No 5G

As the US ramps up its attacks on the 5G giant Huawei, it is European telecom operators who are most likely to face headaches. 

Last week, Washington announced that it is blocking the use of any American technology in microchips that power Huawei’s smartphones and networking equipment, bringing what some experts are calling a ‘lethal blow’ to the company.

The rule, which entered into force on Thursday seems likely to jeopardize Europe’s own telecom networks, potentially increasing costs and creating delays to the deployment of the block’s 5G networks. 

This is because as analysts at Gavekal estimated, if the US rules remain unchanged, Huawei would run out of stocked components by ‘early next year.’

Whilst Huawei has said that it is still too early to determine what impact this will have on their supply chain, they have warned that European consumers will suffer due to the US’s attempts to harm the company.

All of this is quite interesting as it highlights one major area where there are divisions not only between the US and Europe, but also internally in Europe. The US is openly hostile to Huawei, Europe has taken a much more ambivalent approach. The EU agreed in January to reduce its dependency on Chinese equipment for future 5G networks, but national capitals have as usual, differed in their reading of how urgently they will do so. 

Some nations like the Czech Republic and Poland are echoing the US and calling to cut Huawei’s market access. Others like France say they will phase out the company later in the decade, whilst Germany and Spain have not taken a clear position.

Given the uncertainty over the US’ latest measures, it is not surprising that some European companies are preparing for the worst. Deutsche Telekom, Europe’s largest operator struck a deal with Huawei last year that gave it privileged access to stocks and required Huawei to stockpile components in case of a shortage. 

Naturally though with the EU trying to balance its commercial interests with China against its strategic interests with the US, these restrictions are going to hit hard. The restrictions could translate into delays and additional costs to deploy 5G kits in Europe, which would put the bloc behind its economic rivals when it comes to getting new networks up and running.

Whilst some in the EU are holding out hope that a Joe Biden presidency could change tack on US-China relations, there is no guarantee that such a thing would happen or that it would have support in Congress. 

Consequently, some governments in the EU are making contingency plans. The UK government decided to push Huawei equipment out by 2027 because its cybersecurity agency found it could not guarantee the security of the company’s new restructured supply chain.

So much uncertainty is forcing operators to choose whether to switch to alternatives such as Finland’s Nokia or Sweden’s Ericsson, but many are currently resisting the prospect of pushing Huawei out of the bidding process for 5G due to the fear of driving up costs. 

Meanwhile, Huawei is facing a race against time to restructure its supply chain and find new non American chipmakers to serve it, in order to stay competitive and valuable.

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