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There Is a Better Alternative to Huawei
View of the Huawei Germany headquarters.
Photo by Rolf Vennenbernd/picture alliance via Getty Images

There Is a Better Alternative to Huawei

Thomas J. Duesterberg

Prime Minister Boris Johnson’s decision last week to accept Chinese telecommunications equipment in British networks will give the rest of Europe cover to follow. This is a blow to U.S. efforts to exclude Huawei and ZTE, two of China’s leading telecom companies, from allied nations for security reasons.

It also underscores a fundamental problem with the U.S. approach: the lack of a compelling alternative to Chinese systems. To turn the tide in Europe and the rest of the world, the U.S. must exploit new technologies developed at home or by allies that are more flexible, less expensive and more secure than those of the Chinese. The most promising are called virtual networks.

Huawei has been accused by U.S. congressional investigators of appropriating technology by questionable means. For instance, Huawei admitted in 2003 to copying code from Cisco for its router software. China has also poured as much as $75 billion in subsidies into Huawei, the Journal reported. The company can now mount workable 5G systems and provide cheap or no-cost financing, construction and maintenance. That’s an attractive offer for many countries. The Huawei systems are proprietary, however, and require hardware and software from the Chinese parent to maintain or upgrade services. Countries that install Huawei systems often find themselves strategically dependent on the company and, therefore, China.

The U.S. argues that the security of the Chinese systems is hopelessly compromised by the ease of capturing users’ data and the companies’ legal requirement to share it with Chinese authorities when requested. But the economic argument for avoiding suppliers from China is also compelling. The construction and operation of telecom networks, along with the raft of applications they spawn, are of great importance. The first mover will likely become dominant in the new services they enable, such as autonomous cars and instantaneous transmission of jet engine performance data. Operating these systems also provides access to the vast quantities of data needed to power artificial intelligence. There are ample strategic and economic reasons not to capitulate to China on 5G.

Huawei has competitors. Samsung is especially aggressive and enjoys the support of the South Korean government for financing. European telecom-equipment providers such as Nokia and Ericsson don’t benefit from the huge subsidies for research and financing enjoyed by Huawei, and their products tend to be more expensive. U.S. firms Cisco, Intel and Qualcomm and Japan’s NEC also make components for networks, but they are being squeezed out of the market as Huawei extends its dominance around the world.

The U.S. and its allies in Europe and East Asia could counter Huawei by coordinating efforts to promote their technologies in third countries. But Western suppliers can’t count on state support for financing and building complete 5G systems. Along with animosity toward President Trump, which is all too often reciprocated, European initiatives to develop “national champion” companies make the prospect of technology-development cooperation highly unlikely.

Japan is eager to work with U.S. financing agencies, but America’s new Development Finance Corporation and the reconstituted Export-Import Bank are only getting started and administrators have little experience in the complex systems development required for telecom networks. The obvious routes to contest Chinese dominance of 5G appear blocked.

To offer an alternative to Huawei, U.S. industry is developing an alternative to hardware-based telecoms itself. Most promising is an emerging technology called network virtualization. The idea is to bypass much of the traditional wired connections, switches and other processing equipment with a virtual network. The initial radio signal from a mobile device is connected to the internet and almost all functionality is built into software, largely through cloud computing. This avoids the proprietary hardware base that Huawei exploits to maintain control over the components, software and functionality of its networks.

Virtual networks employ an open-architecture model in which suppliers of components such as radio-access equipment, computer routers, security systems and operating and application software can be flexibly integrated into an independent network. One key consideration is that the leaders in these component fields are American, Japanese, Korean and European. Another is that, unlike Huawei’s system that blocks new applications from outsiders, no part of the virtual network’s system would be closed to innovators.

A major test of the new system, launched last year by Japanese e-commerce giant Rakuten, is on track to be expanded to full commercial service in Japan in April. The company is also licensed to expand coverage nationwide to compete with Japan’s three incumbent carriers. Parts of its system are supplied by Qualcomm, Cisco, Hewlett Packard and other U.S. firms. AT&T , Nokia and Verizon are also testing virtual networks in the U.S. and Europe.

On Jan. 14 a bipartisan group of six U.S. senators introduced a bill to encourage development of open-architecture systems to promote Western competition to Huawei and ZTE. The bill would allocate funds from spectrum auctions to support research, standard-setting and cooperation with allies. While its $1.25 billion in financing is modest relative to China’s efforts, the bill is valuable in focusing attention on network virtualization as an alternative to Huawei.

Government has a role to play in 5G, but private capital is essential to build virtual networks at scale to compete with Chinese players. The U.S. has led the technological revolution of the last half century. As another extension of that long victory, virtual networks could carry the day for America in its battle with China over advanced telecom networks.

Read in Wall Street Journal

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