Questions over Huawei

The US government’s ban on US-based companies doing business with Huawei (as well as multiple other Chinese corporate entities) has far-reaching consequences for the global telecommunications industry and the mobile handset market. The ban also has very disturbing implications for India’s national security. The privately-owned Chinese multinational corporation is the world’s largest telecom network equipment provider and the second-largest handset manufacturer. It had over $105 billion in revenues in 2018. The ban has been “temporarily relaxed” for 90 days to prevent network disruptions in the US. But Google, which provides the Android Operating System and runs the Google Play app store, has already cut ties with Huawei. So have other key US-based MNCs such as Intel, Qualcomm and Cisco, which supply components to the Chinese MNC. Android holds nearly a 90 per cent market-share in the global smartphone market (with well over a 90 per cent market-share in India). Huawei sold over 200 million handsets in 2018 including the Huawei and Honor brands, and all of these ran on Android. This business will be crippled unless Huawei can create an alternative OS and convinces users to migrate to it. That is a tall order.

What is of even greater importance is that Huawei is, by far, the world’s largest supplier of telecom network equipment. The company’s supply chain will be severely disrupted as Intel, Qualcomm, Cisco, and other US-based component-makers have cut ties. Once its inventory runs out, it will be hard to repair and maintain existing networks. Creating new infrastructure will be even harder as Huawei will have to find alternative sources for key components, which are protected by Intellectual Property rights. Policymakers in India and elsewhere, who are relying on Huawei to supply a critical chunk of planned 5G infrastructure, must consider the potential for network disruption. Other network equipment suppliers such as Ericsson and Nokia are smaller, more expensive and not capable of matching Huawei in terms of scale. But they are also not likely to be hit by a spares crunch.

The stated reasons for the ban are even more disquieting. The US security establishment believes that Huawei has deep ties with China’s military. It is alleged that Huawei equipment could have “backdoors” that give Chinese agencies access to sensitive data flowing across networks. There are also concerns that networks could be deliberately disrupted in the case of a conflict with China. Six different US security agencies have also issued public statements asking US citizens not to use Huawei phones (along with other Chinese brands such as ZTE) due to privacy concerns. The concern about insecure network infrastructure has been cited repeatedly by American security agencies, and it is certainly technically feasible to build backdoors into phones, or telecom networks. The alternative conspiracy theory — that the US is using Huawei to gain leverage in the ongoing trade war with China — is hard to verify. Given India’s somewhat fractious relationship with China, the ban, along with the cited reasons, provides sufficient cause for policymakers to review Huawei’s status as a 5G vendor. Policymakers and users need to be satisfied that India’s 5G rollouts will happen on schedule and that networks will remain completely functional despite the ban. There can also be no compromise in terms of the future security of 5G networks, so Huawei should be asked to address those concerns as well.