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Huawei and the U.S. Cloud Act Irony

Huawei and the U.S. Cloud Act Irony

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Huawei has spoken.

At the Mobile World Congress 2019, an annual industry congregation of Telco operators, technology vendors and service providers, Huawei’s Chairman Liang Hua made clear the company’s position on security and the recent allegations by the U.S. on Chinese security concerns.

For years, Huawei has grown from strength to strength, becoming the undisputed global leader in telecom and network equipment. Today, Huawei has no business in the United States and no US telecom service provider uses Huawei equipment in their networks. Outside the U.S., the company has ~70% market share and its equipment powers telco networks that serve ~3billion mobile users.

One could argue that the protectionist mindset of the U.S. has led to limited innovation in among U.S. equipment vendors, or that Chinese state subsidies were the only reason why Huawei has become what it is today. Yet, no matter the reasons, Telco network operators globally recognize the distinct technological and cost leadership Huawei has over peers like Cisco, Nokia and Ericsson. Even U.S. operators themselves have acknowledged that Huawei is at least 6-9 months ahead in their technology roadmap.

A bold, public statement

Recent allegations, sparked mainly by President Trump, pointed to the risk that Chinese Telco network equipment could be subverted by the Chinese Government and used for espionage. While Huawei has always been viewed with suspicion, the current allegations appear to have struck home. European regulators have been coming under pressure of late, by the U.S. to take heed of security risk.

This is by no means purely political, nor solely a security discussion. The timing is impeccable, as telco operators globally begin planning for hundreds of billions in 5G network capex that would ultimately accrue to Ericsson, Nokia, Cisco or…Huawei. The commercial stakes are high and governments in the west are not blind to that fact.

In January, Huawei’s reclusive founder Ren Zhengfei made his first public statement in 4 years, stating “I love my country, I support the Communist Party. But I will not do anything to harm the world”

“Prism prism on the wall, who is the most trust worthy of them all”, said Huawei’s Chairman Liang Hua at a keynote presentation at the Mobile World Congress. He then went on to state explicitly, in front of thousands of industry players that “Huawei has not and will never plant backdoors in our equipment”. Expressing his view that third party industry assurance is key, he concluded that the decision ultimately rest with network operators.

Irony of the U.S. Cloud Act

Liang Hua’s boldest statement though, was his reference to the irony of the U.S. Cloud Act. A legislation passed in 2018, the U.S. Cloud Act grants the U.S. government the right to access data residing in Cloud Infrastructure provided by market leaders such as Microsoft, Amazon and Google globally (emphasis).

Positioned as a legislative tool for investigations, concerns by European regulators were that it wouldn’t be the first time the U.S. government abuses laws that were meant to be used only against terrorists or national security issues. The governments of Belgium, France, and Netherlands have been encouraging all of EU’s member states to jointly pass regulations that would prevent the U.S. government from abusing the powers it gave itself last year with the passing of the Cloud Act law. Back in the U.S., Microsoft has also called out that secret orders enabled by National Security Letters were increasingly common.

Where that leads us

Concerns of espionage risk are real. In an increasingly connected environment where data increasingly sits in Cloud infrastructure (a market dominated by US tech giants) and flows through networks equipment (where Huawei has significant share), does Europe get caught in the middle? Or is this an opportunity for players like Ericsson and Nokia to breakout, at the cusp of the 5G transition, holding their ground on neutrality, transparency and security? Will telco network operators globally (many of whom government owned) make their decisions on the basis of risk aversion and begin looking towards European vendors; or on the basis of returns and seek out the lower cost and more technologically advanced options that Huawei offers?