Noose tightens around Huawei as EU allies dwindle

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More European countries are raising security concerns about Huawei.
More European countries are raising security concerns about Huawei.

The Czech Republic and Norway have joined the list of countries considering excluding Huawei from equipment tenders, as Germany weighs in on what it would need to be convinced to allow the Chinese tech giant to bid for 5G contracts.

This as more European countries follow the US and turn away from the world's biggest telecommunications equipment-maker, as scrutiny grows over its close ties with the Chinese government and allegations its equipment could hold backdoors to enable spying, which Huawei denies.

The European Union (EU) is the US's top priority in its global effort to try to convince allies not to buy Huawei equipment for next-generation mobile networks, according to Reuters, which quoted a US state department official.

Reuters also reported that German chancellor Angela Merkel said yesterday, during a trip to Japan, that the country needs guarantees that Huawei would not hand over data to the Chinese state before the telecoms equipment maker can participate in building Germany's 5G network.

Up until this point, the German government has been undecided as to whether to follow peers like the US in excluding Huawei from its market on the grounds of national security.

According to AFP, Norway's intelligence service, PST, has also issued a warning about Huawei, citing concerns over its close connection to the Chinese regime.

The head of PST, Benedicte Bjornland, reportedly said an actor like Huawei "could be subject to influence from its home country as long as China has an intelligence law that requires private individuals, entities and companies to cooperate with China".

The Czech cyber watchdog (NUKIB) has also warned that Huawei and ZTE will be left out of more state tenders after the local tax authority excluded them. According to Reuters, NUKIB's warning does not constitute an outright ban but requires 160 public and private operators of critical infrastructure to conduct an analysis of risks and act accordingly.

Canada is also reportedly likely to ban Huawei from its 5G network. This after Japan excluded Huawei from public procurement, and Australia and New Zealand effectively blocked Huawei from involvement in the rollout of their 5G network infrastructure. The UK and Poland are also assessing whether to exclude Huawei from forthcoming infrastructure rollouts and this week Denmark expelled two Huawei employees from the country over work permit issues.

Last week, the US filed criminal charges in New York against Huawei, two subsidiaries and CFO Meng Wanzhou, who was arrested in December 2018 in Canada.

Unprecedented pressure

Dobek Pater, director of business development at Africa Analysis, says so many nations turning on one company is unprecedented, at least in the telecoms industry, and he has not seen this happen "at least over the past 20 years".

"It's certainly the avalanche of the month," adds independent analyst Charley Lewis. However, he says that in the tech industry "quite a few of the other big guns have also had a torrid time in the past", mentioning Microsoft, Google and Facebook.

"Big companies make tempting targets, and a big footprint gets big notice, and means you have to play extra nice," Lewis says.

According to Pater, if the Huawei "sanctions" are actually enforced, and it's not just grand-standing to win some sort of concessions from Huawei, the impact on the company could be significant.

"5G is the next wave of mobile communications and most of the countries (and larger operators) will build this infrastructure over the next several years. Hundreds of billions of USD will be spent on this, and Huawei is one of the largest suppliers of telecommunications equipment globally and would over the years probably account for a fair portion of this spend."

He says if the larger global markets sanction Huawei, the equipment-maker will have to re-strategise how it competes globally.

Huawei is the world's biggest producer of telecoms equipment and ranks second in global smartphone sales, behind Samsung and ahead of Apple.

5G folly

Lewis says it's important to consider how much damage a widespread ban of Huawei is going to do to 5G in general.

"Huawei (along with other Chinese firms) is deeply involved at the level of the International Telecommunication Union, in the various study groups and in the development of the necessary 5G standards. It is also very active in filing patents, and is estimated to hold upwards of 10% of the slew of 5G patents.

"It is also important to recognise that Huawei develops and supplies equipment across the mobile value chain. Most consumers will recognise its state-of-the-art handsets, but all the big mobile operators in SA use its network equipment extensively.

"Huawei is already the global market leader, holding some 28% market share globally, trailed by Nokia and Ericsson. This probably makes it too big to be sunk by the current onslaught, but it is surely hurting," Lewis explains.

Pater adds that ZTE has been trying to place itself at the forefront of the 5G technology race; however, it is also a Chinese company "possibly with greater security concerns than Huawei".

"Companies such as Ericsson and Nokia have been investing a lot in R&D and will compete head-on with Huawei, other vendors in the 5G race. The question is perhaps more about the prices offered to the operators and ability to scale production quickly. Huawei has a large domestic market in China, and it can use this to scale production for global supply," Pater believes.

Ulterior motives?

The real motivation behind the US pressure for allies to ban Huawei remains the main question. Pater believes part of it is the US's trade war with China, which the US is likely trying to expand by forming a larger "coalition".

"However, if the US has real security concerns with respect to Huawei equipment, then it would want its key political and economic allies to support the US as the same concern is at stake. It is not sufficient for the US alone to ban Huawei, if the Chinese can possibly access sensitive information or data regarding the US through Huawei equipment used by US allies."

Lewis believes it's more likely the US is motivated to protect and advance its own position in the 5G scramble, "in typical Trump bull in the china shop fashion, with little thought given to the impact on Europe and other US allies".

As to whether other regions will follow the US and Europe, Pater believes this may be more contained to the more affluent countries and the "western" camp, although some countries in Latin America could follow.

"Most of the rest of the developing market world has very close trade/working relationships with China and would not want to 'upset' it, and also rely on potentially lower cost 5G equipment, at least in the initial purchases, and cannot afford not to consider Huawei as a supplier. Huawei is probably also more entrenched in developing markets on average than in the developed markets," Pater concludes.

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