Europe between a rock and a hard place

The Union is forced to be either a 5G leader or a US ally

Almost a year ago the Trump administration began a yearlong drive to persuade Europe to ban the backbone equipment for 5G wireless networks manufactured by Chinese telecoms giant Huawei. Last month, Secretary of State Mike Pompeo even visited capitals in Europe, particularly in Eastern and Central Europe, in another desperate attempt to urge EU leaders to avoid using basic equipment from Huawei in their rollout of 5G mobile networks. The US continued its pressure by threatening to stop intelligence sharing if Europe neglected its recommendations.

Yet, the bloc decided on 26 March to defy American calls for a blanket ban on Huawei and ZTE, opting instead to demand stricter security measures on telecoms vendors by the end of the year. Was that surprising? Not exactly.

Undoubtedly, European officials acknowledge that critical infrastructure built with technology made in China may give country's corporations access to huge troves of sensitive data and industrial information - which ultimately might be turned over to Chinese authorities. Moreover, Chinese-manufactured infrastructure could make European countries vulnerable to cyberattacks delivered through the network infrastructure, and overall national security threats. Other risks related to over dependency on Chinese 5G equipment include intellectual property losses and an reliance on foreign infrastructure. And in the 5G era, as the number of connected machines and objects and reliance on fast data increases, these concerns are mounting more than ever and the security risks connected to 5G infrastructure become significant.

Yet, moving beyond the security dilemmas, urgent factors relating to competitive market structure and the state of 5G technology are also weighing heavily on both European governments and telecoms operators. Unlike the US, where Huawei equipment has long been banned, Huawei is strongly rooted in the EU. The company has come from almost nowhere in Europe a decade ago to supply about a third of telecom systems nowadays, with chief rivals Ericsson and Nokia each holding only about one-fifth or slightly more of that market. The Chinese giant has positioned itself to be a critical and irreplaceable provider of equipment such as antennas, switches, routers, small cells and network slicing gear for 5G by conducting trials with carriers. And telecoms realise that very clearly. As British Telecom's Chief Architect Neil McRae said it last year: “There is only one true 5G supplier right now and that is Huawei - the others need to catch up. The others are held back by old telco issues.” Of course, this is just one executive's viewpoint, but numbers prove that statement.

In 2017 Huawei became the biggest filer of patents with the European Patent Office (EPO), becoming the first Chinese company to reach the number one spot. The trend continued in 2018, as well, with Huawei filing more than 5,400 patents - more than Ericsson and Nokia combined.

Huawei has then signed MoUs with wireless providers in at least eight European countries and has tested with local providers in at least twelve EU Member States. And last week, using company's technology, Austrian T-Mobile even became the very first EU carrier to offer the fifth generation standard. So given this deep market penetration and the fact that Huawei is a global industry leader with highly competitive prices, simply banning it from supplying 5G equipment or removing them from existing networks in Europe seems unimaginable.

First of all, the cost of switching to another vendor and replacing all Huawei equipment would represent a huge additional burden as these firms move towards 5G. Deutsche Telekom, for example, has estimated that such a move would result in additional costs of up to several billions of dollars. Secondly, European telecoms operators - as large consumers of mobile network equipment - have a strong interest in competitive pricing. Something they have certainly benefited from having a technological giant such as Huawei facing off against Nokia and Ericsson. This leads to a third factor. Many of the operators see Huawei 5G technology as being more sophisticated while at the same time cheaper than comparable kits from Ericsson and Nokia.

In conclusion, if the EU governments remove Huawei from the 5G competition, that would undoubtedly set Europe back by several years at a crucial time when other advanced economies are quickly rolling out new technology. According to predictions issued by Deutsche Telekom, this delay might last for more than two years. Other major European phone companies' forecasts sound even more catastrophic as they claim that barring Huawei would delay EU's 5G launch by 18 months - something that would seriously disrupt the whole mobile ecosystem.

That said, Europe may soon no longer have a choice. The US has made clear that it expects all allies and partners to take steps to limit Chinese 5G, and to protect the security of telecoms networks and supply chains. No matter the cost. That sticks the EU between a rock and a hard place, because on one hand the bloc could retain Huawei backbone equipment and ensure its leadership in the 5G race. The potential payoffs of such a move are enormous - a European Commission study estimated that investing €56.6bn in 5G networks could generate economic benefits of €113.3bn annually and generate 2.3 million new jobs by 2025. Patent-holding companies are slated to make billions in royalties, and countries with large and reliable networks will be able to develop emerging and new technologies with faster speeds. Not something you would like to let slip out of your fingers, right?

On the other hand, however, if Brussels decides not to ban Huawei at all, this would have potentially grave consequences for the alliance with Washington and by inference for NATO as well. Because in a world marked by growing geopolitical rivalry between the US and China, American allies will increasingly face a stark choice between the two, as they did during the Cold War. Europe is no exception.

Another serious question also remains. While today's wireless systems connect a few devices like our phones and computers, 5G promises a radio wave-rich environment where billions of chips, sensors, cameras, appliances and electronics around us will be interconnected, pinging information back and forth. Taking into consideration the cybersecurity aspect is essential. Yet, not much has been done on that issue.

So the current challenges for Europe are not easy to tackle. It has to find a way to minimise the security risks linked to Chinese suppliers, but not delay 5G, while at the same time it has to keep its relations with Washington intact and not let Trump's administration restrict the US intelligence sharing or the trade relations that the EU depends on.

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