The Huawei controversy – a symptom of deep malaise

The UK’s reliance on the market, privatisation and saving money are key factors in the controversial decision to involve Chinese company Huawei in building the next generation 5G network. Calvin Allen explains

At the end of January, the government made its long-awaited decision on the third aspect of its Telecoms Supply Chain Review – addressing the security challenges posed by using network infrastructure supplied by so-called high-risk vendors.

Chinese company Huawei’s equipment will be allowed to account for 35% of kit used in the non-core part of the UK’s 5G network, despite pressure from US president Donald Trump to block the firm altogether. This includes being banned from supplying kit to “sensitive parts” of the network and excluded from areas near military bases and nuclear sites (http://bit.ly/huawei-role).

Huawei is not the only vendor of telecoms equipment regarded as “high-risk” – so, too, is ZTE, also Chinese. But it is the only one for which the National Cyber Security Centre (NCSC) has a mitigation strategy designed to manage the risks raised by operators choosing to use Huawei equipment.

Prospect has members in Huawei and we will continue to articulate their interests as the outcomes of the review are worked through.

Risks

Essentially the details of the decision boil down to first, the desirability of the equipment of “high-risk” vendors being embedded in the communications networks on which we increasingly depend; and second, the problems posed by one equipment supplier coming to a position of market dominance.

Both represent different aspects of the risks in relation to Huawei; but I want to focus on the second.

A blog post by Dr Ian Levy, NCSC technical director, and published as a part of the package of materials released at the time of the review, is key (http://bit.ly/levy-blog).

Dr Levy acknowledges that “the market is broken”, for reasons due predominantly to low margins at a time of high R&D demands.

Solutions

Prospect has been banging this particular drum for years and it is good to see this being recognised, at least in the equipment supply segment of the communications sector.

The solutions to which the review is directed are, at heart, a new test lab to de-risk the costs of market entry, alongside the government working with industry, and internationally to increase the extent to which equipment from different vendors can be used seamlessly. Allied to this are questions of spectrum management and intellectual property.

All the above needs to happen, but also new market entrants need to be encouraged, and market entry facilitated for suppliers not currently operating here. However, this is a (very) long-term objective, so other solutions are needed.

Few operators currently supply the UK market –  Nokia and Ericsson are the two most likely alternatives.

But they are already more expensive and, if there is no Brexit deal on goods, the price difference after 31 December 2020 will rise further.

BT, whose compliance bill for limiting Huawei equipment is estimated by the company at £500m, may as a consequence face greater exposure in relation to costs. Vodafone has said it will cost £169m (200m Euros) to remove Huawei from its core.

Similar problems are likely to arise in the future with batteries for electric cars. Few operators of scale are able to supply electric batteries at European level and, globally, those that are? Well, they’re Chinese, not least as a result of that government’s extensive backing for R&D.

We are beginning to reap what we have sown from our decades-long reliance on the market, privatisation and an emphasis in communications on price competition. The question that remains is  how far the UK government is prepared to go to support the levels of R&D that “global Britain” will surely require.

•  Telecoms Supply Chain Review (Department for Digital, Culture, Media and Sport): http://bit.ly/TSC-report