Huawei backtracks?

Huawei backtracks?
Huawei, a Chinese telecommunication company, has expressed increasing pessimism on the future of 5G technology. 5G has been hailed as the forefront of the next..

Huawei, a Chinese telecommunication company, has expressed increasing pessimism on the future of 5G technology. 5G has been hailed as the forefront of the next generation of technology; it is estimated that over 1 billion people will use 5G by 2025. Huawei has also scaled down its US operations. Washington has blocked a number of foreign telecom companies from entering US markets due to security concerns.

Background

There has been a vast advancement in mobile wireless communication in the last few decades. 5G is the latest “generation” of development in mobile communication. It is estimated to be 50 to 100 times faster than current 4G networks. 

The United States has repeatedly expressed its focus on developing 5G technology. In January this year, media released reports of a memo recommending that the US Government take over the work of deploying a 5G network. “Data is the oil of the 21st century and China has built the world’s largest reserve,” it read. “Building a nationwide secure 5G network sets the condition for future success in the information domain. Not building the network puts us at a permanent disadvantage to China in the information domain.”

The US has also in recent years, been increasingly sceptical of allowing foreign companies into its telecommunication systems. In January this year, Washington blocked a deal between Chinese telecommunications giant Huawei and AT&T due to security concerns. Huawei was founded in 1987 by a former People’s Liberation Army officer and is thought to have close ties to the Chinese Government. Huawei is popular in markets across Asia, South America, and the Middle East. However, Huawei has been unable to penetrate the US market due to scepticism from Washington.

In the February hearing of the Senate Intelligence Committee, FBI Director Christopher Wray said, "We're deeply concerned about the risks of allowing any company or entity that is beholden to foreign governments that don't share our values to gain positions of power inside our telecommunications networks”. Huawei was founded in 1987 by a former People’s Liberation Army officer and is thought to have close ties to the Chinese Government.

Recently, US President Trump also blocked the sale of Qualcomm to Broadcom. The former is a US owned semiconductor and telecommunications Company, while the latter is a technology firm based in Singapore. The sale was blocked due to reports that Broadcom could restrict Qualcomm’s investment in 5G R&D. This week, it was announced that Washington had slapped Chinese telecommunication company, ZTE, with a seven-year ban on purchases of crucial American technology.

Analysis

Huawei, which has been recognised as one of the three leading telecommunication vendors developing 5G technology, has recently taken a pessimistic view on 5G technology. Huawei has also recently cut its US operations. The company has reportedly cut staff and slashed lobbying expenditures. A Huawei spokesperson said that the company was reassessing resources “to support our business strategy and objectives.”

At an event in Shenzhen on Tuesday, CEO Eric Xu took a cynical view on the company’s 5G prospects, stating that while 5G had its benefits, customers would not find a “material difference between the two technologies”. He pointed out that its uses would be limited.  It has been observed that a number of use cases for 5G such as improving self-driving cars, can be equally obtained by improving computing power.  

Telecommunication analysts such as Ben Stanton at Canalys echoed this sentiment, adding that cynicism on 5G has been growing in the mobile industry. “Pessimism about 5G has been growing behind the scenes in the mobile industry but Huawei is the first large infrastructure company to state it explicitly,” he said. Huawei and other aspiring 5G companies face a number of challenges, including building the infrastructure to support new networks. There is also the risk that the technology will not pick up once released – a number of emerging countries have not yet embraced 4G.

However, CEO Xu said the company would continue to develop the technology, as drawing back could cause the company to fall behind competition. “If one [telecom operator] says, ‘I have 5G-enabled network’, the rest really have to launch 5G even if it’s just for branding or marketing purposes,” he said.

Counterpoint

5G has gained immense attention due to its potential. Besides high-speed internet, it could also greatly improve the efficiency and reliability of any device that relies on the Internet of Things. This includes everything from autonomous or self-driving cars, to personal activity trackers. The concept of smart cities, where technology is used to maximise the efficiency of urban services, is also dependant on advanced Information and Communication Technology (ICT).

Huawei has already signed 26 Memorandums of Understanding (MoUs) with telecom operators including Britain’s BT, Bell Canada (BCE), France’s Orange, Germany’s Deutsche Telekom, and Vodafone. It also has deals with companies in South Korea, Japan, Australia, Turkey, and Saudi Arabia. There had been speculation that Huawei will launch its first range of 5G smartphones in the latter half of this year. Analysts have noted that US scepticism has not prevented the company’s success thus far.

Estimates by the Global System for Mobile Communications (GSMA) say that 1.2 billion people across the world may be using 5G services by 2025; a third of these users will likely be in China. Two other companies at the forefront of 5G technology, Sweden’s Ericsson, and Finland’s Nokia, have been positive on 5G thus far. Ericsson has predicted 1 billion 5G connections by 2023.

Assessment

Our assessment is that 5G technology may play a growing role in information gathering and security. As stated previously, 5G systems are already a key component of emerging technology today. However, Huawei, which is one of the frontrunners in 5G development, has seemingly shifted its stance on the potential of 5G technology. We believe that this may have the potential to impact Chinese leadership of 5G development and schemes such as Xi Jinping’s tech-focussed “Made in China 2025” policy, which has been called a “threat to US technological leadership”.

Could Huawei’s shifting stance on 5G development, create space for other players to make their mark in 5G technology?

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