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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.

Spying accusations

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.

Monopoly

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.

Crippling

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.

13 thoughts on “UK plans anti-Huawei 5G alliance

  1. Think of how Google dominates web search. Strictly speaking search is not a monopoly, but only one company matters.

    That’s probably true of many industries but we just don’t hear about it or see it because all the monopolization is hidden behind different branding. As an example my nephew was telling me about how a single construction company in NZ owned all of the roofing manufacturers in NZ. Nobody “sees” it because they’re all different brands and not the main company name. How such got past the anti-monopolization organisation is beyond me but somebody probably said that any body could freely import and thus competition was maintained.

    And much of the world would certainly would be in trouble if the only supplier of that network technology was based in an increasingly aggressive, potentially hostile country.

    It’s not a potentially hostile country – it is a hostile country. Its just using economics to take over instead of bloody war.

    Same result though – impoverishment for other nations while their wealth is funnelled to that nation.

    Many of the chips and components they use come from Chinese factories.

    I’ve said for years that the NZ government should simply build a massive latest tech IC fabrication plant in NZ as a state department. Allow anybody from anywhere in the world to have their chips made there at reasonable prices. You know, just like how China and Taiwan have done.

    After all, a factory in China is no more efficient than a factory in NZ and selling to the world allows for economies of scale.

    From there go on to develop our silicon resources and our rare earths that we have. I was surprised when the Green Partyy leader, James Shaw, suggested it at a rally just before the last election.

    The Chinese government could shut them down whenever it chooses.

    They kinda did a few years ago when they said that they were going to decrease their rare earth exports by 5%. Not a lot but enough to have a significant effect upon world prices. The US and EU took China to the WTO to dispute their being allowed to do that (Really? Don’t they know what a free-market is?). It’s highly likely that they would have won as well but China but China dropped the threatened action.

    China is, last time I looked, the worlds largest exporter of rare earths making up ~95% of the worlds supply. Another near monopoly. The really interesting point though is that the US used to be in the same position so it wouldn’t be beyond the pale for them to produce their own anyway. Again, I’m left wondering if the US knows what a free-market is.

    China’s action on that were possibly testing the waters. Checking to see if their dominance was on schedule.

    The move won’t be good for innovation and will reduce choice for mobile carriers.

    Actually, such a move may be great for innovation. After all, governments have been pushing development of tech for centuries (See https://marianamazzucato.com/entrepreneurial-state/) and they’re actually very good at it – when the capitalists don’t get in the way.

  2. And could argue that western vendors got into trouble during the dot-com boom and bust. Allowing financiers to run them down, export the IP to China and let go of the engineers that were the core business value.

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