Where Huawei Fears to Tread

Growing restrictions on Huawei by governments and operators outside China could swiftly diminish its role in the global equipment market.

Iain Morris, International Editor

December 13, 2018

8 Min Read
Where Huawei Fears to Tread

It took Huawei about 28 years to become the world's biggest supplier to communications service providers. Founded in 1987, it finally overtook the 139-year-old Ericsson in 2015. But its loss of the coveted top spot could happen in a relative heartbeat. (See How the West Can Hurt Huawei and Huawei: New King of the CSP Market.)

Government authorities or operators in six countries, including a few of the world's biggest economies, have now restricted Huawei Technologies Co. Ltd. in some manner, supposedly out of concern that Chinese vendors are a threat to security. Under apparent pressure from the US, others are said to be weighing their options. A domino effect, as a multitude of countries raise the drawbridge on Chinese suppliers, would seriously curtail Huawei's prospects.




Known Huawei customers

Other major telcos affected by restrictions

Govt restrictions


US House of Representatives warned major service providers off using Chinese vendors in 2012, arguing "the risks associated with Huawei's and ZTE's provision of equipment to US critical infrastructure could undermine core US national-security interests." US temporarily banned component sales to ZTE earlier this year

None among Tier 1 telcos, although Sprint was formerly a customer and still had Huawei equipment in its network last year, as revealed by Light Reading

AT&T, T-Mobile US, Verizon

Govt restrictions


Both Huawei and ZTE are barred from the 5G market and cannot sell products to NBN Co, Australia's national wholesale network

Vodafone Hutchison Australia

Telstra, Optus

Govt restrictions

New Zealand

The government has warned Spark off using Huawei's 5G equipment and by implication would not tolerate 5G deals between Chinese equipment vendors and other telcos


Vodafone New Zealand, 2degrees

Govt and operator restrictions


Starting in April 2019, Japan's government will ban its ministries and defense forces from buying and deploying IT and telecoms equipment from Chinese companies, citing cybersecurity concerns; SoftBank is reportedly replacing Huawei as a 4G supplier


NTT DoCoMo, KDDI, Rakuten

Govt warning; operator restrictions


Security watchdogs have this year flagged vulnerabilities in Huawei's equipment; telecom incumbent BT is stripping Huawei out of its mobile core and optical networks and says it will not buy any of Huawei's mobile edge computing products

BT, Three UK

O2, Vodafone UK

Govt restrictions


Ban on equipment developed by either Huawei or ZTE has been in place for the last five years and was recently renewed, according to press reports


Chunghwa Telecom, Taiwan Mobile, Far EasTone and Taiwan Star

How likely is this? The governments that have so far moved to limit Huawei's activities are mainly members of the so-called "Five Eyes" partnership, under which Australia, Canada, New Zealand, the US and the UK share information on crime, espionage and terrorism. But Japan, a country with a large US military presence, has this week banned its ministries and defense forces from buying and deploying Chinese IT and telecom equipment. The new rules seem bound to influence the network decisions taken by Japanese service providers. (See Japan Next in Line to Block Huawei, ZTE.)

Elsewhere, US authorities have been lobbying against Huawei in Europe, according to a spokesperson for the Chinese vendor. In the UK, security watchdogs this year flagged vulnerabilities in Huawei's products, while BT Group plc (NYSE: BT; London: BTA), the telecom incumbent, was this month revealed to be stripping Huawei out of its mobile core and optical networks. So far, however, any US pressure appears to have had little effect in other European countries. Despite earlier reports of German concern about Huawei, the country's interior ministry this week said there are no legal grounds for excluding any vendor from the 5G market, according to Reuters. (See Huawei Cut Out of BT's Mobile Core, Optical & Edge Plans and Europe's Telcos Fret as Walls Close In On Huawei.)

Figure 1: Hu You Gonna Call? Ken Hu, Huawei's rotating CEO, addresses attendees at his company's Global MBB Forum in London last month. Ken Hu, Huawei's rotating CEO, addresses attendees at his company's Global MBB Forum in London last month.

In markets where Huawei's movement is restricted, the big question is how far authorities and customers will go. In the US, Huawei has been effectively banned from serving the major telcos since 2012, when a government report warned them off using Chinese vendors in their networks. This week's move by Japanese authorities could have a similar impact. Reports originating with Japan's Nikkei newspaper indicate that SoftBank Corp. now plans to replace Huawei as a 4G supplier with Ericsson AB (Nasdaq: ERIC) and Nokia Corp. (NYSE: NOK).

In the mobile markets of Australia and New Zealand, however, the door has been closed only on future 5G business. Huawei has not been officially thrown out of the 4G house and appears to have big deals in place with Vodafone Hutchison Australia and New Zealand's Spark. The risk for Huawei is that a tightening of government restrictions squeezes it out of existing business. Vodafone and Spark, alternatively, might pre-empt that move, although pulling Huawei gear out of the 4G radio access network could prove as painful for executives as tooth extraction. In Canada, which is also under US pressure to exclude Huawei, operators Telus Corp. (NYSE: TU; Toronto: T) and BCE Inc. (Bell Canada) (NYSE/Toronto: BCE) would face at least $1 billion in costs to remove Huawei from their networks, according to a Bloomberg story this week. SoftBank's Huawei removal in Japan will also be time-consuming and costly, reports Reuters, citing industry sources. (See New Zealand blocks Huawei from 5G deal with Spark and Australia Excludes Huawei, ZTE From 5G Rollouts.)

Such moves would represent a major loss of existing business for the Chinese vendor. So far, the biggest setback is perhaps BT's decision to strip Huawei out of its mobile core and optical networks, as confirmed to Light Reading. The move is a curious one. BT has been determined since 2006 to keep Huawei out of its core, a sensitive part of the network that links to IT systems and customer information, and took appropriate steps when it bought EE, an operator that already used a Huawei core, back in 2016. But Huawei saw off fierce competition for its "21CN" DWDM (dense wave division multiplexing) contract with BT, sharing the spoils with Ciena. "Removing Huawei as an optics supplier is a really big deal," said Sterling Perrin, a principal analyst with Heavy Reading, in a comment on Light Reading's message boards. "They are well entrenched within BT -- so this is not a small, isolated network that would be swapped out." (See BT Is Stripping Huawei From its Mobile Core Network – FT Report.)

Schadenfreude for Western rivals
But what is bad for Huawei might be good for Western rivals such as Ericsson and Nokia. Competition from low-cost Chinese rivals has been a nightmare for the Nordic suppliers since the early years of the millennium. Given suspicions in the US that Chinese companies have ripped off others' intellectual property, there is unlikely to be much sympathy for Huawei and smaller rival ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) in the vendor community. Long-serving executives may be grinning with Schadenfreude. The deal-makers in those companies will have their eyes on the business the Chinese vendors are losing with BT and others. In Japan, it seems like they have already seen benefits, judging by the reports about SoftBank.

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Light Reading.

The danger, of course, is that Chinese authorities retaliate with their own restrictions on Western companies. But locking Ericsson and Nokia out of deals with Chinese operators might have a limited impact. Together, they are understood to account for only about a quarter of the Chinese telecom infrastructure market. Nokia derives about 11% of its revenues from China, while 12% of Ericsson's come from North East Asia. Huawei, by contrast, generates about half its sales outside China, including more than a quarter in Europe, the Middle East and Africa. Nor would China's operators be likely to welcome any restrictions on their choice of suppliers. (See Nokia Sitting Pretty After Week of Turmoil for Huawei, Ericsson.)

Damage could be done in other ways, though. Just as the US stopped ZTE from buying US-made components earlier this year, so China could lock Western equipment makers, including device companies like Apple, out of their supply chains and factories. But throughout international telecom markets, much of the harm may be self-inflicted by local authorities and their bans. Even if they have not fallen in love with Huawei and ZTE, telcos admire their products, their focus on customers' needs, and appreciate the competition they bring. Without it, Ericsson and Nokia would be under little pressure to shape up, and 5G rollout could take longer than planned. For anyone worried that Europe is already well behind the US and China in the 5G race, that is a troubling thought.

— Iain Morris, International Editor, Light Reading

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About the Author(s)

Iain Morris

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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