How Huawei came to rule the 5G World?

The race to install 5G mobile networks reflects a geopolitical rivalry that will determine political and economic fortunes for decades to come. The rollout of 5G networks will mean a very different Internet. 5G or fifth-generation mobile telecommunications is set to connect a vast global network of sensors, robots, and autonomous vehicles through sophisticated artificial intelligence (AI) and machine learning. Standing tall in the middle of all the 5G development is the controversial Chinese giant Huawei. No company in the modern world has faced such political outrage and generates the amount of fear, like Huawei. (The Forbes).

Huawei is now the largest telecom company in the world, overtaking Apple as the world’s second-largest smartphone provider and the world leader of telecom equipment in Europe, Asia, and Africa. But how did a company started in the late 1980s with a meager investment of 21,000 yen has reached to the level of deploying products and services across 170 countries and have infiltrated its way across the major economies of the world? Let’s have a look.

History

Huawei was founded in 1987 by Ren Zhengfei, a former Deputy Regimental Chief in the People's Liberation Army. Initially, Huawei was a contractor for selling, installing and, maintaining server switches and equipment for a Hong Kong dealer in China. In 1992, Ren pushed Huawei to develop the C&C8 server switch, which sold at 1/3 of the price at that time and made the first successful boost of Huawei. Due to the Ren's background, Huawei was rewarded with Chinese government contracts in data center building and telecommunications construction of 4G networks.

Huawei came into the limelight when in 2009, the Swedish phone giant Teliasonera set out to build one of the world’s first fourth-generation wireless networks in some of Scandinavia’s most important—and technologically savviest cities- Oslo and Huawei was chosen to build it. The same year, Huawei landed an even bigger and more unexpected contract to completely rebuild and replace Norway’s mobile phone network, which had first been built by the global standard-bearers: Ericsson of Sweden and Nokia of Finland. “For the first time, people realized Huawei was not just the cheap option but could compete on quality and price,” said Dexter Thillien, a telecommunications analyst at Fitch Solutions. Huawei had announced its arrival at the world stage. (Foreign Policy)

From this point, there was no looking back. In 10 years, revenues increased six-fold from $21.9 billion in 2009 to $121.7 billion in 2019. One study found it supplied 28 percent of global telecoms equipment from Q3 2018 to Q2 2019 — reflecting its combination of increasing technological prowess, decent-quality equipment and, low prices. (Financial Times)

Huawei’s meteoric rise was the result of a broad mix of different policies and decisions—helped along by a few missteps from its Western rivals.

Support from the state: With the support of China’s state-owned development bank, Huawei also has been able to undercut competitors with attractive financing for its products. European investigators have found evidence that Huawei may have received a massive $30 billion line of credit from the China Development Bank, among other well-timed financing. Huawei also aligns with China’s strategic alliance with other countries and it already rules in parts Asia, Africa and, the middle-east. “In the developing world, China is internationalizing Chinese technology standards,” said Ruhlig of the Swedish Institute of International Affairs.

Early Entry: As per its own website, Huawei started to develop its own 5G technology as early as in 2009. In 2013, Huawei hired more than 300 top experts from the wireless industry around the world and announced that they put $600 million investment in 5G research. In 2016, Huawei set up a 5G product line for 5G products. While most of the world leaders in technology were watching, Huawei was making growing leaps and bounds in the 5G space.

Absence of US from the wireless networking industry: The rising global demand for 5G equipment highlights how the United States, a technology leader in other respects, is largely absent from the wireless networking industry. At the dawn of the wireless age 30 years ago, U.S. companies jostled for primacy in wireless networking. Companies such as Motorola and Lucent — an offshoot of the old AT&T monopoly — were sources of innovation, exploring new ways of delivering voice and data wirelessly. It was Lucent, for example, that helped introduce Code Division Multiple Access, or CDMA, a mobile technology that promised to improve the capacity of wireless carriers. But their fortunes declined around the turn of the century as they failed to keep pace with a changing market. No U.S. company stepped in to fill the gap as those companies faded — partly because of the growing strength of foreign alternatives and partly because of the immense scale required to survive in that line of business, according to industry experts.

It puts a focus on Chinese firms such as Huawei, whose rise to prominence has come at the expense of Western networking titans and sparked a global campaign by U.S. officials eager to persuade allies not to allow Chinese equipment into their networks.

To give another perspective on Huawei’s enormous influence, the company’s chief rivals, Nokia and Ericsson, account for 17 percent and 13 percent of the global market for telecom equipment, respectively whereas Huawei enjoys a 29% market share (The Washington Post)

Focus on R&D: Huawei has spent $46.0 billion developing 5G kit and expects to deploy 1.5 million base stations across hundreds of Chinese cities by the end of 2020. Europe has been held back by market fragmentation, but the European Commission is pushing to have an EU-wide commercial roll-out of 5G by the end of 2020 (The Economist)

Huawei has the largest declared 5G patent portfolio (3,325), followed by the South Korean companies Samsung (2,846) and LG (2,463) and the Finnish company Nokia (2,308). As of early 2017, 10% of 1450 patents essential for 5G networks were in Chinese hands in which the majority belong to Huawei and ZTE. It also leads in no. of technical contributions.

Low costs: Support from the Chinese government and manufacturing facilities in China serves as a cost advantage for the firm. Many experts often point out that Huawei is roughly 30% cheaper than Ericsson and Nokia.

Why is the world so scared about Huawei?

No Chinese company is fully independent of its government, which reserves the right to require companies to assist with intelligence gathering. Huawei is even more closely tied to the government than many Chinese firms, as its founder, Ren Zhengfei, is a former technologist in the People’s Liberation Army. As his company grew, so did international concerns about whether Huawei equipment could be used to spy on companies and governments around the world. Telecom is imbibed in our day to day lives and is used in military and political communications. Presence of Huawei in the country’s telecom infrastructure raises potential security threats of information being passed out to Chinese authorities.

As far back as 2003, the company was accused of stealing intellectual property, including from U.S.-based network hardware maker Cisco. The companies settled out of court, but Huawei has been accused of stealing other firms’ intellectual property and violating international economic sanctions. Throughout 2018, a flurry of activity has signaled the level of concern in the international intelligence community, and pressure on the company – and other Chinese technology firms – has mounted.

In February 2018, the heads of six U.S. intelligence agencies told a Senate committee they didn’t trust Huawei or its rival ZTE, which is also based in China, and would recommend Americans not use the company’s smartphones or other equipment. The company has been since on target of President Donald Trump who has led the global uproar against the firm. (The Conversation)

On July 17, 2018, the intelligence chiefs of the U.S., Canada, the U.K., Australia and, New Zealand reportedly met in person, in part to make plans to publicize their concerns about allowing Huawei equipment to operate in their countries and governments. It was followed by bans in the coming months. Later in the year Meng Wanzhou, Huawei’s chief financial officer and Ren Zhengfei’s eldest daughter had been detained by Canadian officials while transferring between flights at Vancouver airport. The arrest had come at the request of the US, who accused her of breaking sanctions against Iran.

More recently, the UK has become the latest country that banned its mobile providers from buying new Huawei 5G equipment after 31 December and they must also remove all the Chinese firm's 5G kit from their networks by 2027. The US seems content with this symbolism. “The UK joins democracies such as the Czech Republic, Denmark, Estonia, Latvia, Poland, Romania, and Sweden in banning Huawei from future 5G networks,” US Secretary of State Michael R. Pompeo said.

Stepping back, there is a reason why Huawei equipment must not be used for 5G in the UK in this particular case, but across the democratic world in general – China’s National Intelligence Law. Enacted three years ago on 27 June 2017, this law turns citizens, organizations and corporations of China into intelligence-gathering instruments for the Chinese state. “All organizations and citizens shall support, assist, and cooperate with national intelligence efforts in accordance with the law, and shall protect national intelligence work secrets they are aware of,” states Article 7 of the law, for instance. (The Print)

The world is waking up to China’s intentions to dominate the 5G telecommunications field amidst the coronavirus pandemic, unrest in Hong Kong, a standoff with India and other efforts by Beijing to "conceal, coerce and co-opt the world,".

Under Secretary of State for Economic Growth, Energy and the Environment Keith Krach told reporters that Huawei’s deals with the telecommunications operators around the world are evaporating because countries are only allowing trusted vendors of 5G networks. (Livemint)

It is also facing increasing headwinds in Asia with Singapore becoming the latest country that has partnered with European makers Ericson and Nokia for the high-speed internet infrastructure. (Nikkei Asia Review)

Reading the actions of the Chinese state, its National Intelligence Law, and the intrusive nature of 5G together, it is a no-brainer for any and every democracy to ban Huawei equipment in their 5G rollouts. The recent idea of a D10, a group of 10 leading democracies (G7 plus South Korea, India, and Australia) for addressing both 5G mobile communications and vulnerable supply chains, is a step in that direction.

Howsoever efficient the technology, however inexpensive its products or innovative its offerings, a company like Huawei will be submerged by its Chinese nationality.