In the past weeks, we’ve witnessed multiple watershed events regarding the US-China tech wars and Huawei specifically. Several more are to come at an even faster clip, at least until the US elections in November as the Trump administration continues to ratchet up the pressure. It has been a driving factor towards these developments for sure. It championed security concerns, encouraged legislation, and went as far as promoting a list of “clean telcos”, i.e. telecom operators and Mobile Network Operators (MNO) that do not use Chinese technology in their 5G rollout.
However, two specific events taken together caught my attention. Back in February, I had argued that Huawei was holding up rather well to attempts made by the US to isolate it. On top of that, it was wrong for the US to do so.
How things have turned around. I couldn’t help noticing in the span of a few weeks that Canada’s Telus and Bell on the one hand, and UK’s BT on the other, opted out of Huawei for the construction of their 5G network. The approach was different but the result nonetheless the same: Huawei is losing its tech war with the US. BT was part of a UK heavy touch approach imposed onto each MNO, whereas Telus and Bell opted out on their own – or so the story goes – thus avoiding additional hostility between Canada and China, already embroiled in disputes. In both cases, the motivation is the same, intense US campaign to force its traditional allies to boycott Chinese tech-led by Huawei.
I am singling out these two examples because it was BT in 2005, followed by Telus and Bell three years later, that awarded Huawei its first major carrier contracts in Europe and North America respectively. Each came at the expense of the incumbent, Canada’s Nortel, a telecom giant at the time, now defunct. The simultaneous rise of Huawei and the demise of Nortel was primarily achieved then through alleged commercial espionage and IP theft by the former at the expense of the latter. This is very well documented in two excellent recent pieces by Canada’s National Post here and Bloomberg here. This year, Huawei’s R&D budget is expected to exceed $20 billion, so they’re doing quite fine now, thanks for asking.
France appears destined to join Canada and Singapore in the list of countries that have closed the back door to Huawei, i.e., without governments bluntly stepping in. Indeed, they all seem to have learned from the protracted and botched UK approach what not to do. They let either the concerned operators or the security services do the talking, thus avoiding an outright government ban. These nations, just like the UK, have much to lose by directly confronting China. Canada and Singapore may have set the blueprint on how to handle the delicate Huawei affair.
Where France goes, the EU will likely largely follow. Just like the domino effect that inexorably occurred with the Five Eyes, the intelligence alliance comprising Australia, Canada, New Zealand, the United Kingdom and the United States, we’re likely to see a domino effect across most of the European Union (EU).
The question at the moment is what now for the US-allied countries? Surely, it’s counterproductive for markets to push Huawei out and end up with primarily a Nokia-Ericsson duopoly, which is what some appear to be destined to be, for now.
Fortunately, we’re starting to see two positive and connected developments forming. Firstly, the Open Radio Access Network (ORAN) movement, which disaggregates hardware and software. This opened the door for upstarts, especially from the US, to disrupt the established modus operandi of MNO’s buying most of their 5G kit from end to end and legacy vendors such as Huawei, Ericsson and Nokia. This is not a fringe movement anymore as we’re witnessing planned or already executed wide-scale ORAN deployments in large markets, such as Japan, India, Germany, and the USA.
Secondly, the re-emergence of national champions such as Japan’s NEC and Fujitsu, Korea’s Samsung, and undoubtedly more soon – hey Canada? Over the same Huawei-bashing period, the world has witnessed NTT invest with government blessing in NEC; Rakuten work with NEC; Dish Network with Fujitsu; and Telus with Samsung, to name just a few developments to illustrate the point.
These two high tech powerhouses are sensing an opportunity. They still harbour national champions that can dedicate R&D back to telecoms, once considered a lost cause to the Huawei global and until recently unstoppable onslaught.
Greenfield operators have been the first to take advantage of these developments. The leader is Japan’s Rakuten, which has blazed the trail for eager challengers elsewhere such as India’s Jio and America’s Dish.
It used to be firms competing. But now it feels like nations are competing in a zero-sum game as if 5G is a race where the winner takes all. Firms have strategically dispersed locations around the world to leverage talent, R&D credits, manufacturing prowess, market access, etc. The HQ location used to be less relevant. In today’s nationalistic approach to tech, it’s everything.
I have argued before that the tech wars are leading to the formation of dual tech poles from the US and China, where the rest of the world is reluctantly dragged onto this war and forced to choose a pole. Nations are strongly discouraged to be in both poles that anyway face the risk of becoming incompatible over time.
The US has given a false choice to its allies “you’re either with us or with China”. And now the US is winning big, simply because sustained pressure backed up by successive legislation has proved too much for US allies to overcome.
And it’s not just about Huawei, or telecoms. Semiconductors, check. The latest is chip-making equipment, check that too. Just ask Taiwan’s semiconductor foundry, TSMC, which derives one-third of its revenue from Huawei’s carrier business. In effect, TSMC has no choice but to reluctantly comply with America because that’s where it procures its chipmaking equipment.
One last point, the inevitable side effect of these hurried sanctions is the acceleration of China’s complete tech independence, further splitting the two poles. This has been underway from the very beginning, decades ago, and a key strategic foresight by China Inc., as argued in my earlier piece. But this will still take time.
For now, while some US and allied tech firms are victims of the tech wars’ collateral damage, Huawei and the likes from China are getting clobbered.