The embattled Chinese equipment maker is gearing up for a major offensive against its US enemies and recruiting Europeans to its cause.

Iain Morris, International Editor

March 6, 2019

13 Min Read
Huawei Seeks European Allies for 'Long' Fight With US

Andy Purdy is under no illusions about the dilemma in front of Huawei, the embattled Chinese equipment vendor he represents. "We face a geopolitical issue between China and the US that is going to continue for a very long time," said the chief security officer of Huawei's US business during a press event this week in Brussels, where Huawei raised the curtain on a new cybersecurity center.

Purdy did not stick around for a Q&A session with the world's media, leaving numerous questions hanging about the US threat to Huawei. But his remarks and the overall tone of the Brussels event, where European officialdom gave an ear-bashing to US technology giants, reflect a new assertiveness in Huawei's response. The protestations of innocence and whining about unfair treatment are making way for more proactive measures as Huawei goes on the offensive.

Figure 1: 5G Powerhouse Huawei's headquarters in the Chinese city of Shenzhen. Huawei's headquarters in the Chinese city of Shenzhen.

The Chinese vendor, which overtook Ericsson in 2015 as the world's biggest supplier of telecom network equipment, is in the eye of a geopolitical storm. Suspicious of China, a hawkish US administration under the presidency of Donald Trump sees Huawei as a Chinese government stooge that has ripped off US innovation and sold Internet gear to US foes such as Iran. Underpinning all this are fears about China's growing technological might. Huawei is already ahead of Ericsson and Nokia, its two main rivals, in the development of 5G, say Europe's service providers. If 5G is the oil that will power artificial intelligence, a technology expected to shape the coming decades, the stakes could not be higher.

Huawei is exposed to a US attack on two main fronts. The first is the system of military and political alliances that have evolved around NATO since the end of the Second World War. The US has been able to exert pressure on allies in Europe, the Asia-Pacific and North America, whose telecom operators have grown heavily dependent on Huawei in the last ten years and are loathe to abandon it. Hawks argue Huawei's products could be a conduit for Chinese government spies and that 5G exacerbates the risk because it may be used to connect all manner of industrial and consumer devices and not just smartphones. Governments are faced with a choice between ditching Huawei and incurring the displeasure of the world's only democratic superpower.

Executives from Huawei have vigorously refuted the accusation they willingly collude with the Chinese government. Ren Zhengfei, its founder, has also stated he would rather close the company than bow to government demands. One concern is that China's military could insert rogue hardware components or software code into Huawei's products without the company's knowledge. Analysts have pointed out that global supply chains make Western firms equally vulnerable to such a hack, and that China's military would probably avoid using Huawei because it is the first place watchdogs will look. Others downplay the importance of network equipment: China and Russia have been able to carry out cyber attacks regardless of the underlying infrastructure, they say. But the US charges have been taken seriously. A few countries have already restricted Huawei's activities, and others could follow.

The second front is the supply chain itself. Just as Western firms use Asian factories and chips to make their equipment, so Huawei relies heavily on components from US firms and US allies. Meng Wanzhou, Huawei's chief financial officer, may soon go on trial in the US for allegedly covering up Huawei's activities in Iran, a country subject to US trade sanctions. If she is found guilty, the US could block sales of US components to Huawei. Last year, the same move against ZTE, after the smaller Chinese vendor was caught selling equipment to Iran and North Korea, nearly drove it out of business.

The European fightback
Huawei's counterattack accordingly has two prongs: to sway opinion in Europe, the main battleground in the current conflict; and to minimize the risk of a US components ban. The focus in Brussels this week was on the first of these efforts.

The Chinese vendor's overarching goal is to shift the current debate about network security and bring Europe's regulators and other stakeholders onside. If it can persuade officials to take a more holistic view of the security issue, and consider equipment from all companies as part of one interconnected global supply chain, it could deflect attention from Huawei and raise awareness of potential vulnerabilities in other vendors' kit. Better yet would be the establishment of a government-sanctioned security regime that provides a firm checklist for any vendor's gear, free from political interference. Where better to look than to the European Union (EU), a club of countries whose fondness for regulation is unmatched anywhere.

Huawei has already had meetings with senior EU officials, including Andrus Ansip, the European Commissioner for the digital single market, about setting up a security regime along the same lines as GDPR, a set of laws about data protection and privacy that has gained acceptance in other regions (partly because non-European companies must follow it if they do any business in the EU). "Hopefully with a GDPR version of cybersecurity, strengthened evaluation standards and mechanisms that demonstrate governance, the German government and the UK government will be satisfied," said Purdy, before disappearing from the stage of the Brussels Academy Palace, where Huawei held its event.

In the meantime, Huawei is reeling off all sorts of new messages about security. A unifying theme -- and one that may plant seeds of doubt about the freedom given to Cisco, Ericsson, and Nokia -- is that today's global supply chain means no security checks can be 100% foolproof. Nevertheless, executives were at pains to show that Huawei's products are tested to a rigorous degree. Planned before the anti-Huawei campaign had built momentum, a new cybersecurity center in Brussels will not have the same government oversight board as a facility in the UK, but it will let customers access Huawei's source code for testing.

Figure 2: Brussels Sprouts New Huawei Facility Reporters are given a whistle-stop tour of Huawei's new cybersecurity center in Belgium. Reporters are given a whistle-stop tour of Huawei's new cybersecurity center in Belgium.

European officials sympathetic to Huawei were in evidence, too. Ulrik Trolle Smed, who works in the cabinet of European Commissioner Julian King, launched into a tirade about the shortcomings of US technology giants that would have been music to the ears of the Chinese. Grumbling about a lack of transparency around the algorithms the web platforms use, he said: "In reporting from January they have fallen further behind. The lack of hard numbers is worrying. Facebook has again failed to provide all the necessary information. Twitter did not report on any additional information to improve ad placement." Peter Koroumbashev, a Bulgarian Member of the European Parliament, backed Huawei's calls for a common EU approach to cybersecurity.

Any GDPR-like security regime will certainly not materialize quickly. While the GSM Association (GSMA), a lobby group for the mobile industry, has also taken Huawei's side on the need for rules, Ericsson has already thrown a wrench in the works. A 5G post-development testing regime, proposed by the GSMA, would hinder innovation and be a "tax burden" on the industry, said Börje Ekholm, Ericsson's CEO, during last week's Mobile World Congress.

Even if Huawei and its allies get their plans off the ground, US hawks may be eager to shoot them down. A GDPR-like scheme that ultimately satisfies European governments, providing the legal justification for Huawei to continue operating in those countries, could badly upset relations between Europe and the US. Regardless of the geopolitical consequences, it would probably drive Huawei's US enemies to double their efforts on the second and more critical American front of the campaign.

"The US has reacted to different things," says Bengt Nordström, the CEO of Northstream, a Swedish consulting company. "They say it is easy for China to sell in other countries but difficult for Western countries to be active in China. They claim IPR [intellectual property rights] have been stolen and that Huawei has exported advanced technology to Iran. That has little to do with spyware in equipment. It will be sorted out on that level."

Next page: Not so quiet on the US front

Not so quiet on the US front
While it prepares for a legal battle over Meng Wanzhou's fate, Huawei is already challenging North American opponents in the law courts. Earlier this week, Meng's defense team sued Canada, where she was arrested in December and is being detained, for civil rights breaches, according to press reports. Moreover, Huawei is due to announce a lawsuit against the US government, alleging its decision to ban federal agencies from using Huawei gear was an abuse of power, according to the New York Times.

Asked bluntly by a Reuters reporter in Brussels why Huawei is suing the US government, executives pleaded ignorance. "I would like to thank the media for keeping me up to date with what is going on," said John Suffolk, a Brit now in charge of Huawei's entire cybersecurity strategy. With Huawei desperate to show it is both transparent and trustworthy -- words used in slide presentations this week -- Suffolk's remarks could backfire if the NYT report turns out to be accurate. Suffolk may understandably have been wary of discussing legal matters, but a "no comment" would have done. Few will believe a top executive was ignorant of a pending US lawsuit.

Figure 3: Interconnected John Suffolk, Huawei's cybersecurity boss, says the global supply chain has brought security challenges. John Suffolk, Huawei's cybersecurity boss, says the global supply chain has brought security challenges.

In the current political climate, any legal battles on US soil may bring few victories. The longer-term play is to make Huawei more self-reliant. If it cannot buy the components it needs from US suppliers, it will have to get them elsewhere. The lack of friendly alternatives to US manufacturers could force Huawei to make its own.

Huawei is already far more self-reliant than ZTE. It owns a "fabless" semiconductor company called HiSilicon and in the last few months has cranked out the sort of processors typically associated with US chip giants like Intel, Qualcomm and Nvidia. At a recent event in London, it showed off what it claims is the world's first data center switch powered by artificial intelligence, thanks to its own Ascend 310 and Kunpeng 920 chipsets. It also has an R&D muscle its main network rivals cannot match (although analysts would point out that Huawei is active in many more fields). Yet to publish financial results for 2018, it is likely to have spent at least $15 billion in R&D expenses -- more than Cisco, Ericsson and Nokia combined.

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The push to become self-reliant is reflected in its growing stature as a holder of patents and supported by China's efforts to build the legal apparatus around them. In 2008, just 116 of the 2,693 patents filed in Europe for telecom and connectivity technologies belonged to Chinese firms, according to John Strand, a telecom consultant. By 2017, they accounted for 1,478 of 3,717 patents, he says. Today, Huawei claims to hold 87,805 patents in total, next to Ericsson's 49,000. In parallel, Chinese authorities have been taking steps to protect Chinese intellectual property. "China has recently set up some dedicated patent courts and is trying to establish itself as a country where you can litigate," said Pio Suh, the managing director of IPCom, a cellular patents owner and advisory company.

Those numbers do not tell the full story, of course. How many of the patents fall into the so-called "standard-essential" category is unclear, and neither Ericsson nor Huawei has provided further details. "We do not disclose the number of patent applications or granted patents in any other way than as a total," said Ericsson, while Huawei did not respond to requests for information. Asked about its 5G patents position, Ericsson said: "It's much too early to talk about the number of granted patents for 5G. It takes years for patents to be granted and the 5G standard was set only six months ago."

Figure 4: Reading the Riot Act Borje Ekholm, Ericsson's CEO, is unhappy about GSMA proposals for post-development testing of 5G gear. Börje Ekholm, Ericsson's CEO, is unhappy about GSMA proposals for post-development testing of 5G gear.

Nevertheless, Chinese vendors had already played a more visible role in 5G standards development than they ever did in 3G, when the design of a home-grown technology was China's priority, according to an industry source who preferred to remain anonymous. This worries US authorities because of 5G's potential importance to economic competitiveness. If 5G connectivity goes into cars, robots, industrial equipment and more, then licensing arrangements may need to involve a multitude of organizations. Arbitration could become a much bigger and more lucrative affair.

The paradox is that a US campaign against Huawei could ultimately produce a more independent and technologically advanced China -- the very thing US hawks fear. But this will not happen without major disruption for Huawei and other companies in the supply chain, and it could result in the balkanization of the telecom equipment market. Worried about the possibility of a US components ban, Nordström likens Huawei to Lehman Brothers, the US bank that collapsed in 2008, bringing others down with it. "The world learned the hard way how integrated the banking system is," he says. "Huawei has its own silicon to a certain extent but it is absolutely dependent on foreign vendors, and those are the same vendors that Ericsson and Nokia are using … I fear a setback for the whole telecom ecosystem that will take a long time to repair."

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— 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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