According to The Times, the UK plans to form an alliance of democratic nations to create a 5G alternative to Huawei.
The Times says the group will include the G7 nations: Canada, France, Germany, Italy, Japan, the UK and the United States as well as Australia, South Korea and India.
No doubt if the plan goes anywhere there will be pressure on New Zealand to join. It is the only Five Eyes intelligence alliance member not in the Times’ list.
Huawei top equipment maker
Huawei is the world’s top telecommunications network equipment maker. It has the most advanced cellular technology and is a leader when it comes to 5G networks.
Thanks to favourable currency conditions Huawei manages to make better 5G technology and, in many cases, sell it for less than rivals.
There are dark mutterings from the US that Huawei climbed to the top of the telecommunications market by stealing intellectual property.
Whether or not this is true, Huawei also enjoys significant tax breaks from the Chinese government and favourable trading conditions in the world’s second largest economy. Unlike western governments China is not frightened to intervene in key markets. The nation has long had an industrial policy to become a world leader in telecommunications technology.
The headline reason Huawei has western democracies clinging together are reports the company either already does, or could soon start, giving Chinese intelligence agencies access to data carried on networks.
While there is no smoking gun proof this has happened yet, the potential for it to happen is real enough. And that’s before you consider the rising tensions between China and the US.
Behind the headline reason is a second, more nuanced argument. Huawei dominates telecommunications hardware.
Huawei’s main competitors still in the market are Nokia and Ericsson. Both are a fair distance behind Huawei. They can’t compete with Huawei’s rapid development cycles, they struggle to match Huawei’s price advantage.
Before the spying accusations became public the gap between Huawei and the also-runs was widening. There was a danger Huawei would move from dominance to something more like a near-monopoly.
Think of how Google dominates web search. Strictly speaking search is not a monopoly, but only one company matters.
Believe it or not, the world could manage without web search. It can’t manage without telecommunications networks. And much of the world would certainly be in trouble if the only supplier of that network technology was based in an increasingly aggressive, potentially hostile country.
So crippling Huawei before it reaches that position stops it from becoming a serious threat. Well, that’s the theory and the thinking behind the UK’s alliance plan.
There’s another angle to this. Huawei aside, Chinese companies dominate the supply chains for telecommunications hardware. Both Nokia and Ericsson have operations in China. Many of the chips and components they use come from Chinese factories.
During the early stages of the Covid–19 pandemic we saw the chaos that comes when supply chains shut down. The Chinese government could shut them down whenever it chooses. Sure that would come at a huge cost, but the risk cannot be ruled out.
Tensions between China and the West, especially the US, are higher than they have been for decades. Things have reached the point where even suggesting the formation of an anti-Huawei technology alliance will be seen as ratcheting up the tensions.
Precious little optimism
The UK plan may come to nothing. It’s possible tensions will reduce. But optimism in this area is in short supply right now.
Nokia and Ericsson are the most likely winners if the UK plan gets anywhere. Samsung and NEC also have 5G network equipment, but the two are even further behind and can’t offer a comprehensive suite of products.
Assuming it is Nokia or Ericsson or both the winners will get guaranteed markets and, presumably, buckets of government money. The move won’t be good for innovation and will reduce choice for mobile carriers.
On the other hand, it will bring much needed certainty to the sector. Everyone will be able to get back to building networks and stop worrying about the politics of what should be engineering or commercial decisions.