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Being publicly dumped live on Parliament TV is not a good way to find out about the end of a 20 year relationship, but that’s exactly what happened to shocked Huawei directors on July 14.
Blindsided Huawei chiefs listened while Oliver Dowden, the head of the digital, culture, media and sport department of the UK government, told the world after two decades as a welcome guest China’s tech giant would be banned from supplying kit to Britain’s 5G programme.
“We hadn’t been pre-briefed. We didn’t know the details of the announcement until the secretary of state stood up on his feet,” says Ed Brewster, Huawei’s communications director. It’s a rare crumb of candid insight into a company widely accused of black hole levels of opaqueness. On a roll, Brewster, the only Huawei UK representative allowed to speak publicly about the decision, adds: “It was not just another business day. We’ve just had a really tough week.”
His words hint at emergency meetings to figure out the extent of the damage, frantic calls to Huawei’s Chinese HQ, an atmosphere of disarray and dejection. But Huawei’s attack lines point to another emotion, now the shock has subsided, being felt by those within the company – near atomic levels of anger.
“This has been a 20 month campaign orchestrated by the United States government against Huawei that’s seen us locked out of US supply chains, a propaganda campaign of personal attacks and dirty dossiers,” Brewster barks down the phone. “We’ve become a lightning rod for a global geopolitical and macroeconomic fight.”
Under the new terms of the UK ban, telecoms operators must remove all of Huawei’s components from their 5G mobile infrastructure by 2027, and are prohibited from purchasing the company's products from January 2021. Dimitris Mavrakis, 5G and mobile network infrastructure research director at ABI Research, thinks Huawei customers such as BT, EE and Vodafone won’t hang around. “UK operators can’t buy anything from Huawei after the end of the year but it is likely they will stop buying immediately,” he says. “This is a really big deal, a major concern. There will be an immediate effect on Huawei.”
Huawei plans to conduct a detailed review of what the UK’s decision will mean for the business, and plead its case – “we’ve got to talk to the government and understand their position, we want them to reconsider,” says Brewster – but influential minds in the British political establishment have already been made up.
“No. Not at all,” is the definite response from Tobias Ellwood, chair of the defence committee, on whether Huawei has a future in the UK. He sees the company through the prism Huawei complains the United States has spuriously created, that of a security risk.
“The 5G rollout is going to fundamentally change our lives,” says Ellwood, “including how we defend ourselves. We’ve moved away from traditional battle lines, it's about exploiting the vulnerabilities of our digital world. Integrity and reliability of our critical national infrastructure is absolutely fundamental to our overall security.”
Ellwood admits US sanctions that cut Huawei off from its American semiconductor suppliers were the “game changer”; he says they meant not only problems for Huawei, but that any British company doing business with Huawei couldn't operate in the United States. But that is only “part of the bigger picture” that led the government’s decision, he says. “Out of Huawei’s control is Huawei’s masters, that’s the bigger concern, the communist regime and how it controls Huawei and the accountability and transparency, which is clearly absent”. He says the persecution of the Uighurs, draconian laws in Hong Kong, and obfuscation over the Covid-19 outbreak in Wuhan show “the real face of China being exposed”.
Huawei maintains it is a private company owned by its employees operating entirely separately from the Chinese state. Ellwood – and other revolting Tory MPs who helped force the government’s 5G U-turn – doesn’t buy it. “Boundaries between commercial and state are absolutely blurred at Huawei, “ he says, “and between commercial and military, which is very worrying.”
An investigation by the Wall Street Journal in December 2019 found Huawei had benefited from £60 billion in tax breaks, cheap resources and other forms of Chinese state-backed financial assistance to help fuel its meteoric rise from a ten person company in the 1980s to the top of the global telecoms tree.
“Enormous state funding leads to a wider concern of fairness,” says Ellwood. “Chinese companies like Tencent, China Telecom, Huawei, can operate without problem in the West. Equivalents like eBay, Amazon, Facebook, cannot in China — not on the same open rules.”
On the day Huawei found out it was banned from Britain’s 5G programme, Liu Xiaoming, the Chinese ambassador to London, took to Twitter: “Disappointing and wrong decision by the UK on Huawei. It has become questionable whether the UK can provide an open, fair and non-discriminatory business environment for companies from other countries.”
It was, says Charles Parton, UK diplomat to China for 22 years and adviser to the UK foreign affairs committee, “the height of hypocrisy from the Chinese ambassador”, given “China does not allow foreign participation in many areas of its economy”. Huawei would not be drawn on how the UK decision is being received at HQ but Parton is in no doubt “this is a blow to the prestige of China”, saying “the UK’s decision means a lot to the Chinese Communist Party, Huawei is their symbolic success story, they are, as the Chinese saying goes, ‘as close as lips and teeth’”.
One senior telecoms insider says the UK dropping Huawei “is a big setback for the company”, adding while the UK is an important market it's not its biggest source of revenue, “but in terms of symbolism Huawei will feel it keenly. The UK is a bellwether for a lot of the world”.
Parton agrees: “European countries were sheltering behind the UK, thinking, ‘if they can manage the Huawei risk so can we’. That shield is no longer there. Huawei and the CCP will now be drawing up strategies to avoid other European countries doing the same as the UK.”
Huawei may find many more doors shutting. “There will be a ripple effect, no doubt about it,” Elwood says, “we've been under a lot of pressure ourselves from the Five Eyes community”, the intelligence alliance comprising Australia, Canada, New Zealand, the United Kingdom and the UK.
Huawei’s communication director won’t commit to having confidence in other global markets after the UK’s decision, but brazens it out saying, “we ensure we have the best products, most people want to buy the best”. It’s more bravado than business strategy, according to the senior telecoms insider, who says the real challenge for Huawei is while it may have some stockpile of US chips, under American sanctions it can’t get the US software to design them, forcing it to start from scratch.
“It will take Huawei three to five years minimum to stand up a domestic chip system anything like as good as what they have now, so its ability to produce kit that operates at the same level is going to be very constrained, and there are big questions about how fast and how well they can do that,” they say.
The UK is exploring other 5G options. Only Nokia, and Ericsson operate the technology in Europe but now Korea’s Samsung and Japan’s Fujitsu are also being considered.
Huawei UK is being left to lick its wounds without its chairman, former BP CEO Lord Browne of Madingley, who unlike the rest of Huawei apparently did know the details of the government’s statement and announced his resignation hours before the ban was made public.
ABI Research’s Mavrakis says there is little else Huawei can do. “Internally, there can be no action from Huawei in response to this. There is nothing Huawei can counter, because it is a political decision. I think internally Huawei is mainly feeling confusion. It is certainly a blow. But it is bigger than Huawei.”
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The Link LonkJuly 21, 2020 at 12:03PM
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