Graeme Philipson
July 26, 2018

The China supply chain and 5G

TelcoLand

The China supply chain and 5G

Peter Jennings: China's government is to balme for potential Huawei 5G problems here 

The debate about Huawei’s role in Australia’s looming 5G build-out is not going away any time soon. The key issues were outlined in high relief at CommsDay’s ‘Unwired Revolution’ conference in Sydney, where Huawei’s Jeremy Mitchell squared off in a ‘special discussion’ with the head of the Australian Strategic Policy Institute (ASPI), Peter Jennings.

Their sparring match was titled ‘The China Supply Chain and 5G’. China, it would seem, is the key issue, not Huawei.

“You might be able to take Huawei out of the equation, but you can’t take China out of it,” said Mr Mitchell, who is Huawei ANZ’s director of corporate and public affairs.

“Chinese made equipment, from all major suppliers, is an integral part of the global telecommunication supply chain. Ericsson‘s factory in China is half owned by the Chinese government. Nokia has a factory there too.”

He referred to Huawei’s offer to have all of its hardware and software vetted by an independent Australian monitoring laboratory, which it would be prepared to pay for. He also said that other companies should be vetted in the same way.

“We’re happy to have limits and checks, but if you remove the largest player what will that do? In the USA telecommunications are twice as expensive as in the UK, and average speeds are only half as fast. That’s what happens when there are only two players in the market” said Mr Mitchell.

“If Huawei can’t take part in Australia’s 5G future, not only will it make it impossible for us in this country, but also decimate the Australian telecommunications industry.”

Mr Jennings countered by saying that the government needs to consider the bigger picture, and that it is the policies of the Chinese government that are the main reason Huawei is in danger of being frozen out of Australia’s 5G implementation.

“The Chinese Government under Xi Jinping has become more authoritarian and has adopted an increasingly aggressive policy on stealing intellectual property and using cyber warfare as a tool of state policy,” he said.

“Last year the Chinese passed a new national security law under which Chinese companies must cooperate with China’s security agencies. Chinese companies are an important part of this aggressive new policy from a tradecraft point of view.”

Mr Jennings, through ASPI, is a leading advisor to the Australian Government on the issue. ASPI was set up by the Howard Government in 2001 to provide it with independent defence and security advice. It is a wholly owned Australian government entity and largely funded by the Department of Defence.

Mr Jennings puts the chance of Huawei being prohibited from supplying equipment for Australia’s 5G roll-out at 70 to 80 per cent. “I don’t feel safe about Australian IP – China has been strip mining intellectual property from Australia for years. It‘s become a standard method of operation.”

Huawei, and fellow Chinese vendor ZTE, is banned by the US government from supplying equipment to US-based telcos.

In 2012 Huawei was also prohibited by the Australian government from supplying equipment to Australia’s National Broadband Network. And earlier this year the Australian government paid $137 million in aid to the Solomon Islands to ensure it did not use Huawei for the country’s major telecommunications upgrade.

Mr Jennings has been one Australia’s most vocal critics of the Chinese government policies in the cybersecurity and intellectual property spheres.

ASPI has advised the Australian Government to extend its existing ban on Huawei in the NBN to its participation in 5G.

Understandably, Huawei is not happy. “Where is the evidence that Huawei is a bad actor?” asked Mr Mitchell. “We keep getting told at meetings with the Government that this is not about Huawei."

"They mention security concerns, but we never told the exact reasons. And if China is the issue, well the other players also make much of their equipment there.”

Mr Jennings made the point that Huawei was now being investigated in the UK, where the foreign investment rules are being reviewed. He said colleagues at GHCQ, the UK Government intelligence and security directorate, have privately expressed to him their serious misgivings about Huawei.

Mr Mitchell countered by pointing out that the UK has not prevented Huawei from supplying the UK government or any private companies in that country. “We are the biggest supplier to BT. And also to Deutsche Telekom and in Australia to Vodafone and Optus,” he said.

“Huawei is just a telco supplier. We’re not into geopolitics. We’re the world’s number one vendor of telecommunications equipment. We wouldn’t be there if people didn’t trust us."

"The only countries in the world in the world that have banned Huawei from anything are the USA and Australia.”

Taking questions from the audience at the conference, Mr Jennings repeated his assertions. “China is a massive threat to Australia’s public and private sectors. China’s theft of intellectual property must stop. We have been talking to them about this in very direct terms.”

He was asked why there was no commonality in different governments’ policies towards Huawei.

“I think Australia looks at China a bit differently than the UK does," Mr Jennings said. "China looms much larger in Australia and is becoming our biggest threat.”

Any announcement about Huawei’s possible exclusion from Australia’s 5G future is likely to be made to next few months when the new Telecommunications Sector Security Reforms (TSSR) come into force.

The relevant sections of the Australian Telecommunications and Other Legislation Amendment Act 2017 take effect on 18 September.

Under the Act “the Attorney‑General may give directions to a carrier or a carriage service provider in certain circumstances where certain activities may be prejudicial to security.”

The Act contains some detail, all of which would be widely interpreted, about telecommunication security and related issues.

Many in the industry agree with Mr Mitchell that if Huawei were to be excluded from 5G, it would cause many problems for the Australian telecommunications industry.

Representatives from Optus and Vodafone, speaking to InnovationAus.com off the record at the CommsDay conference, said that it would cause them great difficulty if Huawei were to be banned.

They said that the major potential problem would be the extent of Huawei’s current relationship with Australia’s second and third largest carriers. 5G is an evolution, not a completely new technology, and 5G technology will coexist with existing infrastructure.

“It will be very difficult to tell where one ends and another begins,” said a representative from one of the carriers.

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