Decrypting the British Decision to Cap Huawei's Contribution to Building 5G Network Infrastructure

On the January 28, 2020, the U.K. government announced its decision to continue use Huawei’s equipment with restrictions after several official consultations and under the stern recommendations of the U.S. government to completely block Huawei. The release highlights the fact that the U.K. government will exclude “high risk” vendors from its sensitive “core” network parts of 5G and gigabit-capable networks, which include all safety-related and safety-critical networks in Critical National Infrastructure (CNI). The government did not share this list of these “high risk” vendors, but Huawei is definitely on it. The government has capped the deployment of its radio equipment over any mobile operator’s network in the country to 35%, and this equipment will not be allowed to operate in sensitive geographies. Despite these restrictions, ABI Research sees this move as a very balanced initiative by the British government based on informed advice from security advisors and telecoms service providers.

Before the decision was made, the U.K. Prime Minister had faced “double” pressure from both the United States and China due to the their trade war. From one side, the United States has said it will review intelligence sharing if the United Kingdom does use Huawei’s equipment, especially since the United Kingdom is part of the “five-eyes” intelligence group. From the other side, China had warned the United Kingdom it would reconsider other trade and investment plans if the United Kingdom banned Huawei outright. To handle such dilemmas, brave governments need to face reality and set the foundation for more strategic decisions and the future of the country. The decision made by the U.K. government follows the exact same principle. ABI Research agrees that this decision is a good compromise between alleviating security concerns and making sure that the U.K.’s 5G market is not harmed, and, with such a decision, there will be minimal disruption to existing 5G rollout plans.

To be able to understand the rationale behind this decision, two questions need to be answered:

Why Will Huawei’s Contribution to 5G Radio Equipment Be Capped at 35%? Thanks to its competitive edge in both technology innovation and pricing, Huawei has been a tremendously successful telecoms infrastructure vendor in recent years. The company has managed to win the trust and the wallet of many telecoms operators around the world, British operators in particular. To that point many governments and authorities, are now fearing the Chinese supplier could dominate the 5G infrastructure supply in the future. From this perspective, it is extremely hard for any government to allow a single company to have a supremacy on what is perceived to be the most valuable and sensitive infrastructure because 5G represents the foundation of the next industrial revolution. So, it is fair to cap the footprint of Huawei from any 5G infrastructure deployed by any British operator to one third of the total infrastructure to avoid any potential risk of dominance in the future.            

Why Will Huawei Not Be Allowed to Offer 5G Core Network Equipment to Operators? Unlike previous network generations, 5G will be at the heart of the transformation of many industries and will represent the backbone infrastructure for any country’s prosperity in the future. Therefore, compromising or mishandling any data flowing across 5G could put the entire country at serious security risks, and the core is basically the brain of the network responsible for controlling, manipulating, and managing the entirety of the data traffic. It is understandable that nations aspiring to position themselves as the industrial leaders of tomorrow want to prevent any potential possibility of security threats, even if these threats are only based on suspicious patterns. One may also argue that Huawei’s core infrastructure is already deployed for 4G, through which all current 5G data is routed, so why will the company be banned from supplying 5G core network? Because of this, certain operators in the United Kingdom have decided to remove Huawei’s equipment from their core networks. The implementation will take around five years, and the cost will be approximately serval hundred million pounds.   

In any case, it is business as usual for Huawei in the United Kingdom and its core revenue stream, 5G radio infrastructure, will not likely be harmed with these restrictions now or any time in the future.

Apart from the “high risk” vendor restrictions placed by this latest policy in the United Kingdom, the government has also commented: “The government is now developing an ambitious strategy to help diversify the supply chain.  This will seek to attract established vendors who are not present in the UK, supporting the emergence of new, disruptive entrants to the supply chain, and promoting the adoption of open, interoperable standards that will reduce barriers to entry.”

This is indeed a commercial argument and hints that the United Kingdom will be assessing new entrants to the telecoms infrastructure supply chain—most notably smaller OpenRAN vendors. This is somewhat expected since the telecoms domain is now serviced by five large vendors (Ericsson, Huawei, Nokia, Samsung, and ZTE) and only Ericsson, Nokia, and Huawei have a strong European presence and logistics supply chain. On one hand, this 35% cap radio equipment restriction will bring the three into a neck-and-neck situation, as opposed to the threat that Huawei was going to dominate the British 5G infrastructure business if preventive measures were not taken by the British government. This move will also leave opportunities for small vendors to enter the market. This is the reason that many European operators are now issuing 5G Requests for Proposals (RFPs) and seriously considering OpenRAN architectures.

The U.K. government’s decision above is in the same context. When implemented, it will reduce barriers for established small vendors to enter the market, ensure a more competitive market, and drive innovation with fast rollout. However, to accommodate complete openness, the existing network topologies and architectures should be fundamentally changed, e.g., software and hardware should be disaggregated, and a neutral host network must be built up to integrate solutions from different vendors, which are not easy tasks. Moreover, network security could also be compromised if there are no well-established orchestration functions that are able to control multi-vendor equipment and components. ABI Research expects that this network openness will submit to the same rules used to build and operate computers’ work today, where the entire infrastructure should be modularized rather than verticalized, and the network should be operated by a solid operating system. This has yet to appear in the industry, but these political issues will accelerate its development.