Last year, Britain’s Vodafone handed China’s Huawei its “Supplier of the Year” award, implying the two telecoms giants were united as long-term strategic partners. This year, Vodafone has had a change of heart.
The signal came on Friday when Vodafone, the biggest mobile communications company outside of China, with a stock market value of $64-billion, announced that it would “pause” the purchase of Huawei equipment for its 5G network core systems in Europe.
Vodafone’s move came after several European countries, apparently under U..S. pressure, revealed that they would suspend, cancel or review their purchases of Huawei equipment because of security concerns, and almost two months after Sabrina Meng Wanzhou, Huawei’s chief financial officer and the daughter of Huawei founder Ren Zhengfei, was arrested in Vancouver in connection with U.S. allegations that the company violated restrictions on the sale of technology to Iran.
The backlash against Huawei has been dubbed the “U.S.-China tech cold war” by Eurasia Group, an international political risk consultancy. In a recent report, Eurasia’s Paul Triolo said the cold war will lead to “two separate, politically divided and potentially non-interoperable 5G technology spheres,” one developed by Silicon Valley, the other by China.
Europe has emerged on the front lines of the tech cold war as Huawei and some Chinese rivals, blocked from doing business with government agencies in the United States, focus their efforts on European Union countries as they spend fortunes on 5G networks. The European Commission has estimated that the cost of installing 5G networks and its associated fibre infrastructure across the EU at €500-billion ($758-billion).
On Sunday, two days after Vodafone suspended Huawei from its 5G rollout in the EU, China’s ambassador to the EU, Zhang Ming, warned that the EU would face “serious consequences” for economic and scientific co-operation if it excluded Chinese companies from 5G projects. “Now someone is sparing no effort to fabricate a story about Huawei,” he told the Financial Times. “I do not think this story has anything to do with security.”
His quote seems to imply that the American and European resistance to Huawei might have more to do with stalling its lead in 5G technology while European and U.S. tech companies catch up. The most important sellers of 5G gear are Ericsson of Sweden, Nokia of Finland, Huawei and ZTE of China, and Samsung of South Korea. U.S. companies – among them Qualcomm, Intel, Broadcom, Cisco and Interdigital – while big, are farther down the list.
China has used low prices, lobbying power and a charm offensive, which included sponsoring research at Cambridge and Oxford universities, to crack the Europe market for 3G, 4G and 5G networks. Mr. Triolo, of Eurasia Group, said that he expects the American-led efforts to exclude Huawei from Western networks to ramp up and that “the push for a China-free 5G alternative is likely to delay 5G deployment in some countries.”
The Huawei backlash began in 2012, when a U.S. House of Representatives intelligence committee determined that the company was a security risk and recommended that government and private companies stop buying its networking gear. On Monday, The New York Times reported that the White House has been drafting an executive order that would effectively ban American companies from using Chinese telecoms network equipment (the existing ban affects government networks only).
Australia last year banned Huawei and ZTE from supplying 5G networks, and resistance to using Huawei equipment quickly spread to Europe. In late 2018, British telecoms company BT Group said it would strip Huawei equipment from its core networks and replace it with competitors’ equipment. The move came a few months after a British government oversight board identified “shortcomings in Huawei’s engineering processes that have exposed new risks” in British networks. Huawei said it would fix the issues identified by the board.
Deutsche Telekom, one of the world’s biggest phone companies, was next, announcing last month that it was re-evaluating its procurement strategy in light of the security concerns around Huawei. In a statement, the company said “Deutsche Telekom takes global discussion about the security of network elements from Chinese manufacturers very seriously.”
Losing Deutsche Telekom would come as a huge blow to Huawei. The German company has been one of Huawei’s biggest customers, having installed its equipment in cloud products and in thousands of phone towers. Huawei equipment is already in operation in Deutsche Telekom’s 5G networks in Berlin and Warsaw.
There is no sign the anti-Huawei backlash is set to fade away. Norway’s telecoms ministry is reviewing its network requirements and Belgium’s cybersecurity agency is reportedly thinking about banning Huawei. The Czech Republic has banned the use of Huawei mobile devices in its government ministries.
The arrest two weeks ago in Poland of a Huawei employee on espionage charges only boosted suspicions that the company might be closer to the Chinese government than is widely believed and might be capable of building “backdoors” into its products that could be used for spying. Last year, an academic paper published by U.S.-based Military Cyber Affairs concluded that last year, for six months, internet traffic from Canada to South Korean government sites was "hijacked by China Telecom and routed through China.”
Huawei has denied all accusations that it spies on behalf of the Chinese government. Two weeks ago, in a rare public appearance, Mr. Ren, the Huawei founder, said Huawei would never violate a client’s privacy. “I love my country, I support the Communist Party of China, but I will never do anything to harm any other nation,” he said through an interpreter.