5G and Beyond

Huawei alert system raised from amber to red in UK

What's riskier than "high-risk"? Huawei already carried that unwelcome designation in the UK, but authorities believed they could mitigate any threat by restricting the Chinese vendor's role. With the latest US sanctions, even these limits may be insufficient. If Huawei were a virus, the UK's color-coded alert system would just have switched from amber to red.

Plans for a total Huawei ban are now in the works, according to mainstream press reports at the weekend. The threat level has supposedly been elevated by US efforts to throttle Huawei's supply of components made with US equipment or design expertise, including essential semiconductors provided by Taiwan's TSMC. Because Huawei may now have to revert to equipment from less trustworthy sources, its riskiness is deemed to have grown.

Erstwhile bigwigs in the intelligence community have emphasized those risks. In an article written for the Financial Times (subscription required), John Sawers, the former head of MI6, said the latest sanctions "mean that reliable non-Chinese suppliers to Huawei can no longer work with the company. UK intelligence services can therefore no longer provide the needed assurances that Chinese-made equipment is still safe to use in the UK's telecoms network."

The rationale is spurious. The latest sanctions would not prevent Huawei from using components made with equipment or design expertise that came from any country bar the US. Although few safe non-US options appear to exist, Huawei designs much of its own technology in any case. Long before sanctions began targeting its supply chain, it was effectively barred from dealing with large US operators because of the possibility its products included Chinese spyware.

Existential threat
From the perspective of UK operators that already use Huawei equipment, the real concern is that US sanctions threaten Huawei's survival – or, at least, its ability to provide equipment once its current inventory is exhausted. Huawei seems to acknowledge this in an emailed response to the latest UK developments: "We believe it is too early to determine the impact of the proposed [US] restrictions, which are not about security, but about market position," it said.

The company also drew attention to UK oversight of its products via the Huawei Cyber Security Evaluation Centre, a facility that gives the UK government access to Huawei's source code. "All our world-leading products and solutions use technology and components over which the UK government has strict oversight," it said. "Our technology is already extensively used in 5G networks across the country and has helped connect people through lockdown."

Regardless, given the existential threat to Huawei, the UK government and its operators would be foolish not to make plans for a post-Huawei future. Equity analysts at Jefferies, a bank, think Huawei's stockpile of TSMC semiconductors will run out by March 2021. That would make discussion of a ban somewhat academic. "A choice might not be available if recent US industrial policy action leaves Huawei unable to deliver 5G equipment," said Jefferies analysts in a research note.

Huawei's inability to deliver goods beyond March 2021 might also force the government and operators into a hasty swap-out, resulting in service disruption and financial pressure. Enders Analysis, a market-research firm, puts the cost of a nationwide rip-and-replacement job at about £1.5 billion (US$1.9 billion). Spread over several years, that would look manageable. Over a short period, it would be onerous.

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Huawei has certainly not played down the potential impact of the latest US measures. During a press conference in mid-May, shortly after the sanctions were announced, Guo Ping, one of Huawei's rotating bosses, depicted his firm as a warplane riddled with bullets, trying not to crash. Previously, it described itself as a seed in a storm.

"We are working closely with our customers to find ways of managing the proposed US restrictions so the UK can maintain its current lead in 5G," said a spokesperson for the company today, less dramatically. "As ever, we remain open to discussions with the government."

Not everyone thinks it is game over for the Chinese vendor. Its huge research-and-development budget could always produce alternatives sooner than naysayers think possible. In the meantime, lawyers will be looking for any loopholes they can exploit in the latest rules. Earlier sanctions cutting Huawei off from US components proved largely ineffective because US suppliers were still able to serve it from non-US facilities.

A change in the US administration could be Huawei's best hope. Projections made by the Economist magazine give Donald Trump only a 10% chance of being re-elected in November. A government led by Joe Biden could always try to mend bridges with China, or at least soften the US stance on Huawei.

"Exposed European operators might take a wait-and-see approach as the issue is embedded into the larger question of US-China relations, which could change following US elections in November," said Jefferies. Huawei will have its fingers crossed.

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— Iain Morris, International Editor, Light Reading

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