Why It’s So Hard for the U.S. to Ban Huawei
Almost a year after it was announced, the U.S. government’s ban on Huawei has not been enforced
In May of 2019, the United States government made the extraordinary decision to ban U.S. companies from buying equipment from the Chinese tech giant Huawei over concerns that its technology represented a national security risk. But almost a year later, the ban still hasn’t gone into effect. Instead, earlier this month, Huawei received its fourth “temporary” license to continue operating in the U.S.
It turns out untangling the international telecom industry is more complicated than it sounds.
Prior to the ban’s announcement, if Americans knew of Huawei at all, it was for the company’s smartphone business. In a relatively boring smartphone market, Huawei introduced phones with powerful zoom lenses and the company even introduced a foldable phone that could’ve given Samsung a run for its money.
But Huawei’s smartphone industry is only a small part of the business it does in the U.S. The vast majority of its business here is network equipment, and the company is deeply entrenched in the U.S. tech ecosystem. In 2019, Huawei accounted for 29% of the global telecom equipment market, selling equipment used to build cell towers and connect smartphones to the internet. Its two closest competitors, Nokia and Ericsson, made up 30% of the market combined. No single company manufactures more networking gear than Huawei. Some of that gear isn’t even made by U.S. manufacturers.
Still, the U.S. government insists that the company can’t be trusted with connecting its citizens. The U.S. intelligence claims that the company can use “back doors” designed for law enforcement to access the networks its hardware is installed in. Huawei denies the allegations.
This puts American network providers in a tough spot. Huawei’s hardware is a crucial component of the 5G rollout. Cell companies have already started advertising their 5G networks, promising faster download speeds but also transformative connections that could enable smart cities and connected cars. Some carriers are even branding the upgrade as part of the “fourth industrial revolution.”
In order for network providers like Verizon, AT&T, and T-Mobile to build out their 5G networks, existing towers have to be upgraded with hardware that few companies besides Huawei manufacture. Because the spectrum 5G uses doesn’t penetrate buildings as well as older networks, more towers need to be constructed in order to cover the same area. That could mean millions of new towers, which would also need Huawei’s (or a competitor’s) equipment.
Switching to a Huawei alternative is logistically challenging. In February, Huawei announced it had more contracts in place to build 5G networks than either of its next closest rivals, Ericsson and Nokia, which reflects how deeply entrenched Huawei already is. Network hardware from competing vendors isn’t cross-compatible, so mobile networks tend to stick with whichever vendor they have already.
Upgrading to 5G is already expensive, but networks can’t abandon the 4G systems as soon as their towers are upgraded. Some users still have 4G phones, and the slower networks tend to operate as a fallback if customers can’t get a good signal. Switching vendors would mean that 5G towers aren’t compatible with the older 4G equipment. Networks would have to swap out their 4G technology with gear from their new vendor to maintain interoperability. This only adds to the expense of upgrading.
The cost of replacing Huawei is so high that it’s required government intervention. Earlier this month, the Trump administration signed legislation into law that will provide $1 billion to reimburse smaller telecoms who must replace existing Huawei technology with new hardware from competitors. The same law also bans federal funds from being used to purchase Huawei equipment (as well as equipment made by ZTE, another Chinese manufacturer).
That $1 billion is a drop in the bucket compared to the overall cost of upgrading network infrastructure. In 2018, the four biggest U.S. wireless carriers spent a combined $55 billion to upgrade their networks — and that was before the new rules governing usage of Huawei products. The federal funding can certainly help rural network providers, but the scope of upgrading cell networks can cost considerably more than the bill provides.
There’s also a question of whether Ericsson and Nokia are equipped to compete with Huawei. Neither company has the scale or resources in their networking business that Huawei has. The Chinese government has funneled money and tax breaks into Huawei in order to bolster its global presence. U.S. Attorney General Bill Barr has even floated the idea of the United States acquiring Ericsson and Nokia “either directly or through a consortium of private American and allied companies,” though the idea hasn’t garnered much serious support.
Upgrading America’s infrastructure to 5G is expensive. Replacing Huawei network equipment with a competitor is even more costly. And even if America commits fully to the switch, Huawei’s competitors may not have the resources or scale to provide the equipment necessary to roll out the upgrades on the same schedule.
American networks can live without Huawei. But it will likely slow down the 5G network rollout. Even Ericsson’s CEO Borje Ekholm said during a February interview that the Huawei situation has created “uncertainty” that could slow adoption as network operators try to figure out the best, most cost-effective way forward.
For now, the ban on U.S. companies using Huawei equipment has been delayed until May 15th, but the Department of Commerce is seeking public input on whether the temporary license should be extended again. This will give network operators a chance to weigh in on whether they’re in a position to cut off Huawei entirely. There’s no indicator yet of how network operators will respond, but if the last year is any indication, it might still be a while before the United States can follow through on its plan to kick Huawei to the curb.