Who Benefits From the U.S. Crackdown on Huawei?

Foreign Policy

Elias Groll

January 31, 2019

As U.S. law enforcement and intelligence officials mount a campaign to expel the Chinese telecommunications giant Huawei from U.S. and allied networks, business insiders are asking themselves a question that goes to the heart of the industry.

What companies stand to benefit?

Huawei, which makes telecom equipment for the next-generation 5G cellular networks, has managed to capture 28 percent of the world market by offering high-quality gear at a low price—thanks in part to state subsidies from Beijing.

The United States has mostly banned government agencies and contractors from using Huawei equipment, fearing that it might provide a backdoor for Chinese spying efforts. Some European countries are considering following suit. As a result, Nokia and Ericsson—two Nordic telecom heavyweights that control 17 and 13 percent of the 5G market, respectively—could get a boost.

But as with all big political disputes, assessing the impact on international business is complicated.

For one thing, industry analysts and experts caution that Washington’s effort to blacklist Huawei could very well undermine efforts by non-Chinese companies to break into the Chinese market—including Nokia and Ericsson. 

“To the extent that Western governments are kicking out Chinese companies, China is going to retaliate against Western companies,” said Mike Thelander, the head of Signals Research Group, a telecom research and consulting firm.

And while Nokia and Ericsson are big players in the 5G market, it’s actually Samsung that might be best positioned to reap the benefits of security concerns directed toward Huawei. Though a relative newcomer to the 5G market, Samsung is well resourced as the world’s leading manufacturer of smartphones and is able to manufacture the advanced chipsets that form a key part of 5G technology.

“If you’re an operator and the government says you can’t have Huawei, it’s kind of open-ended,” Thelander said. “Going to a Samsung becomes a bigger possibility.”

Telecom companies are only beginning to bring fifth-generation products to market, and countries around the world are considering multibillion-dollar investments that will define the future of their cellular networks.

Just as the transition to fourth-generation wireless technology ushered in the current app economy, economic analysts expect that 5G technology will spark innovations on a similar scale.

But U.S. scrutiny of Huawei’s ties to the Chinese government threatens to upend these contract considerations and interject political and security concerns into decisions about technological infrastructure.

On Wednesday, Reuters reported that the European Union is considering a plan to ban Huawei from member states’ next-generation telecom networks. And last week, Vodafone, the biggest mobile phone operator outside China, said it would halt purchases of Huawei equipment for 5G networks being built in Europe.

Nonetheless, the security concerns regarding Huawei have telecom executives sounding a note of caution.

“What it has created is an uncertainty among our customers,” Ericsson CEO Borje Ekholm said during a conference call with investors last week.

“Uncertainty is never good for investments.”

Ekholm said his company is “investing heavily to make sure that we are a technology participant” in China’s rapid development and deployment of 5G technology, which in some respects is far ahead of Western countries.

Ericsson’s Nordic rival, the Finland-based Nokia, is also making significant investments in China and has signed more than $2 billion in agreements with Chinese mobile phone carriers to transition to 5G.

Though Ekholm did not say explicitly that the campaign against Huawei could threaten the Sweden-based company’s position in China, he alluded to that possibility. “Where this is going to take us, we don’t know,” Ekholm said.

China could also retaliate against Western firms in other ways. With American prosecutors attempting to extradite Meng Wanzhou, Huawei’s chief financial officer, from Canada on charges that she defrauded U.S. banks as part of a scheme to sell banned telecom equipment to Huawei, some analysts believe that China might detain more Western business executives. Beijing is already holding several Canadian citizens in detention.

For all the scrutiny of Huawei, it may end up having a negligible impact on the company in the long run. U.S. concerns about Chinese spying through Huawei’s platforms is unlikely to deter many poorer countries, where the benefits of a 5G network outweigh the risk of espionage.

“If you’re a smaller country and somebody comes in and offers to build a no-cost or low-cost 5G network, they won’t care,” said James Andrew Lewis, the director of the Technology Policy Program at the Center for Strategic and International Studies, a Washington-based think tank.

As a result, Lewis speculates that Huawei may well end up with two-thirds of the global market share for 5G networking equipment.