What the controversy over Huawei and 5G is all about

by Peter Griffin / 12 March, 2019
Huawei’s prominent stand at the 2019 Mobile World Congress in Spain. Photo/Getty Images

Huawei’s prominent stand at the 2019 Mobile World Congress in Spain. Photo/Getty Images

RelatedArticlesModule - Huawei 5g

As politicians grapple with the question of whether to let the world’s biggest mobile-phone technology provider, Huawei, be involved in our 5G network, Peter Griffin investigates how the company has landed in the proverbial.

Chinese company Huawei, which has 180,000 employees and supplies networking equipment used by three billion people, was everywhere to be seen last week in the Spanish city of Barcelona, host to the annual Mobile World Congress.

In eight pavilions the size of football fields, the world’s networking and mobile-phone companies joined in a hypefest focused on the technology of the moment – 5G, the fifth generation of cellphone technology.

The 5G networks that will be switched on around the world from later this year will offer connection speeds dozens of times faster than current technology. That means using your phone for broadband speeds you presently enjoy on a fixed-line fibre connection, more impressive mobile gaming and streaming video services.

Further down the track, 5G will connect smart cities and driverless cars, creating an “internet of things” network, a web of connected devices.

Billions will be invested in building 5G networks and the phones that run on them in the coming years. But the company leading the charge to 5G could be left out of the picture as it faces the prospect of a ban on its technology in the US being extended across the world, from the UK and Germany to Australia and New Zealand.

In November, the Government Communications Security Bureau (GCSB) said it had identified major network security risks with Huawei, which phone company Spark plans to contract to build a 5G network next year.

That mirrored assessments from intelligence agencies in Australia, Germany and the UK, where a special oversight committee had already been established to scrutinise Huawei’s technology.

An anti-Huawei protester outside the Supreme Court as her hearing continues. Photo/Getty Images

An anti-Huawei protester outside the Supreme Court as her hearing continues. Photo/Getty Images

It looked like the Five Eyes security alliance (comprising Australia, Canada, New Zealand, the UK and the US) closing ranks on a rival that had gained a technological lead. Then, in December, Huawei’s chief financial officer, Meng Wanzhou, was arrested in Canada on grounds that she had duped banks into violating Iran sanctions. The US is trying to extradite her in what appears to be part of an escalating economic and technological power struggle between two of the world’s superpowers.

Prime Minister Jacinda Ardern has had a struggle of her own trying to maintain relations with China while rejecting one of its most successful companies.

“I don’t think anyone expected this to get as big as it did, as quickly as it did,” says Andrew Bowater, Huawei NZ’s deputy chief executive, who was in Barcelona for the Mobile World Congress.

“We’d had issues in Australia and the US. But New Zealand was quite a surprise for us, particularly because we’d had really good engagement with the Government and the GCSB.”

The intelligence agencies have never publicly detailed their concerns about Huawei’s technology, but the clear implication is that they fear the global reach of the Shenzhen-based company could aid the Chinese Government in spying and cyber espionage.

“It’s just not real,” Bowater says. “We’ve gone through all this extra scrutiny, analysis and evaluation through the [Huawei Cyber Security Evaluation] centre in the UK to prove that there are no wormholes back to China, there are no backdoors in the coding or anything like that.”

Arrested Huawei boss Meng Wanzhou. Photo/Supplied

In the event of war

Another concern security experts point to is the potential for China to direct Huawei to disable other countries’ critical telecoms infrastructure in the event of war breaking out.

“We don’t have access to our customers’ networks on a day-to-day basis. We deliberately separate ourselves,” Bowater says. “Spark would march us off the premises tomorrow if it thought we were doing that.

“If there was some great dossier of evidence against us, then it would have been presented by now. It’s clearly not about any technical issues.”

So, if there’s no smoking gun, no concrete evidence of gaping security flaws or interference from Beijing, what’s really behind the antipathy towards Huawei?

Bowater is well placed to understand the political dimension involved. He spent five years working as a private secretary in the Prime Minister’s Office, under Helen Clark, before his move into the telecoms industry.

He sees the issue stemming from our largest security ally’s realisation that it doesn’t own any of the technology that will underpin the next technology revolution.

Three companies – Huawei, Finland’s Nokia and Sweden’s Ericsson – control more than half the mobile infrastructure market between them. US networking company Cisco is a big player in networking and Qualcomm makes the chipsets in mobile phones. But the US hasn’t had a dominant mobile-equipment maker since New York-based Lucent was bought by French company Alcatel in 2006. It was subsequently absorbed into Nokia in 2016.

“America’s pretty good at protectionist approaches to the market,” says Bowater. “Suddenly, the biggest player in this market is from China. It is probably an admission from some of the authorities around the world that they’ve taken their eye off the ball.”.

If Huawei is blacklisted as a 5G network provider, it could have major implications for the economics of New Zealand’s mobile industry as it looks to invest in the new technology.

In little more than a decade, Huawei has become the biggest player in telecommunications hardware here. It built Spark’s 4G network, provides fixed-line equipment for Vodafone, and its technology underpins about a third of the Government-funded ultrafast broadband network.

But it was Huawei’s role in constructing 2degrees’ $550 million mobile network in 2009 that paved the way for those other infrastructure projects and finally allowed a third mobile player to break the cosy duopoly of Telecom (Spark) and Vodafone.

“We were critical to 2degrees’ success in the market,” says Bowater. “It was really battling to get off the ground for years.”

Key to making it work was Huawei providing loans to 2degrees at favourable terms – so-called vendor financing – so it could buy Huawei’s equipment.

“No one else would do it,” Bowater says.“We wouldn’t be in the market without 2degrees, and it wouldn’t be there without us.”

Huawei NZ’s deputy chief executive Andrew Bowater. Right, Vodafone chief executive Nick Read. Photo/Getty Images/Supplied

Huawei NZ’s deputy chief executive Andrew Bowater. Right, Vodafone chief executive Nick Read. Photo/Getty Images/Supplied

Tiny mobile data caps

A decade ago, we paid up to 20c to send a text, faced high per-minute calling rates and paid through the nose for mobile data. Now, thanks to the competition that 2degrees stimulated, our texting, calling and data charges are mostly “below average” compared with those in other OECD countries, according to the Commerce Commission.

Initially, moving to 5G will involve mobile operators overlaying the new technology on their existing 4G networks. But if Spark and 2degrees are forced to buy from Huawei’s competitors, the path to 5G will be a lot more complicated and expensive.

Ultimately, the costs of a Huawei ban would be passed on to phone users, and some 5G services could be slower to arrive.

Nick Read, chief executive of Vodafone, the world’s second-largest mobile network operator, said as much on the opening day of the Mobile World Congress.

“If we concentrate it down to two players, that’s an unhealthy position not just for us as an industry, but also for national infrastructure in the country,” he told journalists.

For Huawei, the axe now hovers over its New Zealand business, which will dwindle if it is prevented from providing 5G technology. It did nearly $151 million of business in New Zealand in 2017, $180 million the year before and employs about 150 people locally.

“Undoubtedly, it is going to have an impact, having a big question mark hanging over us like this and accusations out there,” says Bowater. “Our brand has been sullied. There have been go-slows on certain projects.”

Some of Meng Wanzhou's Canadian supporters. Photo/Getty Images

Some of Meng Wanzhou's Canadian supporters. Photo/Getty Images

Challenge for the crown

Huawei’s mobile-phone handset business has also grown rapidly in New Zealand and so far seems unaffected by the controversy surrounding the mobile infrastructure side of the business. Samsung survived a global crisis in 2016 when some of its Note 7 smartphone batteries caught fire or exploded. Airlines soon issued a ban on travellers taking the device on board.

A massive product recall ensued. Although costly, the effect on the Samsung brand was negligible. It is still the market leader in phones around the world. If anything, that crown is now being challenged by Huawei, which has leapt ahead in the past two years in handset design, with devices such as the P20 Pro and Mate 20 offering sophisticated cameras and screen technology more cheaply than Samsung and Apple.

Huawei’s image and business fortunes may now rest on what happens in the coming months. The GCSB has left the door open to Spark to submit a new application for its 5G network build with Huawei still in the picture, but there’s no guarantee the result will be any different.

In a bid to placate our intelligence agency, Huawei has offered to replicate the UK arrangement, which would allow the GCSB ongoing oversight and scrutiny of its technology.

“We are open to that. The UK centre has worked really well,” says Bowater. “It has never found any evidence of counter­espionage or spies hiding under tables.”

Also on the table is the removal of Chinese nationals from being involved in building the network. That could deal with concerns about China’s new National Intelligence Law turning citizens into potential moles for the state.

Passed in 2017, the law states that Chinese “organisations and citizens shall, in accordance with the law, support, co-operate with, and collaborate in national intelligence work”. That created a huge red flag for the Five Eyes security alliance.

“Our legal advice is that that law applies only to China,” says Bowater. “But if that is one of the issues, we are up for ring-fencing whole areas of work away from anyone with a [Chinese] passport.”

Issues to address

Huawei has also said it will spend US$2 billion to improve its software-engineering processes. That suggests at least some concerns raised by UK intelligence agencies are warranted. Bowater admits there are issues to address, some of which will take time to resolve, but argues that flaws would be identified in any technology provider that was subject to such close attention.

“That’s part of opening yourself up to scrutiny. It’s having your dirty laundry aired.”

In a letter to the UK House of Commons science and technology committee in February, Huawei told politicians the issues could take up to five years to address.

“Enhancing our software engineering capabilities is like replacing components on a high-speed train in motion,” the president of Huawei’s carrier business group wrote.

“It is a complicated and involved process, and it will take at least three to five years to see tangible results. We hope the UK Government can understand this.”

A report released last July by the UK’s National Cyber Security Council pointed to technical issues that prevented its security researchers from being able to properly vet Huawei’s software code and also fingered security concerns with third-party components, supplied, ironically, by a US company.

In mid-February, it emerged that the British security agency believed the security threats posed by Huawei could be mitigated if the company committed to making those changes. It signalled an apparent break from the prevailing stance of the Five Eyes pack and offers a glimmer of hope for the company.

The GCSB and, by default, the Prime Minister herself will have to walk back their tough stance on Huawei if we are to see 5G rolled out in a similar time frame to other countries’.

Showcase the technology

Spark is targeting a 5G network launch next year and wants to showcase the technology at the America’s Cup in March 2021. Spark’s plans for 5G include using it to expand on its wireless broadband service, which lets users access the internet without a home-line connection.

Across the Tasman, Optus and Telstra will roll out 5G later this year. But our Government is yet to allocate the radio spectrum that mobile operators will need to run 5G services.

The slower path to 5G here may turn out to be a blessing for Huawei as it buys time to fight for its survival.

Says Bowater: “We are not stupid. We realise by being a company headquartered in China, there are going to be issues, particularly when it comes to important new infrastructure. But the Government needs to realise this is much bigger than one project down at the bottom of the world in New Zealand. The whole world is looking at what is going on.”

Peter Griffin attended 2019 Mobile World Congress as a guest of Oppo.

This article was first published in the March 9, 2019 issue of the New Zealand Listener.

MostReadArticlesCollectionWidget - Most Read - Used in articles
AdvertModule - Advert - M-Rec / Halfpage

Latest

Vincent O’Malley: Why we need to open up about past Māori and Pākehā conflict
106234 2019-05-26 00:00:00Z History

Vincent O’Malley: Why we need to open up about pas…

by Sally Blundell

Calls are growing for us to take a more honest look at our past, particularly the wars over land and power that shaped the country.

Read more
Scott Morrison: How a 'doomed' PM stormed the country with one killer line
106291 2019-05-26 00:00:00Z World

Scott Morrison: How a 'doomed' PM stormed the coun…

by Bernard Lagan

As Australia’s tourism tsar 13 years ago, Scott Morrison oversaw the rollicking “So where the bloody hell are you?’’ ad campaign.

Read more
What you need to know about knee replacements
105774 2019-05-26 00:00:00Z Health

What you need to know about knee replacements

by Ruth Nichol

Replacement knee joints are giving thousands of Kiwis decades of service, but don’t rush to get one.

Read more
How a hit romcom took indigenous Aussie star Miranda Tapsell back to her roots
106072 2019-05-25 00:00:00Z Movies

How a hit romcom took indigenous Aussie star Miran…

by Russell Baillie

Miranda Tapsell tells Russell Baillie how she came up with Top End Wedding and why its Northern Territory setting means so much.

Read more
The link between cardiovascular health and dementia
105915 2019-05-25 00:00:00Z Health

The link between cardiovascular health and dementi…

by Nicky Pellegrino

New research into the brain has found that cardiovascular ill health is linked to cognitive decline and dementia.

Read more
Following the call of New Zealand's abandoned freezing works
106317 2019-05-25 00:00:00Z Life in NZ

Following the call of New Zealand's abandoned free…

by John Summers

John Summers wonders if his abiding interest in New Zealand’s abandoned freezing works is actually a long farewell to his grandfather.

Read more
Tech Week: Time to celebrate Aotearoa’s own overlooked moonshot
106359 2019-05-25 00:00:00Z Tech

Tech Week: Time to celebrate Aotearoa’s own overlo…

by Peter Griffin

“We bow down to this idea of Elon Musk or Jeff Bezos going to Mars, when here in our own country, we had the equivalent."

Read more
Kiwi composer John Rimmer: An instrumental figure
106331 2019-05-24 11:09:35Z Music

Kiwi composer John Rimmer: An instrumental figure

by Elizabeth Kerr

Contemporaries and students are paying tribute to composer John Rimmer and his musical legacy.

Read more