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January 15, 2020
When UK citizens went to vote for a new government in December, their options looked few and unsavory. The ruling Conservatives were hellbent on a hard exit from the European Union that most people opposed, according to opinion polls last year. In Jeremy Corbyn and John McDonnell, the main opposition Labour Party was controlled by two retirement-age revolutionaries pursuing an extreme-left agenda. The Liberal Democrats, the only mainstream alternative, lacked credibility.
Under the UK's cockamamie, "first-past-the-post" electoral system, the Conservatives won a resounding majority with fewer than half the votes, returning Boris Johnson as the UK's prime minister. His attention has quickly been drawn to a similar shortage of options that confronts telecom operators choosing their 5G network suppliers. Following years of consolidation, about 80% of the market for radio access networks is served by just three companies -- China's Huawei, Sweden's Ericsson and Finland's Nokia -- with the likes of Samsung, ZTE (another Chinese vendor) and smaller specialists sharing the rest. Not an ideal situation.
The telecom issue has become an unusually urgent one for Johnson because he is under intense US pressure to ban Huawei, the biggest vendor, for security reasons. After trying to raise its profile for years, the Chinese company became one of the world's best-known brands in 2019 when the Trump administration declared war on it. Huawei, says the US, is a Chinese government stooge, intellectual property thief and trade cheat. Meng Wanzhou, its chief financial officer, remains under house arrest in Canada, awaiting possible extradition to the US on charges of fraud. Huawei's products could expose countries to Chinese spying and cyber attacks, insist US officials.
Figure 1: Blondes Have More Fun? UK Prime Minister Boris Johnson (left) having the time of his life with US President Donald Trump.
Unfortunately, the UK is already heavily dependent on Huawei, and its operators are reluctant to switch at what they say would be considerable expense. Nor is it just a question of cost and 5G delay, as Johnson pointed out during a TV interview this week. "The British public deserve to have access to the best possible technology," he told BBC Breakfast, a news show. "We want to put in gigabit broadband for everybody. Now if people oppose one brand or another then they have to tell us what's the alternative."
For any service providers unnerved by Huawei's antics, Ericsson or Nokia would seem the obvious alternative -- much as the Liberal Democrats should have to Conservative voters appalled by Brexit. Yet neither of the Nordic vendors has been covering itself in glory of late: Ericsson has just agreed to hand over $1 billion to US authorities to settle numerous international charges of bribery and corruption between 2000 and 2016; Nokia has run into 5G difficulties after previously selecting overly expensive components, a move it had originally hoped would provide a time-to-market advantage.
Huawei's supporters, including many of its service provider customers, have claimed its 5G technology easily surpasses rival products, including gear made by Ericsson and Nokia. It clearly took some giant strides in the 4G era, dislodging Ericsson as the world's biggest mobile infrastructure vendor by offering high-quality products at competitive prices.
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But even if Huawei does have a technology lead, it is unlikely to be great in a market based on a globally agreed standard and still split relatively evenly between three industry giants. While geopolitics might bear some influence, Ericsson now boasts 78 commercial 5G agreements and 24 live networks, compared with the 65 deals Huawei had reportedly landed by October and Nokia's 63 as of early January. Studies that attempt to show certain companies control the most important 5G patents have proven inconclusive.
For Johnson and the UK telecom industry, the big problem is that a ban on Huawei might simply drive operators back to Ericsson and Nokia, in the absence of a new, Huawei-like challenger. Ericsson already supplies most of Vodafone's radio equipment, and Nokia is being phased out of the Vodafone UK network. Without a U-turn on Nokia, Vodafone could therefore end up in a single-vendor situation -- something most service providers are desperate to avoid. BT, meanwhile, uses a mixture of Huawei and Nokia radios across the UK. Forced to eject Huawei, it could face the same dilemma as Vodafone.
Even if BT introduced Ericsson or Samsung, the South Korean technology giant now emerging as a credible 5G contender, the upshot is that supplier competition would diminish. This might not lead to higher prices: Strand Consult, a Danish advisory firm, says equipment prices have fallen in the US market since Nokia's 2016 takeover of Alcatel-Lucent. Nor have costs risen in Australia since it banned Chinese vendors, said Strand Consult in a detailed report published last year.
Next page: Dwindling band of powerbrokers
Dwindling band of powerbrokers
But costs are perhaps not the primary concern for today's operators. As the likes of Alcatel, Lucent, Motorola and Nortel have disappeared, service providers have become increasingly dependent on a dwindling band of international powerbrokers. Problems for any one of these companies could be massively disruptive, as the Huawei saga demonstrates. A formal ban on Chinese vendors would leave most service providers at the mercy of just two players: Ericsson and Nokia.
Neither is in the best shape. Ignoring its corruption scandal, Ericsson has recovered from its 2016 slump, when its very survival seemed on the line, but only by ditching assets and employees to focus almost entirely on mobile infrastructure. It lacks a convincing growth story outside 5G, which might not deliver the boost it expects. Nokia has a much broader range of interests but racked up a €545 million ($608 million) net loss for the first nine months of 2019. It has recently slashed profitability targets.
This situation at least partly explains the surge of interest in open radio access network (RAN) technology. Smaller mobile network vendors such as Altiostar, Mavenir and Parallel Wireless are touting products that use open interfaces and common, off-the-shelf hardware as an alternative to traditional gear. And some big operators are eager to bite. On a mission to find new suppliers, Vodafone is carrying out European trials of open RAN technology. If these go well, open RAN seems likely to play some part on the production side, with Vodafone's entire European network currently up for tender. Telefónica is already using open RAN in some commercial networks.
But in a mass-market sense, open RAN is still not ready for prime time, and it could not fill the void left by a banned Huawei. Software developed by some of the main contenders will not yet work on general purpose x86 servers. The market for "white box" radios remains immature. And open RAN still lags traditional products on technical performance, according to analysts at Dell'Oro and Heavy Reading, two market-research firms. If all this weren't enough, multivendor open RAN networks could bring all sorts of operational complexity for service providers, driving up day-to-day costs.
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Johnson is therefore right to ask questions about Huawei alternatives. While the debate about security grinds on, without generating any certainties, the UK's operators will have conveyed to the new government just how much worse off they would be in a Huawei-free market. The prime minister's off-the-cuff remarks suggest he has been listening: A comprehensive ban on the controversial Chinese company now seems highly unlikely.
While anything remains possible, the likeliest scenario is that UK authorities will plump for the compromise aired last year, shutting Chinese vendors out of the 5G "core," a particularly sensitive part of the network, but allowing it to sell radio equipment, which accounts for most of the 5G investment. This would cause zero disruption for UK operators, which have either avoided using Chinese core network products or been switching to alternatives. For that reason, it would not seriously upset Chinese authorities, which recently warned that a full Huawei ban would damage relations with the UK.
The UK government probably thinks it can persuade the Trump administration this compromise makes sense. It will not be easy while the US continues to wage war against Huawei, and there is much at stake. Some experts insist distinguishing between core and radio will become harder in future 5G networks. Upsetting Trump could imperil a future trade agreement with the US. And for Huawei's fiercest US enemies, the UK's refusal to ban Huawei would set a dangerous international precedent. After all, if the US cannot win over one of its strongest allies, what hope does it have elsewhere?
— Iain Morris, International Editor, Light Reading
International Editor, Light Reading
Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).
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