Economist Interview with Ren: Huawei may sell its 5G technology to a western buyer

Ren Zhengfei wants to create a competitor for his company.

5G technology—central to Huawei’s future revenue growth—is what founder and CEO Ren said he was ready to share, in a two-hour interview with The Economist on September 10th.

For a one-time fee, a transaction would give the buyer perpetual access to Huawei’s existing 5G patents, licences, code, technical blueprints and production know-how. The acquirer could modify the source code, meaning that neither Huawei nor the Chinese government would have even hypothetical control of any telecoms infrastructure built using equipment produced by the new company. Huawei would likewise be free to develop its technology in whatever direction it pleases.

Mr Ren’s stated aim is to create a rival that could compete in 5G with Huawei (which would keep its existing contracts and continue to sell its own 5G kit). To his mind, this would help level the playing field at a time when many in the West have grown alarmed at the prospect of a Chinese company supplying the gear for most of the world’s new mobile-phone networks. “A balanced distribution of interests is conducive to Huawei’s survival,” Mr Ren says.

No kidding. A months-long assault by America has pummelled the firm, whose global networks it suspects of allowing China to spy on others. America has also attempted to press allies not to use Huawei’s equipment as they begin to build their own 5G networks. In May American companies were barred from selling components and software to Huawei on the grounds that it posed a national-security risk. Last month America restricted government agencies from doing business with it (the firm is challenging this ban in court).

At first glance, Mr Ren’s gesture has much going for it. If the sale eventually gave rise to a thriving competitor, countries such as Australia (which has banned Huawei’s gear) would no longer have to choose between, on the one hand, technology in their networks that is both cutting-edge and cheap, as Huawei’s is, and, on the other, fears of Chinese eavesdropping. They could have the best technology from an ally instead. Decisions on the purchase of telecoms equipment could then return from politicians to pragmatic boardrooms.

The gesture may also convince those suspicious of Huawei’s tech that the firm’s business intentions are hard-nosed. Mr Ren says money from the deal would allow Huawei to “make greater strides forward”. The value of the firm’s entire 5G technology portfolio, if it were sold, could run to tens of billions of dollars. In the past decade the company has spent at least $2bn on research and development for the new generation of mobile connectivity.

In saying he wants to create a fairer technological race, Mr Ren is also attempting to dissociate American security fears from those of Huawei’s market dominance. His offer is “essentially calling their bluff”, says Samm Sacks of New America, a think-tank in Washington, DC. As she points out, America’s government is working out how to create a rival to Huawei, whether by fostering American firms or helping bolster its two main global competitors, Ericsson, a Swedish firm, and Nokia, a Finnish one. Moves are also afoot to make certain components of mobile networks interchangeable with each other, to let carriers mix and match suppliers more easily. OpenRAN, a standards body, wants infrastructure manufacturers like Huawei to agree on standards for the technology in their networks that shuttles data around to ease interoperability. Huawei has so far declined to join.

Yet questions over the feasibility of the deal abound. Would China accept hiving off a core part of one of its few globally powerful corporations? For better or worse, 5G has become a proxy for superpowerdom. As Mr Ren told The Economist, “5G represents speed” and “countries that have speed will move forward rapidly. On the contrary, countries that give up speed and excellent connectivity technology may see economic slowdown.”

Even if the Chinese state gave its blessing, who might be the buyer? Mr Ren says he has “no idea”. Analysts suspect that giants such as Ericsson and Nokia would balk at an offer out of pride, and would question the value of Huawei’s tech. (Having posted losses last year, they are also short of cash.) The technology may not help a smaller firm compete on an equal footing with Huawei. The Chinese firm is so well entrenched with big operators, say consultants, that it would not make financial sense for most of them to take on a new supplier. Samsung, a South Korean electronics giant, has deep pockets and a smallish but growing networking-gear business—and without rival bidders, it could drive a hard bargain. A consortium of buyers is possible; who would make one up is unclear, however.

Suitors may be put off by other considerations. If Huawei really is ready to transfer the entirety of its technology to another company, then, as Mr Wang points out, “it has to accept the risk of a major competitor in the future.” But Huawei’s dominance owes as much to technology as to its low prices and the speed at which it can roll products out, says Ms Sacks. Its willingness to serve places Western firms steer clear of is also a factor: who else besides Huawei would wade through malarial swamps in Africa and haul base stations up the flanks of Colombian mountains? Mr Ren knows this. Asked whether he thought that an American firm, with Huawei’s precious know-how in hand, would be able to pull it off, he said, with swagger, “I don’t think so.” But potential buyers know it, too.

Lastly, few believe that a sale would placate America’s national-security apparatus, at least in the short run. A new competitor would almost certainly still need to make equipment in China, which makes half of America’s telecoms kit. Concerns about Chinese meddling would not go away. And Huawei’s latest offensive is not all charm. Last week it accused American officials of committing infractions while posing as Huawei workers, in order to “bring unsubstantiated accusations against the company”. It also accused America’s government of targeting it with cyber-attacks. That may sour relations.

Could Mr Ren’s proposal, then, be a sign of desperation? Not a bit of it, he says. He claims that Huawei has found alternative suppliers for its network-infrastructure business that are unaffected by its blacklisting by America. He denies that the company will make a loss in the coming year.

Nonetheless, the consumer business is under pressure. Half of the company’s $105bn in sales last year came from the 208m smartphones it sold around the world. So did an outsized share of profits. This business is in deep trouble. Phones that Huawei sells outside China are desirable communication devices largely thanks to proprietary software available exclusively from Google. Android, Google’s mobile operating system, which Huawei uses, is open-source and freely available. But the American tech giant’s own apps are not. Because Google is American and its apps are compiled in America, the Commerce Department’s ban on sales of American technology to Huawei applies to them.

Mr Ren says that Google has been lobbying the Trump administration to allow it to resume supplying Huawei with proprietary Android software, but so far to no avail. Unless American policy changes, Huawei will remain stuck with the open-source version of Android, without any of the apps that consumers have come to expect. The Chinese firm is in the process of developing its own operating system, Harmony OS, but it will be no rival to the mature Android ecosystem for years to come.

This means that all new Huawei phones will ship without Gmail, Google Maps, YouTube or, crucially, Google Play Store. The Play Store is what allows Android users to download apps like Whatsapp, Instagram and Facebook easily. WhatsApp in particular has become a standard mode of communication in much of the world outside America. Unless its government lets up, Huawei’s new smartphones will be little more than decent cameras that make phone calls. The firm will launch the Mate 30, the first top-end phone since its blacklisting, on September 19th in Munich. Huawei claims its hardware features will buoy sales. But a phone which lacks basic functions is unlikely to be a hit. A weakened consumer business would dent profits.

Huawei’s share of the Chinese smartphone market, where it has never relied on Google’s apps, is growing fast. But two-fifths of its annual phone sales, or roughly $20bn, come from outside the country. Though the firm’s executives repeatedly declined to share any projections, firm-wide revenue growth in the nine months to August slowed to 19%, year on year, from 23% in the first half of 2019. If the Mate 30 and its successors flop, Huawei stands to lose billions of dollars in annual revenue.

Similar supply-chain challenges affect other parts of its business. Its coders are busily writing Huawei’s own version of software tools known as compilers and libraries, themselves used to create the software that powers all manner of electronic devices, not just smartphones. As with Android, Huawei would have to create its own version of these, and a technological ecosystem around them. Such ecosystems take years to evolve, and there is only so much one company can do to stimulate this evolution, which relies on third-party developers, with their own goals and incentives. Huawei’s expertise in high, hard technology is of little use here.

And, Mr Ren’s assurances notwithstanding, Huawei’s finances are being squeezed. Even he concedes that its relations with large Western banks such as HSBC and Standard Chartered have been disrupted. Still, the firm has plenty of cash and he says that smaller banks remain willing to lend to Huawei. The Chinese Development Bank, which has reportedly extended credit lines to Huawei and ZTE, a Chinese competitor, in the past, may stump up if needed. Mr Ren and his underlings repeatedly claim that cashflow is “healthy”, pointing to the firm’s furious building work. It has just finished a 120 hectare, $1.4bn research campus.

Huawei is being forced to transform itself from a company that makes and sells hardware into one that also makes many components that it used to buy from others. This kind of shift strains a firm. Its cash cow is under threat even as it has to invest heavily to replace the suppliers and software it can no longer get from America. Mr Ren might hope that his proposed sale of Huawei’s 5G technology will give him sufficient fuel for Huawei to fly ever higher. But peer behind the showy frescoes in Shenzhen, and his showier gesture, and Huawei’s future looks decidedly hazy.

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7 thoughts on “Economist Interview with Ren: Huawei may sell its 5G technology to a western buyer

  1. I think this is fascinating stuff! I think that CEO Ren’s offer to sell a snapshot of Huawei’s technology is more of a challenge to concerns about secret back doors than something that Huawei hopes will happen.

  2. In an interview with The New York Times, Ren affirmed that Huawei is open to sharing its 5G technologies and techniques with U.S. companies, “so that they can build up their own 5G industry.”

    “This would create a balanced situation between China, the U.S. and Europe. The U.S. side has to accept us at some level for that to happen,” Ren added.

    Ren also stressed that American companies “can also modify Huawei’s 5G technologies to meet their security requirements.” They can even “change the software code. In that case, the U.S. will be assured of information security,” he said.

    At present, Huawei’s main rival companies are Finnish firm Nokia and Swedish vendor Ericsson, and South Korea’s Samsung and China’s ZTE are other alternatives for carriers seeking to deploy 5G networks.

    American companies including Cisco, Dell EMC and Hewlett Packard Enterprise have developed 5G-related technologies, but the country lacks a specialist in 5G infrastructure.

    “If the U.S. reaches out to us in good faith and promises to change their irrational approach to Huawei, then we are open to a dialogue. The U.S. shouldn’t try to destroy Huawei over something trivial. If the U.S. feels we have done something wrong, then we can discuss it in good faith and find a reasonable solution. I think we can accept that approach,” Ren said.

    “There are no restrictions on what we would be willing to discuss with the Department of Justice,” he added.

    He also said that in the event that the U.S government do not trust Huawei to install its 5G gear across the country, the company is ready to license the entire Huawei 5G platform to any American company that wants to manufacture it and install it and operate it, completely independent of Huawei.

    In May, the U.S. Department of Commerce added Huawei to its Entity List, a decision that effectively banned the company from buying parts and components from U.S. companies without U.S. government approval. Under the order, Huawei will need a U.S. government license to buy components from U.S. suppliers.

  3. NY Times editorial by Thomas L. Friedman

    After a week of interviews in Beijing, Shenzhen and Hong Kong, I’ve come away with some strong feelings about the United States-China trade dispute. There are two battlefronts: One is the negotiation to eliminate the barriers to American companies competing in China, and the other is what to do about Huawei, China’s enormous telecom networking company that Beijing sees as a crown jewel of national innovation and the Trump team sees as a giant global espionage device.

    Get to know that name — Huawei. The issues it represents are as important as all the rest of the trade talks combined.

    On the pure trade battlefront, I left China feeling that there’s a decent chance a limited deal — rolling back some American tariffs in exchange for a resumption of certain Chinese purchases, particularly of agricultural products, from the United States — can be reached in the near term. Both sides could use such a deal.

    I also left feeling, though, that President Xi Jinping is less likely to sign on to the kind of grand bargain, and broad concessions, that President Trump is demanding. That’s in part because Xi would get too much pushback from his state-owned industries and Communist Party hard-liners. But it’s also because months of impulsive Trump threats, tariffs, praises and then more threats have clearly led a lot of Chinese officials to conclude that Trump is an unstable character who always has to be seen to “win” and humiliate the other side, and therefore can’t be counted on for a big win-win deal — or even to stick to it if one were agreed on. Better to let the talks drag on.

    Looming over all of this, though, is how to deal with Huawei, the world’s largest manufacturer of 5G networking equipment and the second-largest smartphone maker in the world, after Samsung and ahead of Apple.

    Depending on whom you believe, Huawei is either a scrappy telecom that fought its way to the top since its founding in 1987 with over $100 billion in sales today, a cowboy capitalist that made its way up by stealing the technology of others, or a giant worldwide listening device for Chinese intelligence that needs to be blocked from ever installing equipment in the United States and uprooted from our allies.

    ‘There are no restrictions on what we would be willing to discuss with the Department of Justice.’

    Imagine China telling Apple that it can never make or sell another phone in China or in any of China’s Asian trading partners, which is the rough equivalent of what Trump has told Huawei in America. I don’t know if it is justified or not — I would need access to American intelligence — but I do know it’s worth an effort to defuse the Huawei crisis. Otherwise we’re heading for a two-technology world, with a Chinese zone and an American zone, and a digital Berlin Wall running right down the middle.

    That is why I was happy to accept the invitation of Huawei’s founder and chief executive, Ren Zhengfei, to come to his company’s headquarters in Shenzhen for a rare interview, which he used to — for the first time — propose negotiations with the Justice Department to try to resolve all the outstanding issues between Washington and Huawei.

    Ren told me: “If the U.S. reaches out to us in good faith and promises to change their irrational approach to Huawei, then we are open to a dialogue. The U.S. shouldn’t try to destroy Huawei over something trivial. If the U.S. feels we have done something wrong, then we can discuss it in good faith and find a reasonable solution. I think we can accept that approach.”

    He added for emphasis, “There are no restrictions on what we would be willing to discuss with the Department of Justice.”

    And if the United States — which has no indigenous 5G networking manufacturer — still does not trust Huawei to install its equipment across America at scale, added Ren, then he is also ready, for the first time, to license the entire Huawei 5G platform to any American company that wants to manufacture it and install it and operate it, completely independent of Huawei. (The only other 5G major suppliers are Nokia and Ericsson, European companies whose products are far more expensive than Huawei’s.)

    Huawei, Ren said, is “open to sharing our 5G technologies and techniques with U.S. companies, so that they can build up their own 5G industry. That would create a balanced situation between China, the U.S. and Europe.” But, he added, “the U.S. side has to accept us at some level for that to happen.” American companies “can also modify our 5G technologies to meet their security requirements.” They can even “change the software code. In that case, the U.S. will be assured of information security.”

    This is clearly an olive branch, and for a reason: Huawei burst into American consciousness when Meng Wanzhou, its chief financial officer — and Ren’s daughter — was put under house arrest in December 2018 by Canadian authorities while on a trip there, after the Justice Department sought her extradition because of alleged violations by Huawei of American sanctions on Iran. She has denied the charges.

    (While she has been awaiting extradition to the United States in a Vancouver mansion, though, China has detained two Canadians, in solitary accommodations and under brutal conditions, so as to force an exchange. Canada has stood with the United States and refused.)

    In January, American prosecutors gained the indictment of Meng and Huawei on 23 counts, ranging from wire fraud to conspiracy to defraud the United States to stealing trade secrets. Then in May, the Department of Commerce put Huawei and 70 of its affiliates on its “Entity List,” or blacklist, which means no American company can sell them hardware, chips, software or services without special permission.

    The export blacklist is to take full effect on Nov. 19, which will mean that Google, whose Android operating system sits on every Huawei phone; Microsoft, whose Windows operating system sits on every Huawei computer; and Intel, whose chips run Huawei’s 5G networks, can no longer do business with China’s biggest phone equipment company. And even foreign companies that depend on American technology are being pressured by Trump not to deploy Huawei products.

    American officials believe that Huawei, in addition to violating sanctions on Iran, can install “back doors” in its equipment that Chinese intelligence can exploit, although no one has yet found any — or at least none have been publicly reported.

    Which is why the Trump team is now facing challenges not only from Huawei, but also from some of the company’s biggest American suppliers, which stand to lose a huge chunk of business. Microsoft President Brad Smith told Bloomberg Businessweek on Monday that when his company presses regulators to explain their Huawei ban, “oftentimes, what we get in response is, ‘Well, if you knew what we knew, you would agree with us.’ And our answer is, ‘Great, show us what you know, so we can decide for ourselves. That’s the way this country works.’”

    I have no idea who is telling the truth in this story. If Huawei really is a bad actor, let’s get the proof out there and blacklist the hell out of it. If it’s not so clear, the Trump team should at least explore Ren’s offer to see if there is a pathway for Huawei to assure American intelligence experts and demonstrate good behavior. Because Huawei is the tip of a huge iceberg.

  4. Creating a competitor will only help us – Huawei CEO

    Huawei founder Ren Zhengfei is prepared to license the technology which has fuelled the vendors drive towards the top of the connectivity ecosystem, to create a competitor. And just any competitor, one from the US, the very country which is driving the misery and headaches in Shenzhen.

    For some, actively creating a competitor might be considered somewhat of a risk, but this is not how Ren see things.

    “First, we will get a lot of money from the licensing,” said Ren. “That will be like adding firewood to fuel our innovation on new technologies. It will mean that we will have a better chance of maintaining our leading position.

    “Second, we will bring in a strong competitor. This will prevent our 190,000 employees from becoming complacent. They’ll know that if they sleep on the job, they might wake up and find they have lost their jobs.

    “Sheep become stronger when they are chased by wolves. I don’t worry that a strong competitor will emerge and drag Huawei down. In fact, I would be happy to see that, because this would mean that the world is becoming stronger.”

    This might sound like a corporation putting a brave face on an uncomfortable situation, but there is some logic to it.

    Ren has suggested the new competitor should probably be a US firm, as Europe already has its own vendors in this space. This presents a very interesting opportunity for Huawei. Presumably, a US vendor would have an excellent opportunity to secure valuable contracts with US telcos. If you have a look at the vendors activities in their own domestic markets, they are generally very successful.

    Should this presumption prove accurate, Huawei won’t be making money directly from the US market, but through license fees, it will secure indirect revenue. The more successful this company is, the more revenue Huawei can realise through licensing.

    The US is an incredibly large and lucrative market for network infrastructure vendors and Huawei has been almost non-existent to date. It might have secured contracts with some of the regional telcos, but these are not the riches which are promised in the ‘Land of the Free’. Huawei will be making money somewhere it has never really made money before. Suddenly, the licensing plan starts to look like an understated but clever move.

    The technology will be licensed to the exclusive partner on fair, reasonable and non-discriminatory (FRAND) terms, with the team offering everything associated to 5G. That means software source codes, hardware designs, production technologies, as well as network planning and optimization and testing solutions, as well as chip design technology.

    Although the company which undertakes this license will go toe-to-toe with Huawei on a technology basis, it will also have to prove it can support customers in the same way.

    One of the reasons Huawei has been a success in recent years isn’t simply down to the technology. CTOs and network executives have noted to us that the support offered to customers post-sale sets the vendor apart, while the team is more open than most to consider customisable solutions to meet the unique demands of each vendor. This attention to detail is one of the reasons Huawei is perhaps considered the leader in the market.

    Overall, this is of course a way to ease the tension between the White House and Huawei. We suspect this will not have much of an impact on the overarching trade-war between the two global super-powers, however that is of little concern to Huawei. This is a commercial organisation. It matters little if there is political conflict overhead, just as long as the company is not drawn into the saga.

    The big question which remains is whether this will appease the aggression of the US.

    The attraction of gaining more traction in the network infrastructure space might well be a tempting offer to disperse the aggression. The US is a company which wants to control the 5G ecosystem after all, as does pretty much every country. This is perhaps one of the contributors to the tension between the US and China.

    As Ren pointed out during the coffee session, the saga does need to be resolved before more powerful technologies are being discussed in wider society.

    “5G is not that amazing; its power is exaggerated by politicians,” said Ren. “AI will have an even brighter future. I hope we will not be added to the Entity List again in the AI era.”

    Huawei is not the biggest and best software company around (just yet) therefore we cannot see the company taking a lead in the AI-era. It’s heritage and excellence primarily lie in the hardware, however it is a risk should the tension continue to remain at a stalemate between the two global superpowers.

  5. Huawei Is a Paralyzing Dilemma for the West–Western democracies are struggling to balance the geopolitical challenge of China with their need for 5G technology. A common approach is essential.

    Huawei, based in Shenzhen, is not owned by the state — being Chinese, it’s somewhere between collectively and privately owned. It was founded by Ren Zhengfei, who once worked as a researcher for the People’s Liberation Army. But he and his firm insist that Huawei never has built, nor ever would build, so-called “backdoors” into its equipment that would let it spy on, or sabotage, its customers’ networks.

    There are arguments for giving Huawei the benefit of the doubt. First, it tends to be cheaper than its rivals, which include the European companies Ericsson and Nokia Oyj. Second, it seems to be quicker. Earlier this year, Deutsche Telekom AG, a German cellphone operator, claimed that rolling out 5G without Huawei would delay its network by at least two years and add billions in cost.

    Then there’s the risk that excluding Huawei could antagonize China on trade and investment. In Germany, the bureaucracies opposed to Huawei are the spy agencies and the interior ministry, both tasked with security, whereas the economics ministry and the chancellery, both concerned with the overall Sino-German relationship, are more accommodating.

    Finally, there are the principles of fairness and economic openness. There’s no evidence that Huawei has spied on its customers. And part of what makes the West “western,” or at least liberal, is that it doesn’t close its markets to others without good reasons.

    Huawei’s critics, of course, have plenty of reasons for its exclusion. First, it’s implausible that any Chinese company can avoid becoming an arm of the state and the Communist Party. China’s National Intelligence Law of 2017 requires all the country’s companies to “assist” in national intelligence, and to keep that assistance secret. An earlier law defines national security as including economics and culture.

    Second, 5G isn’t any old phone network. Unlike 4G, it’s the infrastructure for machines and devices to talk to one another on the so-called Internet of Things. If it works well, it will make entire cities “smart” and enable autonomous cars to drive themselves through them, all the while exchanging reams of data. Think of the human body: If 4G is the ears, 5G is the entire nervous system. Would you want China to have control over it?

    The fear is not overblown. Whoever provides the software and hardware for 5G will also have a head-start in eventually transferring that prowess into 6G and 7G. And once a technology is baked in, a simple software update could turn a harmless feature into a mole. A banal analogy would be your smartphone, when its maker schedules an update that adds emoticons but suddenly seems to drain the battery much faster — and all of this coincidentally just before the launch of a new model.

    So caution is advisable. Even at the risk of slowing down the roll-out, regulators would be wise to assure diversity among suppliers. They should also ring-fence the most sensitive parts of the infrastructure. Procurement rules can’t discriminate against individual companies, but they should establish criteria of trustworthiness. Suppliers that can’t fully meet them would be allowed to play only in the network’s periphery.

    Just as important, the western allies must coordinate their approach. It makes little sense for, say, Denmark to exclude Huawei while Germany next door includes it. Autonomous cars, trucks and boats, geo-tagged goods in containers, patients with heart monitors: All of these and other connected nodes on the network will be moving across the border, constantly communicating with different “clouds” of server computers in the background. The data have to be safe on both sides of the border.

    The West and its allies must therefore come to a common position on Huawei — and ideally on both China and data security generally. 5G and its successors have an almost utopian potential to solve many human problems. They also have a dystopian potential to turn our freedoms into a surveillance hell. The democracies need to confront this reality.

  6. By Brian Fung (edited by Alan J Weissberger for technical correctness and specificity)

    As U.S. officials have pressured allies not to use networking gear from Chinese technology giant Huawei over spying concerns, President Trump has urged American companies to “step up” and compete to provide the next generation of high-speed, low-lag wireless service known as 5G.

    There’s just one problem: Barely any U.S. companies manufacture the technology’s most critical components.

    The absence of a major U.S. alternative to foreign suppliers of 5G networking equipment underscores the growing dominance of Huawei, which has evolved into the world’s biggest supplier of telecom equipment, sparking fears within the Trump administration that a 5G network powered by Huawei’s wireless parts could endanger national security. And it throws into sharp relief the years-long retreat by U.S. firms from that market.

    Carriers such as Sprint and Verizon have moved swiftly to launch (pre-standard) 5G services for consumers. But the wireless networking gear the industry relies on still comes from foreign suppliers: four companies, Sweden’s Ericsson, Finland’s Nokia and China’s Huawei and ZTE, account for two-thirds of the global market for telecom equipment, according to analyst estimates.

    Some U.S. technology giants such as Cisco sell switches and routers that reside in the innermost parts of a carrier’s network. But despite its size, Cisco doesn’t compete in the market for “radio access,” or the wireless infrastructure that allows cell sites to connect with smartphones and other mobile devices.

    “There is no U.S.-based wireless access equipment provider today that builds those solutions,” said Sandra Rivera, a senior vice president at Intel who helps guide the chipmaker’s 5G strategy.

    It’s this part of the Internet ecosystem that is increasingly important as more devices and appliances gain wireless connectivity and smart capabilities. 5G is expected to shape technological innovation for years to come, providing mobile data connections for virtual-reality headsets, driverless cars and more. Proponents say 5G eventually will support download speeds of 1,000 megabits per second, roughly 100 times faster than today’s 4G-LTE standard.

    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. It reflects the decline of a once vibrant ecosystem of American companies that formerly went toe-to-toe with the likes of Nokia and Ericsson. And 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.

    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.

    “Lucent basically collapsed because they didn’t have a big enough wireless arm to keep them afloat when the Internet backbone [business] collapsed” in the dot-com bust, said Roger Entner, a telecom analyst at Recon Analytics. “Motorola, over time, simply became less competitive because the other vendors had more economies of scale.”

    Motorola and Lucent’s wireless infrastructure businesses were soon gobbled up by Finland’s Nokia and France’s Alcatel, respectively. One reason the European companies proved so successful, Entner said, was because the European industry agreed from the start to develop a common standard for wireless communication, known as GSM, that all European telecoms would share. By contrast, the industry in North America took a looser approach, with some carriers backing network technologies that weren’t mutually compatible.

    Take CDMA. First developed for mobile use in the 1990s, the standard was technologically superior, allowing carriers such as Verizon to pump more traffic through their cell sites over the same amount of time compared with alternative standards. But the technology created headaches for consumers who found they couldn’t keep their phones when they switched from Verizon to a network like T-Mobile’s, which ran on GSM.

    While the American approach allowed for more technological experimentation and innovation, a fragmented market based on competing standards made it more challenging for U.S. wireless equipment sellers to amass a large customer base.

    Today, Nokia and Ericsson are the top providers of telecommunications networking gear in North America and are No. 2 and No. 3, respectively, in the world. The two companies each recorded revenue of about $25 billion last year.

    But both have been surpassed by Huawei, which in the span of three decades has become the world’s largest provider of telecom equipment.

    “I do think the Western companies did underestimate how credible Huawei was,” said Paul de Sa, a telecom industry analyst and co-founder of the advisory firm Quadra Partners. “There were executives who basically laughed [at the idea] that Huawei or ZTE could compete.”

    Founded in the late 1980s by Ren Zhengfei, a former engineer for the Chinese military, Huawei began as a technology supplier for Chinese customers. But by the early 2000s, Huawei had begun selling globally, and now does a robust business not only in network equipment but also in consumer smartphones and enterprise services. Last month, the privately held company reported that it had finished 2018 with revenue of $107 billion, up 20 percent despite the U.S. campaign. Profits rose 25 percent, the company said, to $8.8 billion.

    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, according to figures compiled by the research firm Dell’Oro Group.

    Huawei’s market share, at 29 percent, is nearly as large as both of them combined.

    Despite an early reputation for cheap knockoff hardware, Huawei today is recognized for low prices, reliable equipment and engaging customer service, analysts say. As Huawei has invested in its own research and development, even Western telecom companies acknowledge that Huawei’s products are as good as — if not better than — competing equipment from Nokia or Ericsson.

    “About 25 percent of our members have Huawei or ZTE” in their networks, Carri Bennet, an attorney for the Washington-based Rural Wireless Association, told lawmakers at a recent House Judiciary subcommittee hearing.

    Gordon Smith, the chief executive of Sagent, a network intelligence and analytics company formerly known as Clover Telecom, estimated that Huawei gear typically costs “tens of percents” less than the competition’s.

    With the support of China’s state-owned development bank, Huawei also has been able to undercut competitors with attractive financing for its products. In February alone, Huawei announced partnerships with wireless carriers in eight countries, including Iceland, Switzerland, Saudi Arabia and Turkey.

    It doesn’t hurt that Huawei serves a massive domestic market in China, which grants it tremendous advantages of scale that many tech companies, including American ones, are hungry to access themselves. China is so critical to Apple, for example, that the iPhone maker blamed the country’s economic slowdown for a downward revision in Apple’s recent quarterly sales estimates — the company’s first such warning in 15 years.

    Huawei’s success, however, has been clouded by allegations of intellectual property theft.  The U.S. government accused two Huawei units this year of trying to copy a robotic arm used by T-Mobile to test smartphones. (Huawei has pleaded not guilty.) In the past, Huawei has also been accused of stealing technology from Cisco; the two firms became locked in a legal dispute in 2003 and settled months later, after Huawei conceded that Cisco-made code had ended up in a Huawei product. The code was later removed.

    Then there is Nortel Networks’ discovery in 2004 that hackers — traced to IP addresses in Shanghai — had stolen nearly 1,500 sensitive files from the Canadian telecom giant’s computer systems. The company’s subsequent investigation failed to prove China’s direct involvement, much less Huawei’s. But after analyzing the stolen files — which bore cryptic names such as “Photonic Crystals and Large Scale Integration,” “Eco_Strategy.ppt” and “HDX R2 Standard Reconfigurations Test Plan – Draft 0.2″ — and a months-long probe, Nortel’s security adviser at the time, Brian Shields, became convinced Huawei benefited indirectly from the breach. The file names, a list of which Shields provided to The Washington Post, have not been previously reported.

    “Nobody would be interested in these kinds of documents other than a competitor,” Shields said. “In my opinion, looking at what the hackers went after, it is likely these documents made it to Huawei.”   That seemingly ancient history is newly relevant, as U.S. officials argue that incorporating Huawei gear into U.S. carriers’ 5G networks poses a significant spying risk.

    At an industry conference in Barcelona in February (WMC 2019), U.S. officials urged allies in bilateral meetings not to use Huawei equipment over concerns that it could enable eavesdropping by authoritarian regimes. U.S. partners largely acknowledge the risk but have asked for more concrete evidence to back up the case.

    “The Europeans really keep pushing for this concept of, ‘Where’s the smoking gun?’ ” said a person familiar with the discussions, who spoke on the condition of anonymity to speak more freely about the closed-door meetings. “They say, ‘Hey, we don’t want security threats either … but you can’t just come in here and tell us that there is a unity of interest between Beijing and Huawei and have that be the end of your presentation.’ ”

    Some analysts say that in a previous era, America’s allies might have been more sympathetic to the Trump administration’s message. But Trump’s conduct, they say — berating NATO allies, canceling a visit to a World War I memorial because of rain, calling Europe a “foe” on trade — has not helped.

    “In a world where the U.S. had more soft power,” Entner said, “I’m pretty sure the Europeans would be a lot more receptive.”

  7. Huawei is seeking local app partners to help build out its ecosystem for 2020

    Honor, the budget smartphone sub-brand of Chinese tech giant Huawei, is in talks with top Indian developers to tailor their apps for Huawei Mobile Services (HMS), Huawei’s set of in-house mobile apps and services, according to the Economic Times. For context, HMS is not an operating system, but rather a core suite of apps and services that will be preinstalled on Huawei’s family of phones.

    China Makes Up The Majority of Huawei’s Revenue
    Business Insider Intelligence
    HMS is designed to rival Google Mobile Services, which includes Google Maps, the Play Store, and Search. Huawei says most core HMS apps, such as navigation or messaging, will be ready in the immediate future. This move by the smartphone manufacturer is part of a broader effort to appeal to developers across the globe, which has also seen the company enter into talks with developers in South Africa, China, and Europe. Huawei will focus on attracting the top 100 to 150 developers in every market to create apps to populate the HMS ecosystem.

    Huawei has been aggressively pushing to develop basic apps and services in-house after losing access to Google’s family of apps earlier this year. In May 2019, Google announced it would end Huawei’s access to core Android apps and services, after the US government placed the Chinese telecom on a trade blacklist.

    Following those sanctions, Huawei began work on a number of solutions to overcome the loss of access, including its own operating system, called HarmonyOS, and a mapping toolkit. To accelerate the development of its in-house offerings and to bolster what it could provide to consumers, Huawei announced it would spend $1 billion to incentivize developers to build apps for its app store.

    Huawei’s strategy of going after local developers should help it bring unique, market-specific offerings to consumers, thus better enabling the company to overcome the loss of Google’s popular services.Huawei’s developer program is aimed at cultivating a community to populate its app store, which is essential for the company to remain a global leader in the smartphone space.

    One reason for this is, beyond the price and technical specs of the device, the appeal of a smartphone is also tied to the robustness of the app ecosystem that users will have access to — in the US, 90% of users’ smartphone screen time is spent in apps. If Huawei can offer popular local apps on its new devices, which won’t have Google services, it will better appeal to consumers and reduce the likelihood of them turning to competitors.

    However, given the importance of this app ecosystem for Huawei’s future growth, the company should be even more active in attracting developers to its platform. This could include higher commissions than those offered by Google or Apple, as well as monetary incentives if apps are developed by a certain date.

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