[Analytics] If Donald Trump kills off Chinese firm Huawei, do Asia’s 5G dreams die?

Until the US-China trade war turned nasty, the Chinese telecoms giant had been the region’s 5G developer of choice. Now its US ban has thrown those plans into chaos. Bhavan Jaipragas specially for the South China Morning Post.

When it comes to the roll-out of next-generation 5G cellular technology, few regions in the world could be as excited as Southeast Asia, a region famed for intensive smartphone use.

But this week’s dramatic escalation in the United States’ crackdown on Chinese telecoms giant Huawei has been a cold shower for those anticipating the mass-market arrival of a technology hyped as heralding a new dawn of driverless cars and artificial intelligence.

Just weeks ago, Huawei had seemed assured of playing a key part in the roll-out of 5G technology across the region; now some industry insiders say the Chinese behemoth has no clear way of continuing as a central player anywhere in the world.

That in turn has left a question mark over when Southeast Asia’s avid smartphone users can expect to reap the benefit of a development that promises download speeds of up to 100 times faster than its 4G predecessor.

The US Commerce Department’s inclusion of Huawei on its Entity List means that not only are US firms barred from using its equipment, they are also barred from selling to the Chinese firm – a move that could cripple the company because it relies on Western parts, such as chips.

Despite the administration of Donald Trump subsequently offering Huawei a three-month reprieve – allowing it to continue purchasing US equipment until mid-August – analysts like Paul Triolo are already mulling the longer term consequences.

With a nearly two-decade track record in markets from Singapore to Malaysia and even technology minnows like Cambodia, the Chinese firm had previously been viewed as a shoo-in as the region’s 5G vendor of choice.

“It appears likely that Huawei will be unable to weather US Entity List action, meaning the firm will not survive in its present form,” said Triolo, the Washington-based geo-technology practice head for the Eurasia Group consultancy.

“This will impact existing 5G network roll-out plans across the globe, first in Europe, and then in major wired blocs like Southeast Asia.”

Beijing-based Charlie Dai, an analyst with Forrester Research, said the “political measures of the US government are having a very negative impact towards 5G roll-out in the Asia-Pacific and worldwide”.

Despite disparate starting points – some Southeast Asian countries still do not have nationwide coverage of the decade-old 4G technology – almost all of the region’s governments have been racing in recent months to hold trials and roadshows for the new 5G standard.

Most regulators expect some form of mass roll-out next year – even though they acknowledge complete 5G coverage will take up to a decade.

TWO-STEP PROCESS

In general, the 5G network development process is twofold.

In the first stage, existing 4G networks will be enhanced to allow higher download speeds for smartphones and other devices.

The subsequent build-up of “stand-alone” infrastructure built separately from the existing networks – which is expected to take years – will pave the way for developments such as driverless vehicles, remote robotic surgery and other aspects of the internet of things by offering far greater download speeds.

Unlike previous 3G and 4G networks, 5G ones will be “cloud native” – depending largely on software rather than hardware, and will also heavily utilise artificial intelligence.

With 4G networks becoming increasingly clogged, regulators in super-wired countries like Singapore want 5G rolled out sooner rather than later.

Huawei’s current troubles may put paid to those plans.

WHAT’S THE ALTERNATIVE?

“The big question is whether in this environment, the alternative suppliers – Ericsson, Nokia and potentially Samsung – can step in as a replacement for Huawei at cost and scale,” Triolo said.

“This remains a major unknown, particularly on the cost side. At a minimum, if Huawei goes under, there will be a major delay in the roll-out of 5G globally, especially in those markets with already high levels of dependence on Huawei equipment.

“Carriers will not only likely have to ‘rip and replace’ equipment, [incurring] substantial financial and time costs, but will then have to transition to new vendors, possibly within an unprecedentedly short time frame.

“It is not clear how this will play out, and in [telecom] carrier boardrooms around the world, there are a lot of people coming up with strategies that were nowhere to be seen early last week.”

For their part, telecom firms have suggested using a variety of vendors will mitigate the risks associated with Huawei – whether it is the security concerns of the West, or the Chinese company’s reliability.

Washington and its allies believe Huawei is backed by the Chinese military and is likely to add “back doors” into network equipment that will allow Beijing’s spies access to the strategic communications of its rivals.

The Shenzhen-based company has vehemently denied this, and has accused the Trump administration of “bullying”.

Major Southeast Asian telecom firms – and the regulators they report to – have so far shrugged off the West’s concerns.

“The Huawei [situation] is a global problem that impacts all the industry, and not just us,” Idham Nawawi, the CEO of Malaysia’s Celcom Axiata, told Computer Weekly magazine in March. “If the worst happens [Huawei gets banned in Malaysia], our multi-supplier policy makes it easier to handle the situation.”

Marc Einstein, chief analyst at Japan-based IT research and advisory firm ITR, said he believed such diversification – long practised – was an adequate hedge against Huawei being put out of the running as a vendor.

“It has always been the case that telcos go with different vendors. That will continue because it’s a way of negotiating a better price,” he said.

In Singapore, meanwhile, the government’s plan to build stand-alone 5G networks means it is likely to be able to kick the Huawei question down the road.

The development of the new network will only be finalised next year.

“I don’t see any knockout impact on Singapore as the regulator here has preferred “stand-alone 5G” over non-stand-alone,” said Sachin Mittal, DBS Bank’s telecoms analyst.

The Lion City is already equipped with more advanced 4.5G and “narrowband internet of things” infrastructure that allows for usage of many 5G consumer devices. “Singapore has taken a pragmatic approach towards 5G,” Mittal said.

QUESTION OF STANDARDS

In the meantime, Huawei’s problems in the West may have left another minefield.

Triolo, the American analyst, said one big question mark was over the Chinese company’s role in setting industry-wide standards.

The 5G standard-setting process – through an international grouping called the Third Generation Partnership Project (3GPP) – had been expected to be completed later this year. But that could be in doubt as Huawei, the world’s leading telecom equipment provider, is a major player in the grouping.
“We do not know yet what impact Huawei’s precarious situation will have on the 5G standards setting process,” said Triolo.

Even with the US action against Huawei, the Chinese company – widely lauded for being far ahead of Western competitors in developing 5G – is likely to have about 30 per cent of standard essential patents for the core of the technology.

Said Triolo: “We are now in a whole new world, and it is unclear what Huawei will do at 3GPP and how the other key players will treat Huawei [intellectual property], both already part of the standards, or set to become standards later this year.”

Other industry watchers see no reason to be downcast.

Tokyo-based Einstein said with multiple US companies – Huawei’s chip suppliers – likely to be hit by any long term proscription of the Chinese firm, odds were that Washington would seek a resolution to its tiff with Huawei.

“In any case 5G is a 10-year story … and if it continues it’s not only bad for Huawei but also the US suppliers. So I personally think in the short term we will see some kind of resolution,” Einstein said.
Such hopes gained ground on Thursday, when Trump said Huawei could be included in a trade deal between the US and China.

Still, his words left ample room for doubt: an agreement between the two, he said, was “probably a good possibility”.