Caixin
Aug 31, 2018 01:58 PM
BUSINESS & TECH

Opinion: Despite Ban, 5G Network Will Still Need Huawei Equipment

(AFR) — There are both technology and political plays behind Huawei Technologies Co. Ltd.’s insistence it will remain in the Australian market despite being blocked from involvement in the 5G mobile network.

The political argument is the most obvious.

Chinese authorities may be irate at the ban and may yet retaliate.

But Huawei doesn’t want to give international credence to the idea Australia’s decision is irreversible in a way that might cause other governments to question their own models allowing Huawei to participate in 5G. Only the U.S. and Taiwan have effectively banned Huawei altogether as part of the long-term opposition of both to the use of mainland Chinese telecommunications technology.

The less obvious reason for Huawei’s stance is a temporary technology complication.

5G antennas, 4G network

The telcos want to begin 5G from next year but a stand-alone 5G network is expected to take five to 10 years to fully roll out. In the meantime, the new 5G mobile antennas will still be plugged into the 4G network ’ often using Huawei’s equipment in the case of Vodafone, Optus and TPG.

So far, telco queries about whether they are to be forced to remove this 4G equipment are yet to receive a response from Canberra.

But if this is formally required from the beginning of the 5G rollout, replacement of 4G equipment would cost the telcos billions of dollars and be extremely disruptive to mobile pricing as well as service.

The Morrison government is unlikely to want to test this in practice, including the risk of a demand for compensation from companies that installed Huawei’s 4G equipment with authority from government.

Only Telstra continued to use Ericsson as its primary equipment supplier, with Vodafone, Optus and TPG mainly preferring Huawei on the basis of price and increasing technological sophistication.

The Chinese telco equipment giant was shocked by the government’s decision to ban it altogether.

Only two weeks ago, the Australian business was increasingly confident it had found a way around the strong opposition from Home Affairs Minister Peter Dutton and Australian and U.S. security agencies to any involvement.

This was after Prime Minister Malcolm Turnbull asked the Australian Signals Directorate to consider whether it was technologically possible to make a distinction between core and “edge” areas of the 5G network.

ASD presented a paper outlining option one — a ban; and option two — allowing “mitigation” of security risk by limiting Huawei to the less-sensitive radio access areas of the network, like antennas and switches.

This is similar to the distinction made between core and edge technology for the 4G network. ASIO and its minister had argued this separation was not possible with the 5G network given 5G’s ever-greater reliance on sophisticated software in the highly connected era of the internet of things.

Other cabinet ministers had conceded they did not understand the complex technology but were happy to be guided by security agencies.

But Turnbull, a former communications minister, does understand telco technology and was reluctant to eliminate the competitive pricing offered by Huawei if security risks could be managed.

That was why, back in 2014, he had wanted to install a similar distinction to allow Huawei to participate in the National Broadband Network before being over ruled by then Prime Minister Tony Abbott on security grounds.

The prime ministerial request of the ASD meant considerable work was done on option two — including requiring information from the telcos about how they would staff and operate this dual system under 5G.

Bad timing

From Huawei’s perspective, the timing of the political decision could not have been worse.

It is certainly possible the national security committee meeting of cabinet two weeks ago would have come to exactly the same conclusion even if it had not coincided with an increasing — if still unofficial — push on the leadership by Dutton. But it obviously gave Dutton’s very strong views on the issue even more political force.

The decision was officially announced on Aug. 23 by Morrison as acting home affairs minister and Mitch Fifield shortly before he resigned as communications minister.

The statement noted “the involvement of vendors who are likely to be subject to extrajudicial direction from a foreign government may risk failure by the carrier to adequately protect the 5G network from unauthorised access or interference.” The ban also affects another Chinese telco equipment supplier, ZTE Corp., but it is a far less significant player in Australia than Huawei is.

The chief executives of the telcos and the chair of Huawei Australia, John Lord, were informed via phone calls from the secretary of the department of communications. He was unable to answer the query from one of the telcos about the use of Huawei's existing 4G equipment.

Huawei operates in 170 countries, and about two-thirds of its Australian revenue relies on its 4G operations. This revenue will disappear over coming years as 4G is phased out but that is different from a sudden rupture.

The U.K. and Canada allow Huawei into the “edge” of 4G and now the 5G network on the basis its equipment is vetted and the findings overseen and analyzed by security agencies. A suggestion in a conservative Japanese newspaper the Abe government is considering banning Huawei from 5G appears to have no status, according to Huawei’s inquiries.

The timing of the 5G decision is also politically awkward for the Morrison government after a recent attempt by Turnbull to reset the relationship. Chinese irritation at Australian statements on militarisation of the South China Sea dramatically escalated after Canberra’s rhetoric about foreign interference in Australia.

No Australian government, including a Labor one, will reverse the decision on 5G. What to do about the new network’s reliance on 4G equipment over the next few years is less clear.

This article was originally published by the Australian Financial Review.

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