This article is part of the special report: The State of 5G.
Chinese networking giant Huawei had hoped to spend the summer selling 5G gear around Europe. Instead, a possible regulatory pushback driven by security concerns is derailing the company’s sales pitch.
EU countries have stopped short of imposing strong restrictions on Huawei, like those imposed in Australia and the United States.
But as European operators start to put new 5G systems in place, the fight has shifted the focus of their decision-making from quality or cost — areas where Huawei is competitive — to network security, where the Chinese infrastructure giant faces a unique political challenge.
For most operators “security was not on their mind,” said Sylvain Fabre, senior director at intelligence firm Gartner. “The Huawei debate, without going into its merits, brought it into the fore.”
Some operators avoided public announcements of new deals with Chinese 5G vendors Huawei and ZTE out of fear of public backlash.
Huawei has had a strong presence in Europe for more than a decade. The Chinese networking giant was a key supplier to Deutsche Telekom, Vodafone and Telefónica when those operators rolled out 4G networks.
The uncertainty surrounding Huawei has unsettled European telecom operators negotiating 5G installations with the Chinese company and roiled 5G planning for competitors including Ericsson, Nokia and ZTE. The industry’s lobby, GSMA, recently circulated a secret paper among its members claiming that banning Huawei gear in Europe would cost €55 billion.
In February, the world’s largest operators agreed to launch a coordinated lobbying effort to stop governments from imposing restrictions.
Coming at a delicate moment in the 5G rollout process, uncertainty over Huawei’s fate in Europe has jumbled telecoms’ balance sheets. About a dozen European countries have auctioned off crucial parts of their radio waves for 5G. Most others are expected to do so within the coming 12 months.
Access to Huawei’s equipment played a part in many operators’ cost calculations, which are based on multi-billion euro budgets for spectrum, gear and operating costs.
“It’s no longer only about the intelligence risk or risk of sabotage,” said Mathieu Duchâtel of the Montaigne Institute in France, who researches Huawei’s position in Europe. “It also becomes an economic risk.”
Operators aren’t just concerned about losing their shirts; they’re worried about losing control of their purchasing decisions. With national as well as private security now dominating 5G decisions, operators fear regulators or — yikes! — politicians will be allowed to determine whether the gear they have planned to use, and in some cases already negotiated to buy, is safe and legal to deploy.
It’s not an idle fear. In France, a new bill grants the prime minister power over much of the final decision-making on 5G network security. In Italy, the government repurposed a trade defense mechanism to allow the prime minister’s office to intervene in contracts with foreign 5G suppliers. Germany and the U.K. are in the process of updating their requirements on security.
The European Commission asked EU capitals to brief it on their security procedures by mid-July. The Commission seeks to draft a European common approach toward Huawei and other foreign vendors by year-end.
By then, even more spectrum auctions will have taken place.
The political storm is starting to make itself felt on the ground. Some operators avoided public announcements of new deals with Chinese 5G vendors Huawei and ZTE out of fear of public backlash. Some operators appear to be slow-walking negotiations.
Dutch telecom KPN, which had struck a preliminary deal with Huawei, added it could roll back the investment if the government decided to limit Huawei’s role in the country.
Vodafone earlier this year “paused” procurement procedures with the Chinese vendor amid political turmoil. Late last year, British Telecom in the U.K. confirmed it was removing Huawei equipment from parts of its network. Others have held back on announcing deals, or striking them, until regulators bring more clarity on Huawei’s fate in European markets.
The slowdown couldn’t have come at a worse moment for the industry. Equipment vendors are currently locked in a fight for market share in the global 5G rollout, a gold rush worth hundreds of billions.
Huawei said in late June it had secured 50 contracts globally. Ericsson’s latest count was that it struck 47 agreements with operators, of which it added nine were up and running and 22 were presently being rolled out. Nokia has announced 43 contracts.