GP Insights # 220, 18 January 2020
On 14 January, the US Senate introduced legislation that would provide over US$1 billion to fund the alternatives to Huawei in the West. The proposed Utilising Strategic Allied Telecommunications Act would aim to spend at least US$750 million in funding companies carrying out research and development work in developing fifth-generation (5G) wireless technology.
Also, a fund of US$500 million is set aside to speed up the adoption of "trusted and secure equipment" worldwide. The funds are to be drawn from the revenue generated on auctioning new spectrum licenses by the Federal Communications Commission (FCC).
What is the background?
Huawei Technologies has been at the forefront of emerging 5G technology. The contentious Chinese firm is at the heart of current US-China trade tensions as well. The Trump administration has added Huawei to its "entity list," with the signing of National Défense Authorization Act (NDAA). The law bars US companies from doing business with Huawei. The FCC has also unanimously voted to designate Huawei as a national security threat. In response, Huawei has rejected allegations that it poses a threat and FCC's decision is based on selective information, mistaken assumptions, and there is no valid evidence to it.
The US Senate has introduced legislation in bolstering the US innovation in the race for 5G. The bill was introduced after months of discussions on abandoning the use of Huawei equipment by the US federal government. There were concerns among the members of Congress and other officials around a Chinese law that requires all Chinese-based companies to assist with intelligence work. The bill states the representation and leadership of the United States as necessary to stop China from gaining influence at international telecommunication organisations.
The Huawei's full-stack of 5G crunch extends across the world. There is a rift between parties in Germany on allowing Huawei equipment. German Chancellor Angela Merkel opines on not being dependent on one equipment supplier but at the same time not to shut out the most viable option available. The UK is also likely to restrict Huawei equipment to its commercial networks and not allow in their core infrastructure. The US has been lobbying efforts in the wake of governments preparing themselves to make decisions on 5G network. It has warned that any use of Huawei would lead to a review of intelligence sharing.
What does it mean?
First, this will keep the hope of US efforts to combat china's dominance in the telecommunication sector afloat. Though the US has ceded mainly to European and Asian companies, the bill subsidises tech firms and would help smaller domestic companies to gain a foothold in the market. The representation of the US and its support to tech companies of smaller countries will become less vulnerable to Chinese assertiveness. China's haul of getting access to military and intelligence agencies, Government classifieds will largely remain unsuccessful.
Second, while the introduction of the bill with bipartisan support is easy, it remains far more challenging to get it passed in the purview of the current political scenario. Like always the executive and legislative branches could differ in their opinion while the Senate is prepared to consider the impeachment trial of US President Donald Trump. Moreover, the political lines are growing rigid in advance of the presidential election in November.
Third, major telecom operators are all customers of Huawei and are appealing to the US and other Western governments to embrace 5G more rapidly or risk falling behind China at the loss of years of delays and billions of dollars in costs launching 5G networks. Germany and the UK would want to reassess their decisions on leaving out Huawei.
Finally, China would continue to sell Huawei equipment and heed no interest in unsubstantiated allegations against Huawei. It would see this introduction of the bill as unfortunate in using US taxpayer's money to duplicate efforts when Huawei is offering the best to ensure the security of a network.