Reports that Prime Minister Theresa May will let Huawei supply antennas and other “noncore” infrastructure to the UK 5G networks but not to the telecommunications core may prompt an outpouring of muddled speculation. We can consider some of the more confusing issues.
This decision does not mean that the United States and its allies are "split" over Huawei. All major allies agree that using Huawei equipment is risky. Where there is disagreement, it is over how to manage that risk. The United Kingdom wants to take a middle position, not a full ban but also not ceding control or critical networks to Huawei and China. Many European countries already use Huawei for their 4G networks, and it is much cheaper and faster to simply overlay 5G onto this existing infrastructure.
The United Kingdom has argued that they can manage the risk created by Huawei by blocking the use of any Huawei equipment around sensitive facilities (like defense installations or Whitehall), restricting its use in other areas to the "edge" of the 5G network, and keeping it out of the "core." This reduces, but does not eliminate, the possibility of 5G service disruption or intelligence collection by the Chinese government. Other European countries are also considering this solution since it avoids irritating the Chinese government, which will retaliate for a complete ban (as it did by punishing Australia over its ban, and China's coercive behavior is one reason that people do not want to be dependent on Huawei).
A simple way to describe this risk reduction strategy is that wireless networks can be divided into two parts: the edge, where your handset connects via radio signals to a wireless base station; and the core, where the base station connects (often using fiber optic cable) to powerful routers and other computer equipment that handle millions of messages per minute to let your call connect to other subscribers. The best place for intelligence advantage is at the core, which is one reason why Huawei is, in the words of one European telecom executive, "desperate" to get in it. The UK decision frustrates this Chinese goal.
Huawei can offer massive discounts to gain access to the core, and many countries will be tempted. It is rumored that Huawei offered Italy a discount of more than 80 percent off the market price to use its equipment. Huawei can do this because it is subsidized by the Chinese government, which has two reasons for these subsidies. The first is to gain intelligence advantage, by controlling telecom network's core. The second is to drive competitors to form the market using predatory pricing. The World Trade Organization’s (WTO’s) failure to confront this predatory pricing is one of its most important failures.
Huawei wants a monopoly, and the Chinese government supports this because it will give them a global signals intelligence network. China is not offering Italy massive subsidies because it admires Italian cuisine. But one part of the discussion that is often left out is that telecom operators—the phone companies—do not want a Huawei monopoly. Even Chinese telecom companies try to avoid relying on Huawei. This is not because of intelligence risk but a reasonable concern that Huawei would use monopoly power to charge exorbitant prices. Just as the commercial airline market has two competitors so that buyers can play them off against each other, the competitors are forced to compete and innovate; there will need to be more than one telecom supplier, and that other supplier cannot be Chinese.
The question is whether a partial ban on Huawei to keep it out of sensitive areas and the telecom core will work to reduce risk. The only answer is "not proven." Both core and edge functions will become more important as 5G enables many more things than your phone—self-driving cars, telemedicine, smart cities, and the likes—and letting Huawei in, even at the edge, could provide China with opportunities for mischief.
There was probably a sigh of relief in many European capitals when the report of the UK decision emerged because the UK proposal gives them a way to avoid provoking China without entirely caving in on security. This is not a complete victory for Huawei—their brand may be irrevocably damaged—nor a defeat for the United States. It is a first step in the longer saga of dealing with China as a strategic competitor.
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