciously like one of Trump’s strategic moves in the on-going trade war with China, though perhaps he did not realise he would have to do the same 12 months later, potentially antagonising the Chinese government with a move which is not in the grand plan.

The politicians might be tabling this bill to make sure Trump can’t find a reason not to ban Huawei. Following the arrest, Trump seemed to suggest in an interview with Reuters that he would be willing to make the Canadian charges go away if it would help him the US in its dispute with China.

“If I think it’s good for the country, if I think it’s good for what will be certainly the largest trade deal ever made – which is a very important thing – what’s good for national security – I would certainly intervene if I thought it was necessary,” Trump stated.

Not only does this completely undermine the standing of the Canadian judicial system, but also suggests Trump is willing to bend (or break) rules to bring the Chinese government to its knees. Perhaps Congress does need to be proactive to make sure the President follows the rules, taking appropriate action instead of whatever ludicrous idea floats in the breadth between his ears.

What is worth noting is the stance of Huawei executives. Clearly, they do not agree with anything which is going on, but both Rotating Chairman Guo Ping and Rotating CEO Ken Hu put across messages stating the resilience of the business. Ping and Hu suggested a ban would not impact the Huawei supply chain in the same manner as it did ZTE.

Heading back to the Department of Justice, the Wall Street Journal has reported the agency is pursing charges against Huawei concerning theft of trade secrets.

An indictment should be heading over to the Huawei offices in the near future, focusing on allegations the firm stole robotic mobile-testing technology from T-Mobile. The technology, known as Tappy, mimics human fingers and is used to test smartphones. A civil case between T-Mobile and Huawei over the technology was filed in 2014, though after a criminal investigation the Department of Justice feels it is appropriate to step in and raise criminal charges.

This case is a separate concern from all the other chaos which has surrounded the firm in recent months, though it will be just as concerning as the punishments can be incredibly severe.

The primary federal law that prohibits trade secret theft is the Economic Espionage Act of 1996, which allows the US the U.S. Attorney General to prosecute a person, organization, or company that intentionally steals, copies, or receives trade secrets. If the case if brought against an individual, the punishment could be as much as 10 years in prison or a $500,000 fine. However, we suspect the government would want to punish the firm not an individual, as Huawei would simply claim that person did not represent the company culture, in-line with White House aggression against China.

If a conviction is made against a company the fine can be increased to $5 million. However, if the Attorney General can prove the theft was made on behalf of a foreign government, this would be considered the silver bullet for the White House, corporate fines can be doubled, imprisonment could be 15 years and proceeds derived from the theft can be seized.

In short, Huawei has found itself in another uncomfortable position in the US. It does not appear 2019 is going to be any better than 2018 on the US side of the pond for Huawei.

Huawei founder opened up to the press, or did he?

Ren Zhengfei, the founder of Huawei, once again dismissed the allegations that Huawei has been spying for the Chinese government in a rare meeting with the media.

Huawei’s normally reclusive founder told the Financial Times on Tuesday that he missed his daughter, who was arrested in Canada and faces extradition to the US. Ren also reiterated that Huawei has not spied for the Chinese government and has not been asked to do so. “No law in China requires any company to install mandatory backdoors,” Ren was quoted by the FT.

Ren also handed out an olive branch to President Trump, calling the latter “great” and recognising the positive results the American administration’ tax cuts had delivered to the American economy. But he also warned the isolationist route the current American government is pursuing. “The message to the US I want to communicate is: collaboration and shared success. In our world of high tech, it’s increasingly impossible for any single company or country to sustain or to support the world’s needs,” Ren said. Earlier President Trump said he ‘would intervene on Huawei CFO’s case to help China trade deal’.

When it comes to Huawei’s tactics to navigate the difficulties it faces in the western markets, Ren conceded “it’s always been the case, you can’t work with everyone . . . we’ll shift our focus to better serve countries that welcome Huawei,” he told the reporter.

By the founder’s own standard, this interview was a rare opportunity for the outside world to get more transparency of the company he set up 32 years ago. But we were not made much wiser on a few key questions.

Huawei’s CFO, and Ren’s daughter, was charged with misleading the American banks with false information on Huawei’s relationship with its subsidiary related to the company’s business in Iran, which resulted in the banks being handed multi-billion dollar fines. Ren’s interview did not shed new light on the case, despite expressing his parental feeling.

In the spirit of “presumed innocent until proved guilty”, we should believe that the Huawei founder was telling the truth when he claimed Huawei has not spied on behalf of the Chinese government. His words were also carefully chosen when he claimed, “no law in China requires any company to install mandatory backdoors”, which is true. Law enforcement agencies may require companies or private persons to assist their work. In some jurisdictions the companies or individuals have the legal right to refuse, as Apple did in 2015 when being asked by the FBI to unlock an iPhone used by the San Bernardino attackers.

In other jurisdictions companies and individuals are obliged to comply with such demands.

China’s Intelligence Law was passed by the National People’s Congress, China’s legislature, in June 2017 and entered into force the following day. Two articles of the law are of interest here:

Article 7: An organization or citizen shall support, assist in and cooperate in national intelligence work in accordance with the law and keep confidential the national intelligence work that it or he knows. (Translation by the Law School, Peking University)

Article 14: National intelligence work institutions, when carrying out intelligence work according to laws, may ask relevant institutions, organizations and citizens to provide necessary support, assistance and cooperation. (Translation by QUARTZ)

In plain language this means the intelligence agencies have the mandate to require any institutions or individuals to cooperate (Article 14) and the institutions or individuals must comply (Article 7).

Therefore Ren, who declared “I still love my country, I support the Communist party” to the FT journalist, is law-bound to say Huawei has “never received any request from any government to provide improper information”, no matter whether it has received requests of this kind or not. Hypothetically, if Huawei had received requests from the Chinese intelligence agencies to assist their tasks, it could not refuse, otherwise it would be violating the first half of Article 7. On the other hand, if Huawei, hypothetically, had carried out intelligence tasks as required, it could not tell anyone, otherwise it would be violating the second half of Article 7.

But, seriously, no one would have expected an alternative answer.

Where is the evidence of Huawei espionage?

Before we get carried too carried away with the recent arrest in Poland, let’s remember something; this is a Huawei employee accused of espionage, not Huawei.

Right now, Huawei is the world’s whipping boy. This is a company which is taking the punishment for the nefarious activities of the Chinese government. In Poland, a Huawei employee and another from Orange have been arrested, accused of espionage. But the condemnation should be directed towards the Chinese government and these individuals, not necessarily Huawei.

For the record, we are not suggesting Huawei is completely blameless. The company might be in bed with Beijing, but as it stands there is no concrete evidence to support this theory. The arrest in Poland is circumstantial, evidence that relies on an inference to connect it to a conclusion of fact. It most judicial systems, reasonable doubt is tied into circumstantial evidence meaning it can contribute to a verdict, but alone it is rarely enough to assign guilt.

Huawei could well be a puppet with strings attached to Beijing, but evidence needs to be produced to ensure ‘democratic’ nations are not presuming guilt, a contraction of their legal principals.

The prospects for Huawei are not currently looking good. Effectively banned from any meaningful work in the US, banned in Australia and Japan, under close watch in the UK, ignored in South Korea, condemned by the European Union and in a very suspect position in New Zealand. Eastern Europe was one area where it looked like business was safe, but now the Polish are talking about a ban as well.

With all this heart-ache and headaches for the Huawei executives you have to question how much evidence there has been of espionage. As far as we are aware, nothing of note.

This is of course not to say there isn’t any but look at the situation. The US government is trying to rally the world against Huawei and China on the whole, it has been for years now, and you have to think it would use evidence to turn the tides if it had any. Back in 2012, a House Intelligence Committee told the US government Huawei was a ‘National Security Threat’, but in the six years since this point no evidence has been produced to support this statement. Yet this report has been used as the foundation of all negative sentiment directed towards China and Huawei.

This report, which was the result of a yearlong investigation by the committee, came to the conclusion Huawei and ZTE were a national security threat because of their attempts to extract sensitive information from American companies and their loyalties to the Chinese government. The report stated it had obtained internal documents from former Huawei employees suggesting it supplied services to a ‘cyberwarfare’ unit in the People’s Liberation Army, but this evidence has never made it to the public domain.

For most, the sustained rhetoric of espionage could be viewed as politically and economically motivated. Chinese companies are making an impression on the world and Silicon Valley’s vice-like grip on the technology industry is loosening. This would be incredibly damaging for the US economy on the whole, which has partly relied on the dominance of this segment for success in recent years. In recent months it has been flexing its muscles and some are bending to its will. Deutsche Telekom is an excellent example.

Only last month, DT suggested it was reviewing its relationship with Huawei to ease concerns from the US government. It just so happens government agencies are reviewing its US businesses potential merger with Sprint. Breaking ties with the Chinese vendor would certainly gain favour with Washington, but is this culture of paranoia and finger-pointing something we should be encouraging?

Again, this is not to say there is no evidence to support the accusations. However, if the US government had the smoking gun, surely it would have shown it to the world. Some might suggest it had an obligation to inform its allies of such nefarious activities. Some even more sceptical individuals might also suggest that if there was classified evidence, it would have been leaked by someone over this period. In today’s world it is impossible to keep big secrets secret. Just look at Edward Snowdon’s revelations.

Over in Germany, the Federal Office for Information Security (BSI) has said it would take this very approach. Arne Schoenbohm, President of BSI, said that for his agency to consider banning Huawei from the country he would have to see evidence. This statement came at the same time a US delegation had been meeting with officials from the Foreign Ministry to discuss a ban. As no ban has emerged, it would appear the US delegation was unable to table any evidence.

Going back to the arrest in Poland, some might suggest this is enough evidence to ban Huawei from operating in the nation. However, governments have been catching spies for decades and punishing individuals. There is little (or any) precedent to ban the company than individual works for unless there is a direct link between the organization and the nefarious government. Over in the UAE, 31-year-old PhD student at Durham University has been arrest for espionage also, but the University has not been punished. MI5 and MI5 catch spies and potential terrorists every year, but the companies they work for are not accused of espionage.

We suspect the Chinese government is obtaining information through reprehensible means, but if the world is to hold China accountable, ‘western’ governments need to stand by their principles and not undermine the foundations of fair society. The principle which is being forgotten today is the assumption of innocence until a party has been proven guilty.

Two wrongs do not make a right, and we have to ask ourselves this question; are we any better than the oppressive governments if we forget this simple principle of a fair and reasoned judicial system; innocent until proven guilty.

Huawei employee arrested in Poland on spying allegations

Huawei’s sales director in Poland, who previously served in the Chinese diplomatic corps, has been arrested by the Polish authorities on spying allegations. Huawei immediately terminated his employment.

More details have been disclosed related to the arrest of Wang Weijing, who also goes by the name Stanislaw Wang. After serving as attaché at the Chinese general consulate in Gdansk, Wang joined Huawei’s Poland office in 2011, first as its PR director then as its sales director responsible for selling to the Polish public sector. Wang was detained on 8 January, on allegations of spying, as was first reported by the Polish public broadcaster TVP.

According to TVP, an Orange employee arrested on the same allegations, identified as Piotr D, had worked at the country’s Internal Security Agency (ISA, or “Agencja Bezpieczeństwa Wewnętrznego (ABW)” in Polish), which carried out the arrests. While at ISA one of his responsibilities was issuing security certificates for equipment used by Poland’s public-sector offices. He left the agency earlier after being accused of corruption but was not formally charged.

The offices of Huawei and Orange were searched respectively following the arrests, though a spokesperson for ISA told Reuters that the allegations against Wang were related to individual actions, not directly linked to Huawei. This is also the line Huawei adopted when it promptly severed the employment relationship with Wang, citing that “in accordance with the terms and conditions of Huawei’s labour contract, we have made this decision because the incident has brought Huawei into disrepute.”

Orange said it did not know if the investigation in Piotr D. was linked to his professional work but would continue to cooperate with the authorities.

Despite the troubles it has run into in markets like the US, New Zealand, Japan, and the UK, Huawei’s business in Eastern Europe has been largely unperturbed. However the latest twist in Poland and the earlier arrest of Meng Wanzhou, Huawei’s CFO, in Canada might put this position under pressure. On Saturday 12 January, Joachim Brudzinski, Poland’s interior minister, called for a EU-NATO joint position with regard to banning Huawei from these markets when speaking on a Polish commercial radio station. “There are concerns about Huawei within NATO as well. It would make most sense to have a joint stance, among EU member states and NATO members,” said Brudzinski.

Then on Sunday 13 January, Karol Okonski, a government official responsible for cyber security, told Reuters that Poland could consider forbidding the public sector from using Huawei products while probing the legal measures to limit Huawei’s access to the private sector. “We do not have the legal means to force private companies or citizens to stop using any IT company’s products. It cannot be ruled out that we will consider legislative changes that would allow such a move,” Okonski said.

Huawei has always denied that it poses security threats, or it spies on behalf of the Chinese government. In a statement it sent out to media after its CFO’s arrest and it sent again after the arrests in Poland, Huawei stressed that it “complies with all applicable laws and regulations in the countries where it operates, and we require every employee to abide by the laws and regulations in the countries where they are based.”

Incidentally, the South China Morning Post reported earlier that, shortly before her arrest in Canada, Meng Wanzhou and Ren Zhengfei, the founder of Huawei and Meng’s father, hosted a town hall meeting for Huawei employees. According to a transcript distributed to Huawei staff and seen by SCMP, both executives discussed extensively on compliance. Cases were divided into “red” and “yellow” lines. By red line, Meng meant the rules where there is “no bargaining and must be strictly complied with”, while by yellow line she referred to cases where strict compliance is not operationally feasible, and the company can build in the costs of flouting the rules as “sunk costs.” She cited labour risks as an example.

“Of course, beyond the yellow and red lines, there may still be another scenario, and that is where the external rules are clear-cut and there’s no contention, but the company is totally unable to comply with in actual operations. In such cases, after a reasonable decision-making process, one may accept the risk of temporary non-compliance,” quoted by SCMP.

Ren also urged his staff to consider both cost and benefit in compliance cases, especially related to laws of the US and EU. SCMP quoted him challenging those present when answering a question: “We must not bind ourselves up just because the US is attacking us. If our hands and feet are bound, then we will not be able to continue producing, then what’s the point of compliance?”

Huawei R&D faces export ban in Silicon Valley

The US Commerce Department has refused to renew an export licence at a Huawei subsidy in Silicon Valley, meaning China cannot access new developments at the site.

According to the Wall Street Journal, Huawei R&D outfit Futurewei was informed over the summer that the US Department of Commerce would not be renewing the license meaning some of the technologies developed at the site, but not all, could not be exported back to China. It’s a new strategy in the conflict between the US and China, but it could prove to be an effective one.

Silicon Valley is not the hotspot of the technology world because of the favourable climate or the presence of helpful regulations, it has one of the most talented workforces around the world. There are of course challengers to this claim emerging, India or Eastern European for example, but companies flock to Silicon Valley to open up R&D offices to tap into this resource. Such a ban from the US Commerce Department means Huawei is going to miss out on some of these smarts.

The block will prove problematic to overcome as there does not appear to be any logical way to combat the move. The rationale behind the blockage is quite simple; national security. Seeing as Huawei is currently being trialled and punished without the burden of evidence, there seems to be little the vendor can do to combat such passive aggressive moves by the US.

This is of course just another stage is the incrementally escalating conflict between the US and China. The tension between the pair does seem to have escalated over the last few days following a minor hiatus at Christmas. Rumours are circling the Oval Office concerning an all-out ban on Huawei and ZTE technology in the US, while suspicions will only increase following the arrest of a Huawei employee in Poland on the grounds of espionage.

With all the drama before Christmas and the hullaballoo kicking off again now, perhaps we should expect some sort of retaliation from Beijing. The Chinese governments has not been anywhere near as confrontation as the US, though there might be a breaking point somewhere in the future.

InterDigital says Huawei is setting a dangerous precedent with patent lawsuit

Huawei has filed a lawsuit challenging the royalties it’s charged, but InterDigital CEO thinks the saga could have a much more damaging and wide-ranging impact on the industry.

Lawsuits in the telco industry are not uncommon, while they are pretty much part of the daily routine for anyone who deals with patents. According to InterDigital CEO Bill Merritt, the dispute is not the problem, it’s the way that Huawei is hoping to get a resolution, heading towards localised judicial systems as opposed to international, and standardised, arbitration.

“Standards have done a great job at breaking down national walls, creating a single playing field, and we think pricing should be the same,” said Merritt.

As it stands, Huawei has filed a lawsuit with the Shenzhen Intermediate People’s Court (January 2) accusing InterDigital of not licensing patents on fair and non-discriminatory terms. The lawsuit follows the expiration of a prior licensing agreement (December 31) with the pair not able to come to an agreement on future terms.

Long story short, Merritt pointed out Huawei wants to pay less for the patents. It’s a simple dispute, based on the success of Huawei smartphones and devices over the last year or so. As Huawei is shipping more units, it feels it should be offered a more competitive rate due to economies of scale. InterDigital however, feels it is offering a fair and reasonable price. The court case will decide royalty payments for the next four years (2019-23).

From Merritt’s perspective, the issue is not the dispute but the lawsuit itself. In the past, with Huawei and other customers, InterDigital has chosen to go down the route of arbitration, an option which Merritt feels is best in this situation as well. In most arbitration cases, each party selects a professional arbitrator, before the pair jointly select a third independent one. The idea is that the trio would assess all the information in the contract, look at market precedent as well as future developments, to decide a competitive and reasonable price for the transaction. It’s (in theory) an independent and neutral way to resolve conflict.

In this case, arbitration was offered as a possible resolution, but Huawei declined, instead electing to head to the regional court. This is where the danger lies; the Shenzhen Intermediate People’s Court is a localised institution which has influence in China. The risk is regionalised rate setting which would cause chaos considering how many jurisdictions there are around the world.

To compound the issue of regionalised rate setting, not only are you likely to have varied approaches and opinions, an international supply chain does not lend itself well to this scenario. The majority of devices and products which are sold today are manufactured in a variety of different countries and regions; the economy has been globalised. Merritt said if you are having to factor in several different regionalised rates for production of devices, the whole supply chain could turn into a disaster.

“The number of disputes could easily be reduced if parties committed to arbitration,” said Merritt.

Unfortunately for Merritt and InterDigital, the two technology powerhouses of the world are increasingly promoting more nationalised agendas and policies which encourage isolationist thinking. It seems we can’t go a day without referring to the trade conflict between the US and China, but the idea of regionalised rate setting, which this lawsuit encourages, is another step away from the international ecosystem, the healthiest option for a profitable and sustainable telecommunications industry.

This is a case which might be worth keeping an eye on over the coming months, it might just lead the patent segment down a worrying and complicated red-tape maze of regionalised price setting.

Huawei launches Kunpeng 920 chip to bag big data and edge computing

Huawei has unveiled a new ARM-based CPU called Kunpeng 920, designed to capitalise on the growing euphoria building around big data, artificial intelligence and edge-computing.

The CPU was independently designed by Huawei based on ARMv8 architecture license, with the team claiming it improves processor performance by optimizing branch prediction algorithms, increasing the number of OP units, and improving the memory subsystem architecture. Another bold claim is the CPU scores over 930 in the SPECint Benchmarks test, 25% higher than the industry benchmark.

“Huawei has continuously innovated in the computing domain in order to create customer value,” said William Xu, Chief Strategy Marketing Officer of Huawei.

“We believe that, with the advent of the intelligent society, the computing market will see continuous growth in the future. Currently, the diversity of applications and data is driving heterogeneous computing requirements. Huawei has long partnered with Intel to make great achievements. Together we have contributed to the development of the ICT industry. Huawei and Intel will continue our long-term strategic partnerships and continue to innovate together.”

The launch itself is firmly focused on the developing intelligence economy. With 5G on the horizon and a host of new connected services promised, the tsunami of data and focus on edge-computing technologies is certain to increase. These are segments which are increasingly featuring on the industry’s radar and Huawei might have stolen a couple of yards on the buzzword chasers ahead of the annual get-together in Barcelona.

“With Kirin 980, Huawei has taken smartphones to a new level of intelligence,” said Xu. “With products and services (e.g. Huawei Cloud) designed based on Ascend 310, Huawei enables inclusive AI for industries. Today, with Kunpeng 920, we are entering an era of diversified computing embodied by multiple cores and heterogeneity. Huawei has invested patiently and intensively in computing innovation to continuously make breakthroughs.”

Another interesting angle to this launch is the slight shuffle further away from the US. With every new product which Huawei launches, more of its own technology will feature. In years gone, should Huawei have wanted to launch any new servers or edge computing products it would have had to look externally for CPUs. Considering Intel and AMD have a strong position in these segments, supply may have come from the US.

For any other company, this would not be a problem. However, considering the escalating trade war between the US and China, and the fact Huawei’s CFO is currently awaiting trial for violating US trade sanctions with Iran, this is a precarious position to be in.

Cast you mind back to April. ZTE had just been caught red-handed violating US trade sanctions with Iran and was subsequently banned from using any US components or IP within its supply chain. Should the courts find Huawei guilty of the same offence, it is perfectly logical to assume it would also face the same punishment.

This is the suspect position Huawei finds itself in and is currently trying to correct. Just before Christmas, Huawei’s Rotating CEO Ken Hu promised it’s supply chain was in a better position than ZTE’s and the firm wouldn’t go down the same route, while in the company’s New Year’s message, Rotating Chairman Guo Ping said the focus of 2019 would be creating a more resilient business. These messages are back up by efforts in the R&D team, such as building an alternative to the Android operating system which would power its smartphones should it be banned from using US products.

Perhaps the Kunpeng 920 could be seen as another sign Huawei is distancing itself from the US, while also capitalising on a growing which is about to blossom.

Huawei enters 2019 swinging with $108.5 billion revenues

To say 2018 was a rollercoaster ride for Huawei would be somewhat of an understatement, but the New Year’s message from Rotating Chairman Guo Ping is one of defiance.

Ping has proudly stated the business has reached record sales revenues in 2018, $108.5 billion, signed 26 5G commercial contracts with telcos, shipped more than 10,000 5G base stations, tempted 160 cities and 211 Fortune Global 500 companies into digital transformation contracts and shipped more than 200 million smartphones.

The company might have been the antagonist in the Great Security Saga of 2018, but it is still moving in the right direction. That is, for the moment at least. This message from Ping is one of reassurance. Huawei is proactively seeking to engagement the community, promising everything is above board and legitmate. This is a business which is scrapping for its reputation.

“It has been an eventful year, to say the least,” said Ping. “But we have never stopped pushing forward, and as a result our 2018 sales revenue is expected to reach 108.5 billion US dollars, up 21% year-on-year.”

Reading between the lines you have to wonder whether the business is worried about its dependence on the US. Prior to Christmas, Rotating CEO Ken Hu promised the company’s supply chain was in a stronger position than ZTE, and there was no chance a ban from using US components and IP would create the same disaster zone. Ping seems to be reiterating this message.

“In 2019, we will focus on strategic businesses and strategic opportunities and build a more resilient business structure,” said Ping. “We will continue to optimize our product investment portfolio to achieve end-to-end strategic leadership. As part of this, we need to retain products that are competitive and appealing and phase out those that aren’t.”

Huawei are in a worrying position right now, teetering on a knifes edge. On one side, you have an incredibly successful and innovative business, with a proven track record of delivering results and a culture of account management rivalled by few. This is a vendor a lot of telcos will want to work with. However, with the echoes of accusation getting louder, governments excluding it from 5G bonanzas and the possibility of being banned from using any US goods in its supply chain, some will naturally be nervous about entering into any commercial contract.

The security concerns which plagued Huawei for the majority of 2018, accelerating in the final quarter, look like they will continue over the next couple of months but there hasn’t been an immediate impact on the business just yet. With numerous contracts already secured, Huawei is certainly not going to disappear from the connectivity landscape, but in choosing not to mention any financial predictions for 2019, Huawei has effectively stated what we are all thinking; its dominance is coming to an end.

Looking at the major vendors across the 4G era, the story was relatively clear; Huawei freely counted the cash at the expense of others, most notably Ericsson and Nokia. This will not be the story for 5G as more telcos look for greater diversity in the supply chain and governments place more scrutiny on Huawei, as well as Chinese vendors in general. Perhaps there will not be such a clear winner in the 5G era, with the bounties being more evenly spread throughout the ecosystem.

Huawei is promising to be more secure, more transparent and more innovative than competitors, and it needs to be. But we suspect the damage has already been inflicted. Success seems to have been the downfall for Huawei, forcing the company into the limelight and raising its profile so much questions were bound to be asked. Huawei will certainly continue to be a heavyweight in the connectivity industry, but its era of such spectacular dominance seems to be over.

The biggest stories of 2018 all in one place

2018 has been an incredibly business year for all of us, and it might be easy to forget a couple of the shifts, curves, U-turns and dead-ends.

From crossing the 5G finish line, finger pointing from the intelligence community, the biggest data privacy scandal to date and a former giant finally turning its business around, we’ve summarised some of the biggest stories of 2018.

If you feel we’ve missed anything out, let us know in the comments section below.

Sanction, condemnation and extinction (almost)

ZTE. Three letters which rocked the world. A government-owned Chinese telecommunications vendor which can’t help but antagonise the US government.

It might seem like decades ago now but cast your mind back to April. A single signature from the US Department of Commerce’s Bureau of Industry and Security (BIS) almost sent ZTE, a company of 75,000 employees and revenues of $17 billion, to keep the dodo company.

This might have been another move in the prolonged technology trade war between the US and China, but ZTE was not innocent. The firm was caught red-handed trading with Iran, a country which sits very prominently on the US trade sanction list. Trading with Iran is not necessarily the issue, it’s the incorporation of US components and IP in the goods which were sent to the country. ZTE’s business essentially meant the US was indirectly helping a country which was attempting to punish.

The result was a ban, no US components or IP to feature in any ZTE products. A couple of weeks later manufacturing facilities lay motionless and the company faced the prospect of permanent closure, such was its reliance on the US. With a single move, the US brought one of China’s most prominent businesses to its knees.

Although this episode has been smoothed over, and ZTE is of course back in action, the US demonstrated what its economic dirty bombs were capable of. This was just a single chapter in the wider story; the US/China trade war is in full flow.

Tinker, tailor, Dim-sum, Spy

This conflict has been bubbling away for years, but the last few months is where the argument erupted.

Back in 2012, a report was tabled by Congressman Mike Rogers which initially investigated the threat posed by Chinese technology firms in general, and Huawei specifically. The report did not produce any concrete evidence, though it suggested what many people were thinking; China is a threat to Western governments and its government is using internationally successful companies to extend the eyes of its intelligence community.

This report has been used several times over the last 12 months to justify increasingly aggressive moves against China and its technology vendors. During the same period, President Trump also blocked Broadcom’s attempts to acquire Qualcomm on the grounds of national security, tariffs were imposed, ZTE was banned from using US technologies in its supply chain and Huawei’s CFO was arrested in Canada on the grounds of fraud. With each passing month of 2018, the trade war was being cranked up to a new level.

Part of the strategy now seems to be undermining China’s credibility around the world, promoting a campaign of suggestion. There is yet to be any evidence produced confirming the Chinese espionage accusations but that hasn’t stopped several nations snubbing Chinese vendors. The US was of course the first to block Huawei and ZTE from the 5G bonanza, but Australia and Japan followed. New Zealand seems to be heading the same way, while South Korean telcos decided against including the Chinese vendors on preferred supplier lists.

The bigger picture is the US’ efforts to hold onto its dominance in the technology arena. This has proved to be incredibly fruitful for the US economy, though China is threatening the vice-like grip Silicon Valley has on the world. The US has been trying to convince the world not to use Chinese vendors on the grounds of national security, but don’t be fooled by this rhetoric; this is just one component of a greater battle against China.

Breakaway pack cross the 5G finish line

We made it!

Aside from 5G, we’ve been talking about very little over the last few years. There might have been a few side conversations which dominate the headlines for a couple of weeks, but we’ve never been far away from another 5G ‘breakthrough’ or ‘first’. And the last few weeks of 2018 saw a few of the leading telcos cross the 5G finish line.

Verizon was first with a fixed wireless access proposition, AT&T soon followed in the US with a portable 5G hotspot. Telia has been making some promising moves in both Sweden and Estonia, with limited launches aiming to create innovation and research labs, while San Marino was the first state to have complete coverage, albeit San Marino is a very small nation.

These are of course very minor launches, with geographical coverage incredibly limited, but that should not take the shine off the achievement. This is a moment the telco and technology industry has been building towards for years, and it has now been achieved.

Now we can move onto the why. Everyone knows 5G will be incredibly important for relieving the pressure on the telco pipes and the creation of new services, but no-one knows what these new services will be. We can all make educated guesses, but the innovators and blue-sky thinkers will come up with some new ideas which will revolutionise society and the economy.

Only a few people could have conceived Uber as an idea before the 4G economy was in full flow, and we can’t wait to see what smarter-than-us people come up with once they have the right tools and environment.

Zuckerberg proves he’s not a good friend after all

This is the news story which rocked the world. Data privacy violations, international actors influencing US elections, cover ups, fines, special committees, empty chairs, silly questions, knowledge of wrong-doing and this is only what we know so far… the scandal probably goes deeper.

It all started with the Cambridge Analytica scandal, and a Russian American researcher called Aleksandr Kogan from the University of Cambridge. Kogan created a quiz on the Facebook platform which exposed a loop-hole in the platform’s policies allowing Kogan to scrape data not only from those who took the quiz, but also connections of that user. The result was a database containing information on 87 million people. This data was used by political consulting firm Cambridge Analytica during elections around the world, creating hyper-targeted adverts.

What followed was a circus. Facebook executives were hauled in-front of political special committees to answer questions. As weeks turned into months, more suspect practices emerged as politicians, journalists and busy-bodies probed deeper into the Facebook business model. Memos and internal emails have emerged suggesting executives knew they were potentially acting irresponsibly and unethically, but it didn’t seem to matter.

As it stands, Facebook is looking like a company which violated the trust of the consumer, has a much wider reaching influence than it would like to admit, and this is only the beginning. The only people who genuinely understand the expanding reach of Facebook are those who work for the company, but the curtain is slowly being pulled back on the data machine. And it is scaring people.

Big Blue back in the black

This might not have been a massive story for everyone in the industry, but with the severe fall from grace and rise back into the realms of relevance, we feel IBM deserves a mention.

Those who feature in the older generations will remember the dominance of IBM. It might seem unusual to say nowadays, but Big Blue was as dominant in the 70s as Microsoft was in the 90s and Google is today. This was a company which led the technology revolution and defined innovation. But it was not to be forever.

IBM missed a trick; personal computing. The idea that every home would have a PC was inconceivable to IBM, who had carved its dominant position through enterprise IT, but it made a bad choice. This tidal wave of cash which democratised computing for the masses went elsewhere, and IBM was left with its legacy business unit.

This was not a bad thing for years, as the cash cow continued to grow, but a lack of ambition in seeking new revenues soon took its toll. Eight years ago, IBM posted a decline in quarterly revenues and the trend continued for 23 consecutive periods. During this period cash was directed into a new division, the ‘strategic imperatives’ unit, which was intended to capitalise on a newly founded segment; intelligent computing.

In January this year, IBM proudly posted its first quarterly growth figures for seven years. Big Blue might not be the towering force it was decades ago, but it is heading in the right direction, with cloud computing and artificial intelligence as the key cogs.

Convergence, convergence, convergence

Convergence is one of those buzzwords which has been on the lips of every telco for a long time, but few have been able to realise the benefits.

There are a few glimmers of promise, Vodafone seem to be making promising moves in the UK broadband market, while Now TV offers an excellent converged proposition. On the other side of the Atlantic, AT&T efforts to move into the content world with the Time Warner acquisition is a puzzling one, while Verizon’s purchase of Yahoo’s content assets have proved to be nothing but a disaster.

Orange is a company which is taking convergence to the next level. We’re not just talking about connectivity either, how about IOT, cyber-security, banking or energy services. This is a company which is living the convergence dream. Tie as many services into the same organisation, making the bill payer so dependent on one company it becomes a nightmare to leave.

It’s the convergence dream as a reality.

Europe’s Great Tax Raid

This is one of the more recent events on the list, and while it might not be massive news now, we feel it justifies inclusion. This developing conversation could prove to be one of the biggest stories of 2019 not only because governments are tackling the nefarious accounting activities of Silicon Valley, but there could also be political consequences if the White House feels it is being victimised.

Tax havens are nothing new, but the extent which Silicon Valley is making use of them is unprecedented. Europe has had enough of the internet giants making a mockery of the bloc, not paying its fair share back to the state, and moves are being made by the individual states to make sure these monstrously profitable companies are held accountable.

The initial idea was a European-wide tax agenda which would be led by the European Commission. It would impose a sales tax on all revenues realised in the individual states. As ideas go, this is a good one. The internet giants will find it much more difficult to hide user’s IP addresses than shifting profits around. Unfortunately, the power of the European Union is also its downfall; for any meaningful changes to be implemented all 28 (soon to be 27) states would have to agree. And they don’t.

Certain states, Ireland, Sweden and Luxembourg, have a lot more to lose than other nations have to gain. These are economies which are built on the idea of buddying up to the internet economy. They might not pay much tax in these countries, but the presence of massive offices ensure society benefits through other means. Taxing Silicon Valley puts these beneficial relationships with the internet players in jeopardy.

But that isn’t good enough for the likes of the UK and France. In the absence of any pan-European regulations, these states are planning to move ahead with their own national tax regimes; France’s 3% sales tax on any revenues achieved in the country will kick into action on January 1, with the UK not far behind.

What makes this story much more interesting will be the influence of the White House. The US government might feel this is an attack on the prosperous US economy. There might be counter measures taken against the European Union. And when we say might, we suspect this is almost a certainty, such is the ego of President Donald Trump.

This is a story which will only grow over the next couple of months, and it could certainly cause friction on both sides of the Atlantic.

Que the moans… GDPR

GDPR. The General Data Protection Regulation. It was a pain for almost everyone involved and simply has to be discussed because of this distress.

Introduced in May, it seemingly came as a surprise. This is of course after companies were given 18 months to prepare for its implementation, but few seemed to appreciate the complexity of becoming, and remaining compliant. As a piece of regulation, it was much needed for the digital era. It heightened protections for the consumer and ensured companies operating in the digital economy acted more responsibly.

Perhaps one of the most important components of the regulation was the stick handed to regulators. With technology companies growing so rapidly over the last couple of years, the fines being handed out by watchdogs were no longer suitable. Instead of defining specific amounts, the new rules allow punishments to be dished out as a percentage of revenues. This allows regulators to hold the internet giants accountable, hitting them with a suitably large stick.

Change is always difficult, but it is necessary to ensure regulations are built for the era. Evolving the current rulebook simply wouldn’t work, such is the staggering advancement of technology in recent years. Despite the headaches which were experienced throughout the process, it was necessary, and we’ll be better off in the long-run.

Next on the regulatory agenda, the ePrivacy Regulation.

Jio piles the misery on competitors

Jio is not a new business anymore, neither did it really come to being in 2018, but this was the period where the telco really justified the hype and competitors felt the pinch.

After hitting the market properly in early 2016, the firm made an impression. But like every challenger brand, the wins were small in context. Collecting 100,000s of customers every month is very impressive, but don’t forget India has a population of 1.3 billion and some very firmly position incumbents.

2017 was another year where the firm rose to prominence, forcing several other telcos out of the market and two of the largest players into a merger to combat the threat. Jio changed the market in 2017; it democratised connectivity in a country which had promised a lot but delivered little.

This year was the sweeping dominance however. It might not be the number one telco in the market share rankings, but it will be before too long. Looking at the most recent subscription figures released by the Telecom Regulatory Authority of India (TRAI), Jio grew its subscription base by 13.02 million, but more importantly, it was the only telco which was in the positive. This has started to make an impact on the financial reports across the industry, Bharti Airtel is particularly under threat, and there might be worse to come.

For a long-time Jio has been hinting it wants to tackle the under-performing fixed broadband market. There have been a couple of acquisitions in recent months, Den Networks and Hathway Cable, which give it an entry point, and numerous other digital services initiatives to diversify the revenue streams.

The new business units are not making much money at the moment, though Jio is in the strongest position to test out the convergence waters in India. Offering a single revenue stream will ensure the financials hit a glass ceiling in the near future, but new products and aggressive infrastructure investment plans promise much more here.

We’re not too sure whether the Indian market is ready for mass market fixed broadband penetration, there are numerous other market factors involved, but many said the initial Jio battle plan would fail as well.

Convergent business models are certainly an interesting trend in the industry, and Jio is looking like it could force the Indian market into line.

Redundancies, redundancies, redundancies

Redundancy is a difficult topic to address, but it is one we cannot ignore. Despite what everyone promises, there will be more redundancies.

Looking at the typical telco business model, this is the were the majority have been seen and will continue to be seen. To survive in the digitally orientated world, telcos need to adapt. Sometimes this means re-training staff to capitalise on the new bounties, but unfortunately this doesn’t always work. Some can’t be retrained, some won’t want to; the only result here will be redundancies.

BT has been cutting jobs, including a 13,000-strong cull announced earlier this year, Deutsche Telekom is trimming its IT services business by 25%, the merger between T-Mobile and Sprint will certainly create overlaps and resulting redundancies, while Optus has been blaming automation for its own cuts.

Alongside the evolving landscape, automation is another area which will result in a headcount reduction. The telcos will tell you AI is only there to supplement human capabilities and allow staff to focus on higher value tasks, but don’t be fooled. There will be value-add gains, but there will also be accountants looking to save money on the spreadsheets. If you can buy software to do a simple job, why would you hire a couple of people to do it? We are the most expensive output for any business.

Unfortunately, we have to be honest with ourselves. For the telco to compete in the digital era, new skills and new business models are needed. This means new people, new approaches to software and new internal processes. Adaptation and evolution is never easy and often cruel to those who are not qualified. This trend has been witnessed in previous industrial revolutions, but the pace of change today means it will be felt more acutely.

Redundancy is not a nice topic, but it is not always avoidable.

Our supply chain won’t tread the ZTE path – Huawei CEO

One of the biggest stories of the year, and one of the major catalysts of the US/China trade war, was ZTE’s brush with extinction, but Huawei thinks it’s robust enough to withstand the US economic dirty-bomb.

During the Summer, ZTE was caught violating US trade sanctions with Iran and subsequently was banned from using any US products or IP within its supply chain. The move from the US almost destroyed ZTE, with the company ceasing operations for a couple of weeks, but Huawei’s Rotating CEO doesn’t think his firm would be under the same risk.

“We all know the ICT industry highly depends on a global supply chain,” said Hu. “And Huawei is no exception. Today we have 13,000 suppliers in our supply chain. Companies coming from Japan, US, Europe, China and many other countries in the regions. Take this year for example, our annual procurement spend would be 70 billion dollars.”

With CFO Meng Wanzhou currently on bail in Canada, Huawei is facing questions it probably doesn’t want to answer. The connection with Skycom looks to be much closer than some US financial institutions were led to believe, suggesting Huawei has been violating US trade sanctions with Iran. Should the US take the same action as it did with ZTE earlier in the year, Huawei could face the same ban on US exports.

The issue with ZTE was its dependence on the US for its supply chain. Huawei will also have the US feature prominently through its own supply chain, but Hu is confident it would stand up to any potential punishment dished out by the US.

“We take a diversified supply strategy,” said Hu. “That means we have a multi-sourcing strategy.

“We look at multiple choices in terms of technology solutions, and we also have multi-location supply networks. At the same time, since we’re working together with hundreds of telecom operators in the world, and also, we are serving a significant number of enterprise customers, so we look at the full lifecycle support that is needed and build up our stock of spare parts and components to ensure support across the product lifecycle.”

The company is also working to produce its own alternatives to some technologies which might not be able to be replicated elsewhere. A prime example of this is the Android mobile operating system.

As it stands, should the US impose a ban on Huawei its smartphones and wearable devices would be relegated to the role of doorstop. With this in mind, Huawei is attempting to create its own mobile operating system. It will probably be no-where as good as what the Android OS can offer, others such as Samsung have tried and failed, but it is certainly better than nothing.

Being banned from using US components and IP would certainly be a negative for Huawei, and it certainly isn’t a scenario which is out of the question, but Huawei seems to be in a better position than the suspect ZTE.