Why UK's Huawei decision leaves the fate of global 5G wireless in US hands
The die is cast: In the first test of the post-Brexit alliance, the UK and the EU appear ready to see eye-to-eye on Huawei: Not banning it outright, but limiting its access to their 5G core. Now all eyes are on the US, to see whether its warning against Chinese surveillance can still carry weight.
The epicenter of the global power struggle for a cost-effective wireless infrastructure has been, in recent months, the United Kingdom. The issue of whether the country allows a Chinese supplier into the core of its 5G Wireless telecommunications network is actually less about information security than about geopolitical alliances.
Last Tuesday, the UK Government made what could be the critical decision on the future of 5G as a global standard. It opted to prohibit China's Huawei from participating as a vendor for the core of its wireless networks while allowing it to continue participating as a vendor for the base station, antenna, and radio access equipment outside the core so long as its share of installation did not exceed 35 percent.
It was a quintessentially British decision to straddle the middle of the road, aiming to please everyone at least partway, at the risk of putting off everyone and isolating itself. But no matter how one looks at it, Huawei is certainly not in the clear.
The success of 5G Wireless is greatly dependent upon the continuation of global alliances. Yes, such alliances ensure that a 5G phone that works well enough in one country will work just as well as in another country without its user having to perform some sort of internal surgery. But they also establish very important patterns for the 5G market going forward:
Operating specifications for the components and equipment that will make up the network. This ensures interoperability, the future availability of replacement parts, and the existence of manufacturing processes that don't require exorbitant capital investments. In turn, specifications provide standards for compatible software and make it easier for support and repair personnel to gain the certification and skills they need to apply themselves to any part of the network.
Supply chains with multiple vendors, in a healthy market that keeps prices low and margins high. When individual vendors split a market, they may have locks on their respective customer groups, and they may force those customers to pay arbitrary premiums. But in turn, they diminish the end consumers' interest in the market as a whole, and that has the effect of reducing capital investments from the outside.
Aligned agendas among the infrastructure, support, and device manufacturers. Different countries may have varying frequency bands for their respective 5G buildouts, but that should be the only significant difference that smartphone manufacturers face when producing devices for the North American, European, Asian, and Indian markets. Smartphone makers want their devices to be able to support the latest upgrades to antennas and radio access standards the moment they're deployed.
All of these factors collectively guarantee a low-cost structure for stakeholders, enabling higher margins. Without global alliances, the cost structure breaks down, the economic incentives fracture into dis-joined groups, and the future of the technology itself is placed in jeopardy.
So the UK Government's decision on the involvement of Huawei in its 5G supply chain is a pinnacle event with potentially world-changing repercussions. The UK has been impacted by pressure on three global fronts:
Internally, by a still vocal plurality of citizens who succeeded in breaking the UK from the European Union, and who continue to advocate a further separation from the European Single Market;
From its former EU sister nations, which intend to build this Single Market into an economic institution unto itself, which continue to signal their willingness to let Huawei and other Chinese vendors participate -- and which could collectively render the UK an economic desert island if they were to let the World Trade Organization oversee trade rules;
From the United States, which is currently practicing a weird variation of isolationism that seeks validation for its own foreign trade policies from alliances and "special relationships" with countries that appear willing to exercise the same passive-aggressive principles.
The problem with the US' stake in this affair is that, this time, it lacks the technological prowess to back up its insistences and veiled threats. The current 5G effort was largely launched in China, with Huawei assuming a leading role early on. True, China as a state has financially backed Huawei, leading many to cry foul. But perhaps this is what the rest of the world is truly envious of: Not Huawei's prowess in leaving open a back door for Chinese surveillance, but rather this dual identity as a corporation and a thinly-veiled government department. While US Sen. Mark Warner (D – Va.) has introduced legislation establishing a $1 billion fund for "Western-based alternatives to Chinese equipment providers Huawei and ZTE," a mere billion bucks can't compensate for any single telco's technological prowess.
"The UK has been doing business with Huawei for a long time through Openreach. They had been operating, with oversight, in the country for years," noted Doug Brake, who directs broadband and spectrum policy for Washington, DC-based Information Technology & Innovation Foundation. Openreach, to which Brake refers, is the division of top British telco BT responsible for deploying fiber optic infrastructure. It had been partnering mainly with Huawei until last November, when it began an evaluation process in the search for additional partners.
"So for the UK to come out and publicly brand them as a high-risk vendor, cordon them off to only 35 percent of the access network -- not even let them into the core network," said Brake, "really puts Huawei in a tight box."
For its part, Huawei did what it could Tuesday to thwart any possible interpretation of tightness or a box. Omitting any mention of security or exploiting back doors in the infrastructure, Huawei Vice President Victor Zhang issued a statement, reading in part: "This evidence-based decision will result in a more advanced, more secure, and more cost-effective telecoms infrastructure that is fit for the future. It gives the UK access to world-leading technology and ensures a competitive market."
In what is being widely interpreted as a conciliatory counter-move, the European Union followed up Wednesday morning by issuing a set of regulatory guidelines for its member states -- nations which, beginning this weekend, will no longer include the UK. The EU Government calls these guidelines a "toolbox of mitigation measures," treating it like a multiple-choice set of approaches for responding to 5G security threats. While the EU will continue to publish security guidelines, it will leave decisions over whether Huawei or anyone else meets those guidelines, to each state individually.
"Member states," reads an EU pamphlet on the toolbox published Wednesday [PDF], "should. . . ensure that each operator has an appropriate multi-vendor strategy to avoid or limit any major dependency on a single supplier and avoid dependency on suppliers considered to be high risk."
The toolbox, as the EU insists upon calling it, calls for member states "to take [the] first concrete, measurable steps to implement key measures" by April 30.
The UK's guidance on 5G also focuses on the term "high-risk." But in a surprisingly candid admission, after appearing to set forth the groundwork for declaring Huawei a high-risk vendor (HRV) at some future date, the guidance actually places a call for guidance with regard to defining "high-risk" itself. This term will eventually be formally adopted as part of the country's Telecoms Security Requirements (TSRs), which one should not be surprised to see sometime around the end of April. The guidance reads in part:
The TSRs do not aim to fully mitigate the risks specific to nation state threat actors or high risk vendors. NCSC [the UK's National Cyber Security Centre] considers that the particular characteristics of some vendors can cause increased national risk. NCSC considers, therefore, that the market would be assisted by a clear statement of advice setting out how the presence of a particular vendor may increase security risks, what a high risk vendor is and how to manage the particular security risks presented by those vendors.
Despite leaving that question open, the UK's guidance appears to be in concert with that of the EU. Both sides appear to agree that their main concern is to preserve a multi-vendor approach to market regulation, which would, in turn, reduce the chances of a single vendor clandestinely infiltrating the system on behalf of a nation-state that supports it.
Brake believes the UK's guidance "makes clear to everyone that Huawei is not a company that major operators want to be doing business with, certainly not in major metro areas. I think it's a very reasonable compromise, based on a pretty detailed technical risk assessment... I think the UK got this one right."
Three minus one
One only has to peel away one layer of veneer to uncover the biggest flaw in the UK's and EU's concerted approach: While the "list" of high-risk vendors would obviously be limited to only Huawei, the list of lower-risk vendors would not be much larger. Finland's Nokia and Sweden's Ericsson are the two remaining vendors in the core network equipment space. The US' Cisco currently has a worldwide market share in 4G LTE packet core (the Internet Protocol-based switching system) of about 40 percent by many estimates. But 5G Core is based on a very different, "cloud-native" approach to distributing network functions -- an approach with which Cisco, with its Ultra 5G Packet Core architecture, is already finding itself competitively challenged. To leverage its existing strengths, Cisco has to present its implementation as an architectural alternative to both Ericsson and Nokia.
The EU's revised Electronic Communications Code [PDF], adopted in 2018, is mostly about reducing the amount of regulation required for markets where there are plenty of competitors. Already, EU regulators are disinclined to approve proposed mergers, especially in the telecom space, that would leave markets with as few as three competitors. Excising Huawei from a European or British 5G market for any level of offense could dwindle the number of vendors in various critical market segments down to two. That would trigger regulatory protocols and safeguards that arguably no one wants to see -- not even those who would be doing the regulating.
"Regarding Huawei and security, it's been studied enough to show that there aren't glaring holes and backdoors," remarked Marko Insights principal analyst Kurt Marko, in a note to ZDNet, "although its software quality remains inferior to what one would expect from a Cisco, Ericsson, Arista, etc. The remaining concerns seem to be: (a) developing a monopoly over particular 5G technologies and becoming a sole or predominant source similar to the way Qualcomm dominates mobile radio tech; (b) the potential for future security problems/spying via obfuscated hardware capabilities that might be enabled by a future firmware/software update.
"I haven't heard a cogent theory on how this would work," Marko continued, "which makes changing policies based on some future bogeyman an untenable position. This is where the UK seems to be threading a decent compromise: Keep [Huawei] hardware out of the most critical parts of the network, where a security hole or back door would have a massive blast radius, but allow it elsewhere, since the alternatives are limited and expensive."
Then there's also this little problem: Maintaining a multi-vendor market mix is easy when you're trying to regulate search engines or shampoo. But each vendor in the 5G space contributes one or more parts of a unified network -- parts that, by mandate, must be interoperable with each other.
"A lot of operators have run into real challenges trying to mix equipment," said the ITIF's Brake, "especially communicating between the legacy 4G LTE network and new 5G equipment."
When the 3GPP stakeholder group developed its 5G rollout plans for telcos, the synchronized phasing out of 4G LTE was presented as an "option." It ended up being the only rational way to make 5G happen -- simply building out the new network all at once and throwing a switch on a given milestone day, was never truly feasible for anyone. Thus, interoperability between the two generations has to be maintained.
"That's the real challenge that, especially, Eastern Europe is having," Brake continued, "because they have a lot more legacy Huawei LTE gear. The US has been very effective at communicating the risks of using Huawei gear. But these are private operators in these countries that are already strapped for cash and don't have a good answer for how to transition away from the old Huawei LTE equipment. They need better alternatives, better answers, than this extremely costly proposition of trying to rip out the old LTE, and replace it with 5G from a more expensive vendor."
The issue of interoperability at the radio access network (RAN) level has, in recent months, been tackled by the members of the O-RAN Alliance. Its operator members include all four major US telcos (three if you complete the pairing of T-Mobile with Sprint), plus UK telco BT, France's Orange, Spain's Telefonica, Canada's Bell, India's Jio, Japan's NTT DoCoMo, South Korea's SK Telecom, and China Mobile. A variety of small suppliers also participate, along with Ericsson and Nokia.
Huawei has been conspicuously absent from this group. Last April during the company's analyst summit, Huawei CMO Peter Zhou offered a curious explanation: Open interfaces, he argued, enable their suppliers to encourage manufacturers to implement their own proprietary designs, resulting in unique parts that may fit together, but that leads to vendor lock-in nonetheless.
It's a mirror of the argument made during the 1980s that an "open" PC operating system would lead to non-standardized hardware and expensive parts. That argument failed back then as well.
The front door
Last week, US Treasury Secretary Steven Mnuchin made a last-ditch plea, asking the UK to ban Huawei completely. Then after trade negotiations in London, Mnuchin showed the first signs of having been warned in advance of the UK's decision, declining to offer reporters details specifically about the 5G portion of their discussion, and calling the ongoing matter complicated.
Later, US administration officials told reporters they were "disappointed" by the UK's decision, stopping short of a complete rebuke. For the Senate's part, Sen. Ben Sasse (R – Neb.) issued a legally non-binding statement, likening Huawei to an infection, and firing a shot across the UK's bow: "Our special relationship is less special now that the UK has embraced the surveillance state commies at Huawei. During the Cold War, Margaret Thatcher never contracted with the KGB to save a few pennies."
Sen. Sasse's McCarthy-era rhetoric was contradicted the very next day by US Secretary of State Mike Pompeo who, during a joint panel Thursday with his British counterpart, Foreign Secretary Dominic Raab, said special relationships like theirs give rise to opportunities to discuss disagreements like these over lunch. But then Pompeo took an extraordinary extra step: Wiping clean the entire, original premise of the Huawei threat, replacing it with the basic fact that these would-be 5G leaders are based in China. Said Sec. Pompeo:
This isn't about any one company. This is about a model that the Chinese Communist Party has where they place requirements on these businesses that say thou shalt do, and there's not only a legal requirement but there's deep financial investment. You have senior leaders in these companies that are tied to the Chinese Communist Party. We think that. . . It's not about a technical back door. They have the front door. And so we want to make sure that, when we're thinking about how we're going to structure our networks, we get it right.
No mention was made during the panel of the US' standing threat of tariffs on imported UK automobiles, should Britain go through with its plans to impose a digital services tax. But Pompeo did go on to eliminate any appearance of threats to the UK's continued participation in the so-called "Five Eyes" intelligence cooperative, despite US administration officials having confirmed such a possibility before the President's UK visit last May.
Sec. Raab remarked that, rather than spend so much time focusing on Huawei, the two countries should expand their efforts to encourage and back firms that look to innovate technology as a whole. As one example of such a breakthrough innovator, Raab offered Epic Games, the publishers of Fortnite, whose UK offices the two leaders had visited earlier in the day.
This is what news management looks like: One moment taking a stand in front of the world press against nothing less than what Pompeo called "the central threat of our times," and the next moment leading that same press to watch how cut scenes are edited in a Star Wars game. The latter event comes as arguably the two most importantly allied countries on the planet encounter an infrastructural rift that could very well set their evolutionary course for the next decade. Brexit was supposed to have been the big divorce, yet this may yet become the actual breakup.
What does this mean, however, for 5G and the broader realm of communications technology? The US can no longer rely upon its formerly innate ability, which served it well in the past, to gather and nurture a group of top stakeholders (which would include Microsoft, Apple, Intel, IBM, Cisco, and the usual suspects) all in the name of "openness," but mainly to center the nucleus of development somewhere along the West Coast. When the world's telcos needed a better, more viable wireless infrastructure than 4G LTE, China's emerging tech companies met their needs first.
This, despite the prominent hammer and sickle on the shield, is what democracy looks like. For the US to even maintain a stake at this table, it will have to stop bickering about the seating arrangement.