Connect

  • Facebook - Grey Circle
  • Twitter - Grey Circle
  • Google+ - Grey Circle

© 2017

Huawei’s European challenge: Convincing clients despite US campaign

July 25, 2019

Chinese telecom giant Huawei is facing its toughest period in years as the United States accuses it of facilitating spying for Beijing. Washington is pressuring European countries to cut off their ties with the Shenzhen-based company, but few are willing to do so.

 

Shenzhen, China (dpa) – At lunchtime on a Friday in June, a group of Huawei employees crossed a replica of Heidelberg’s Old Bridge on their way to cafeterias near a faux Palace of Versailles.  

 

Huawei’s new campus in the hills outside Shenzhen encompasses 120 hectares and was built to replicate parts of 12 European cities. The architecture, though controversial, shows founder Ren Zhengfei’s affinity for European culture. Ren is also known among employees for encouraging the study of classic European literature and philosophy. 

 

Now Huawei, the world’s largest telecom equipment provider and second-largest smartphone maker, is facing a special challenge in Europe: The Chinese company is competing for contracts to roll out high-stakes 5G technology while being caught in the throes of the US-China trade war. 

 

Washington accuses Huawei of helping the Chinese government to spy on other countries and is pushing its European allies, to various degrees of success, away from working with the Chinese giant. Huawei and Beijing have denied the accusations. 

 

European governments and telecom providers are weighing their options as they decide whom to entrust with building their 5G infrastructure networks – a decision with potentially major economic implications. 

 

5G technology, up to 100 times faster than 4G, is expected to provide the super-fast connections underpinning digitalized factories, driverless cars and smart appliances, among other things.

 

"The leader of 5G stands to gain hundreds of billions of dollars in revenue over the next decade, with widespread job creation across the wireless technology sector," a group of US business leaders and academics said in a report to the US Department of Defence earlier this year.

 

Huawei claimed the largest share of the telecom equipment market in Europe, Middle East and Africa (EMEA) last year at 40 per cent, followed by Ericsson, with 36 per cent, ZTE (11 per cent) and Nokia (10 per cent).

 

But the Chinese company took a hit in May when the US Department of Commerce put it on a blacklist restricting US companies from selling it components and software.

 

Ren in June cut revenue forecasts for Huawei by 30 billion dollars over the next two years and said he expected international smartphone sales to drop by 40 per cent in 2019 compared to last year. 

 

In Europe, Huawei’s business expansion has become a matter of proving its trustworthiness. 

 

"I’ve been working in this company for 20 years. I would say this is the worst and the most difficult time period for Huawei," said Vincent Peng, Huawei’s president for Western Europe. However, he added, employees’ morale remained high. 

 

He said Huawei couldn’t do much to convince European clients to continue to work with the Chinese company other than banking on the trust built over 15 years of collaboration and increasing transparency.

 

To that end, Huawei has launched several cybersecurity centres in places like Brussels, Bonn and Banbury in Britain, where governments can test Huawei equipment for backdoors.

 

A British parliamentary committee this month said it found no technical reason to ban Huawei, though operators were advised to keep Huawei out of the "core" of their networks for increased security.

 

Britain’s EE and Vodafone have started rolling out their 5G service using Huawei equipment, with Three UK to follow later this year. 

 

Huawei also has 5G contracts in Switzerland, Italy, Netherlands, Monaco, Spain and other European countries where it has non-disclosure agreements, according to spokesman Joe Kelly. In total, Huawei has 28 5G contracts in Europe out of more than 50 worldwide.

 

While some European countries including Germany are still considering whether to trust Huawei with their telecom networks, none has enacted an outright ban at the US’ request, like Australia, New Zealand and Japan have done.

 

"[European] countries are not comfortable with being dictated what they should be doing in ways that could be detrimental to the quality of their tech infrastructure," said Michael Jacobides, a professor of strategy at London Business School.

 

In terms of 5G technology, Huawei is two years ahead of the competition, according to German industry analysts. Huawei executives credit the upper hand to the billions of dollars poured into research and development in the past few years, though the US accuses Huawei of stealing trade secrets from competitors including T-Mobile.

 

The wider implications of the US campaign against Huawei is that it could lead to the division of technological standards between East and West, akin to a "tech Iron Curtain," analysts say.  

 

Huawei has been cut off from using parts of Google’s Android operating system and apps such as Gmail, Facebook and Instagram on its future smartphone models. The company said it could roll out its own operating system, though various executives have made contradictory statements in recent months as to how far along its development is.

 

"We always want to go for Android ecosystems," Peng said. "But if we are forced to, we have an option B, and it could be ready in a very short time."

 

Analysts agree a global technological split would disrupt supply chains and drag down cost efficiency, though it’s hard to predict its effects on Huawei and the US tech giants. 

 

Amid the turmoil, European countries are aiming to strike a balance.

 

"Europeans want to have the political door open. They want to leave the door open for Chinese infrastructure," said Marcus Gloger, a partner at Strategy& in Germany. "Separating the world into a Western and Eastern hemisphere is not something that Europeans are going for."

Share on Facebook
Share on Twitter
Please reload