Caixin
May 08, 2020 04:08 AM
BUSINESS & TECH

Update: U.S. to Allow Cooperation With Huawei on 5G Standards

U.S. regulators are working to clarify how American companies can work with China’s sanctioned Huawei Technologies Co. Ltd. in setting standards for next-generation 5G wireless networks, Reuters reported Wednesday.

The U.S. Department of Commerce is drafting a new rule that will allow American companies to participate in standards bodies where Huawei is also a member and will clarify what technology and information employees could share with Huawei, the news agency said, citing unidentified sources close to the matter.

The U.S. government placed Huawei on its “entity list” in May 2019, restricting sales of American goods and technology to the company. The move also hindered U.S. companies’ participation in standard-setting organizations in which Huawei is also a contributor, reflecting concerns on information-sharing, but putting U.S. businesses at a disadvantage, according to the report.

The draft is under final review by the Commerce Department and, if cleared, would go to other agencies for approval, the people said. It is unclear how long the full process will take, according to the report.

Industry experts told Caixin that the proposed measures would not help Huawei’s overseas troubles but could ease pressure on U.S. companies unclear about how they are allowed to engage with China’s biggest phone maker.

Being unable to work with Huawei in international organizations that set 5G standards has hindered U.S. companies’ work in the field, said Shen Meng, executive director of Xiangsong Capital.

In April, several U.S. senators urged the Commerce Department to issue regulations as soon as possible confirming that U.S. participation in 5G standards-setting is not restricted by export-control regulations.

“It is critical for U.S. companies to participate fully in these standards-setting bodies to ensure that their technologies are represented in the standards,” the senators wrote in a letter to the U.S. secretaries of Commerce, State, Defense and Energy. “When U.S. export controls restrict U.S. companies from participating in standards-setting bodies, China-based Huawei is well positioned to fill any gaps.”

The 5G wireless networks are pivotal to the next step of industrial development as they are expected to power everything from high-speed video transmissions to self-driving cars. Global telecom companies are racing to take part in the international standards-setting in hopes of making their own patents or technologies part of the standards.

Discussions of international standards inevitably involve sharing technological know-how. Many U.S. companies have concerns that they would be considered in violation of government rules when attending discussions where Huawei is a participant, said Yang Guang, an analyst at Strategy Analytics. In practice, some U.S. companies have to avoid attending events with Huawei, Yang said.

But avoiding contact and information-sharing with Huawei in this process is difficult for American companies as the Chinese equipment giant is among a dozen enterprises leading the standard-setting, experts said.

As reported, the proposed rule would not change restrictions on Huawei’s mobile phone business, including on the supply of parts and services from the United States, and so is unlikely to improve overseas sales of Huawei mobile phones.

Sun Yanbiao, head of Shenzhen-based telecom research company N1mobile, said Huawei would most likely still seek to buy U.S. components if allowed, even if they are more expensive than domestic counterparts, because of higher performance.

Huawei’s overseas phone sales plummeted last year after Google stopped working with the company under the U.S. ban.

Before the blacklisting, the Chinese enterprise was the fastest-growing company in the European smartphone market and was on a course to overtake Samsung there. Huawei’s phone shipments in Europe grew 66% year-on-year in the first quarter of 2019, and its market share exceeded 25%, leaving it about four percentage points behind the South Korean organization.

Since the ban, Huawei has pivoted aggressively to the domestic Chinese consumer market with some success, though it was hit hard by the coronavirus pandemic. The company reported a 1.4% increase in first-quarter revenue and a net profit margin of 7.3%.

A Huawei spokesperson said the company was watching the situation closely in response to a request for comment.

The U.S. government rule was expected to apply only to Huawei, not other blacklisted Chinese companies like Hikvision, Reuters reported, citing unnamed sources.

Contact reporter Flynn Murphy (flynnmurphy@caixin.com) and editor Michael Bellart (michaelbellart@caixin.com)

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