Over 68 countries went with Huawei for 5G deployment, despite U.S. warnings of national security risks. What does that mean?
Declan Ganley: “If Beijing succeeds in the strategy that it is implementing now, 10 years from now, there would be nowhere to go.”The U.S. is struggling to go 5G itself, what happened?
Newt Gingrich（前众议院议长）：“他们花了850亿美元买下了时代华纳，他们负担不起5G 开发的费用。”
Newt Gingrich: “They took 85 billion dollars and they bought Time Warner… They can’t afford to go to 5G and they’re desperate that nobody else go to 5G. ”
A wholesale open access model will break the mobile industry’s oligopoly. But is that all it takes to prevent China’s dominance in the cyber domain?
Robert Spalding:“ It is absolutely a government decision because it’s talking about our freedoms going forward. What kind of life you want to live in?”
萧茗（Host/Simone Gao）: 欢迎收看《世事关心》，我是萧茗。两个月前，我们做了一期华为和全球5G应用的节目。那时候华为准备好要接管全世界网络领域的大部分。我们探讨了那种情景下的国家安全问题。我们注意到美国努力提升对国家安全风险的认知。两个月过去了，我们现在讨论话题的另一个方面。我们注意到美国的努力让世界更好的认识到华为带来的风险，但是华为扩张的势头依旧。事实上，华为和共产中国正在布更大的局。他们有一个狡猾的战略，和中国的权贵资本主义本质相挂钩。自由世界能赢得这场战斗吗？靠什么才能打败华为？这一期的《世事关心》，我们来探讨。
Welcome to Zooming In, I am Simone Gao. Two months ago, when Zooming In did a story on Huawei and global 5G deployment, Huawei was poised to take control of much of the world’s cyber domain. We talked about the national security implications of that prospect. And we observed the U.S. efforts to raise awareness of that risk. Two months later, when we did another story on this topic, we realized the world knows Huawei a lot better through these efforts, but Huawei’s momentum has not stopped. In fact, Huawei and China are playing a grander game. They have a brilliant strategy that is working well with the very nature of a crony capitalism. Can this battle still be won by the free world? And what does it take to win? Let’s find out in this edition of Zooming In.
Part one: A Huawei Victory Party
For many stakeholders, the Barcelona World Mobile Congress held at the end of February this year was what they feared: a victory party for Huawei, China’s primary telecommunications equipment provider who will be deploying 5G networks world wide.
According to Zooming In sources, Huawei has signed official 5G deployment contracts with 68 countries. That number jumps to 80 if Memorandum of understandings, where countries are testing and planning on using Huawei equipment, are included. When Zooming In reported this story in early February, the number of countries that had decided to go with Huawei was 61.
Interestingly, In public, Huawei has under reported the victory number by asking some of its new clients not to announce the deal. Some of its clients have also asked Huawei to do the same out of fear of political pressure.
Huawei’s success is significant against the backdrop of a few important events. First, On December 1st, 2018, Huawei’s CFO, Meng Wanzhou, was arrested in Canada at the request of the United States for allegedly breaching U.S.-imposed bans on dealing with Iran. Two months later, Huawei was indicted for theft of trade secrets, wire fraud, and obstruction of justice in the U.S. Following that, America warned allies that whoever uses Huawei equipment for 5G deployment will be cutting themselves from information exchange with the U.S.
In Response to the U.S. warning, The European Commission decided not to call for a European ban on Huawei, leaving it to EU countries to decide on national security. But it urged EU countries to share more data to tackle cybersecurity risks related to 5G networks.
On March 19, Danish telecom provider TDC announced it will go with Sweden-based Ericsson to build the company’s 5G network. But Germany recently refused to ban Huawei from its 5G deployment. The UK has indicated a similar stance.
“The Huawei campaign has been the most sorriest episodes of the U.S. diplomacy in history. As you know, the United States told its allies not to use the Huawei technology for the 5G rollout because that will give the Chinese Communist Party an opportunity for espionage. The result of that is even the British, not to mention the west Germans, Malaysians, South Koreans, Indians, and dozens of others, poles, Czechs and Hungarians have told us: No thank you very much, but we are going to use Huawei equipment. Why is this? We don’t make any of the systems. We used to. Cisco used to dominate the market. Cisco has 72 billions worth of cash in the bank. Huawei spent 72 billion dollars in R&D in the last 6 years. The alternative， Ericson and Nokia make their chips in China. The Chinese can put back doors to those chips as easily as they can into Huawei chips. ”
That was at an April 25th forum by Committee on the Present Danger: China, in New York. Two weeks earlier at an event by the same committee, former House speaker Newt Gingrich lashed out at another American company over 5G.
“Our companies are so out of sync. And take AT&T which is currently lying about this whole thing. And the reason they’re lying is simple. They took 85 billion dollars and they bought Time Warner. For eighty Five billion dollars, They could have leapfrog Huawei and we’d be the dominant Internet country in the world. But now that they have and now that they’re the most indebted American corporations. They can’t afford to go to 5G and they’re desperate that nobody else go to 5G. And so what you get is the domestic enemies will tell you we’re not doing badly. Well first of all we’ve we blocked Huawei from being here. But they missed the whole point. Huawei is now in 60 or 70 countries. Now how are you going to operate worldwide. Virtually every country in the world has a Chinese Internet system. We haven’t had a wake up call. We don’t understand what the problem is we don’t understand what the scale of the response is going to have to be and we are losing. ”
It actually took a long time for the U.S. politicians to realize there is a problem. When they finally decided to fix it, they immediately realized this is not a easy task at all. It takes more than just security alert about Huawei to turn the tables on China’s 5G ambition. Why is it so? We will have to first examine how Huawei became so Invincible in the first place, not just in the developing world, but in the developed world as well.
在许多西方工业化国家，移动宽带服务行业以零售模式运行。 在这个模型中，主要的商业运营商预先支付大量资金，从政府购买频谱，没有别人能付得起这个价格。 然后，这些运营商尽可能多得向消费者收取数据费用。 同时，他们自然会去寻找最便宜的设备和部署成本， 该设备来自中国。 这些大型商业运营商最终成为中国公司的说客，以获得政府对中国公司的政策倾斜。 Rivada Ganley是爱尔兰和美国电信公司Rivada Networks的董事长兼首席执行官，他称这些商业运营商为“特洛伊木马”。
In many western industrialized countries, the mobile broadband service industry runs on a retail model. In this model, major commercial carriers pay a large amount of money upfront to purchase spectrum from the government, leaving no one else in the field because smaller players can’t afford the price. Then they charge consumers as much as they possibly can for data. Meanwhile, they naturally look for the cheapest equipment and rollout costs. This equipment comes from China. And these big commercial carriers end up serving as lobbyists for Chinese companies to gain regulatory favors from their governments. Declan Ganley,Chairman and CEO of Rivada Networks, an Ireland and U.S.-based telecommunications company called these commercial carriers “trojan horses”.
Declan Ganley（Rivada 网路通讯公司总裁）：“我谈到过这个事实，就是北京使用这些零售型移动服务运营商作为特洛伊木马，就是中文说的‘杀手锏’用在这上面了。就是竞争中使用不对称优势，还使用对手的力量来制约对手。这些运营商的游说集团，在各个国家，用了很多来自北京的帮助来进行游说工作。他们愿意这么做的原因，是北京给他们提供了极其诱人的条件，相当于变相为他们的5G网络的铺开提供补贴，大大降低了他们的成本。这帮助他们继续他们的零售模式，这让他们上瘾。这是在西方世界通讯业垄断现实下对中国补贴的上瘾问题。”
Declan Ganley: “I talked about the fact that Beijing uses these retail mobile carriers as their Trojan horse. I think in China, in Chinese it’s, I’ll mispronouce this now, ShashouJian is the term that is used for this. The assassin’s mace is the rough translation in English it’s using an asymmetric advantage against your opponent and using your opponent’s own strength really against your opponent. And the retail lobbyers, carrier lobbies in each of these countries have done all of the lobbying with a not an awful lot of need for help from Beijing. And the reason that they’re doing that lobbying is, Beijing has offered them extremely attractive terms, is really offering a massive subsidization of their 5G rollout and these carriers who are trying to maintain the market, the margin, between what they retail a gigabyte of information of data for and the cost that it costs to produce it. While they want to maintain this retail business model, they need these Chinese subsidies and so they’re addicted. There is an addiction problem in the retail mobile carrier oligopoly in the West and the addiction problem is to Chinese subsidization so that they can do 5G. ”
America runs on the same retail model although it doesn’t allow Huawei equipment currently. However, what will happen if Beijing were to be successful in Europe and everywhere else? According to Ganley, if that’s the case, 10 years from now, there will be no other option other than using Huawei equipment.
Coming up, can the table be turned? What is the Wholesale open access model?
Part 2: Can the table be turned?
Can the table still be turned? The short answer I got from industry leaders and policy experts is Yes. And it so happens that a big portion of the cure for the problem identified in the 4G era is also a prerequisite for the 5G era. That is, a wholesale open access model.
As we mentioned above, in the U.S., under the current retail model, the major mobile carriers spend all their money buying spectrum, building networks and investing in the entertainment industry for maximum profit. They are left with little money for anything else. When the wave of 5G finally hits the United States, the country is presented with two options. One option is the continuation of the old retail model, in which 4 major players all have their own networks. They can tweak their networks to go 5G, but they won’t be real 5G. According to Accenture, a global management consulting and professional services firm, it will cost two hundred and seventy five billion dollars just to build one 5G network. If all four U.S. mobile carriers were to build their own networks, it would cost a trillion dollars, an amount of money they do not have.
Another option will be to build one physical network that everyone shares spectrum from according to General Robert Spalding, senior fellow at Hudson Institute. When he served as Senior Director for Strategy to the President, he was the chief architect of the framework for national competition in the Trump administration’s National Security Strategy (NSS). In my recent conversation with him, he said the characteristics of the 5G technology require a different business model.
Robert Spalding: “One of the things that 5G can do is called Virtual splicing. It allows you to have many private networks on one physical infrastructure. And so right now the 4G networks, each company has built their own 4G networks but because of the propagation characteristics of the frequency spectrum they’re in, which is primarily the mid band, they go much farther. Also the sigtnal itself is a broadcast wide area signal, not a very narrow pencil beam like 5G. And so that allows them to have fewer…fewer towers for them to place their equipment. Again, though they’re still paying off that equipment. In 5G because we have virtual network splicing and because you can use the same frequency that you’re using in 4G, except in a 5G implementation, as you build one 5G network, one physical network…In other words, same set of towers, one set of antennas for one physical network, every operator can use that network and have higher speeds to the customer, have lower latency and more bandwidth to the customer. If you were to apply that like the current 4G model you would have a slower, less capable 5G network. You’d have actually four. In the current model you’d have four very slow nationwide 5G networks. In fact you wouldn’t even consider them 5G because the max speed that you would get out of each of those networks would be probably in the range of 300 megabytes per second. When you take all of that spectrum and you build it on one physical network your max throughput on that network is up to five gigabytes maybe even 10 gigabytes per second. Now each network operator, if they are a virtual network operator on that network, can give their customers five or 10 gigabytes per second service. In other words, ATT’s customers are better served, Verizon customers, T-Mobile customers…They’re all better served by using one physical network. Now the wholesale argument came out of the fact that we have a number of retail operators in the United States. Each of these operators in the past have sought to build their own networks because it made sense because of the technology. The new 5G technology…It does not make sense to build your own network because it actually means that you’re investing more than you have to. In other words for the United States, I just told you we would have to invest almost a trillion dollars to build these networks. That’s four times what we, in the current system, what we would have to spend if we only built one physical network. So not only is your network cheaper to install, it has actual better speeds and it’s a better overall service for the American people. Now finally the big reason why we need one physical network is because it’s much easier to secure that network against infiltration by totalitarian regimes like the Chinese Communist Party. ”
“Who will build that one physical network and who will own it?”
“ So whatever company chooses to build it would be the one that built it. In our current system what would happen is the FCC would have to sell cell spectrum to a company to do that. ”
“Good. You know People have been criticizing the wholesale open access model as being a government controlled and nationalized 5G network. What do you say? ”
罗伯特·斯拜尔丁将军（哈德逊研究所高级研究员）：“首先，正如我所说的那样，美国的所有频谱都已归联邦政府所有。他们出售使用该频谱的许可证，但该频谱继续归联邦政府所有。因此， 几十年前FCC初创时就已经在搞国家化了，这是其一。其二， 我认为这已被用作，本质上是一种借口，用于支持和促进电信公司获得的持续寡头垄断，他们不想放弃，所以他们阻止其他人进入市场。如果你建立了一个单一的实体网络，它将使新进入者很容易进入市场并获得频谱的使用权，然后以比现在低的价格给客户提供互联网服务。电信公司不希望这样做，因为这会让别的竞争者通过提供更好的服务非常轻松地夺走他们的客户。现在很难争夺他们的客户，因为他们拥有自己独立的网络，因此他们要尽一切可能继续拥有它，他们要达到这个目地，就不可能同意建设对所有网络供应商都开放的5G实体网络。”
Robert Spalding:“Well first of all as I said the…all spectrum in the United States is already owned by the federal government. They sell licenses to use the spectrum, but the spectrum continues to be owned by the federal government. So nationalization actually occurred several decades ago when the FCC was begun, number one. Number two I think this has been used as a essentially a literary device to prop up and promote the continuing oligopoly that the telcos have obtained and they don’t want to give it up. And so they’re preventing anybody else from coming into the marketplace. If you built a single physical network, it would make it very easy for new entrants to come into the market and get wholesale, buy wholesale service from that network and then sell it to the customers at a reduced rate. The telcos don’t want to do that because it would allow you to take their customers very easily by providing better service. Right now it’s very hard to take their customers because they own the network and so they want to continue to own the network in the best way that they can do…the best thing they can do to maintain that ownership is to make sure that a single physical network that’s wholesale out to other retailers is never allowed to be built. ”
Coming up, what does the wholesale model have to do with China?
Part 3: What does the wholesale model have to do with China?
萧茗（Host/Simone Gao）: 让我们整理一下到目前为止事情的头绪。在中国试图主导下一代网路领域的征途中，西方几大移动运营商提供了极大的帮助，他们在本国政府面前极力为北京游说。他们这样做，是因为他们从华为廉价的设备中可以获得巨大的好处。华为也为推出5G网路提供了巨额补贴。只要他们想维护这种零售寡头垄断，就需要中国的补贴。另一方面，同样的移动运营商为了维持原有的商业模式，也会阻碍5G在美国的成功推广。如果移动通讯业的寡头垄断是造成这两种糟糕局面的背后的原因的话，那么废除这一模式则势在必行。而批发开放接入模式将成为解决之道。然而，改变业务模型并非全部的解决方案。如果中国继续补贴下去，当大的特洛伊木马消失的时候，小的特洛伊木马就会出现，因为降低成本，追求利益最大化是任何公司的本性。
Let’s summarize the rationale so far. In China’s journey to dominate the next generation of the cyber domain, major western mobile carriers have provided great assistance by lobbying for Beijing in front of their own governments. They do so because they have benefited tremendously from Huawei’s cheap equipment. The Chinese company is also offering them massive subsidization of their 5G rollout. As long as they want to maintain this retail oligopoly, they need China’s subsidization. On the other hand, the successful 5G rollout in the United States is also impeded by the same mobile carriers in order to maintain their old business model. If the mobile industry’s oligopoly is the reason behind these two bad scenarios, then dismantling that model seems to be the way to go. And a wholesale open access model will be the route. However, changing the business model will not be a complete solution. If China keeps its subsidization, when big trojan horses disappear, smaller trojan horses will emerge because reducing cost and going after maximum profit is the nature of any company.
Simone: “How do you prevent this from happening in the future? I mean isn’t lowering cost, maximizing profit what every company is after?”
“China is subsidizing Huawei. That’s not OK. That’s not free trade. We should not accept that. And if we do accept that, in 10 years there will be no other input of manufacturers other than Huawei. They do it for a reason. Because if they install Huawei then they can have back doors. If we want to have an equipment manufacturing industry we actually have to prevent the subsidization of that equipment. Now that was supposed to be what the WTO was going to enforce. The Chinese don’t follow the WTO. So you have to come up with some mechanism to actually create an industry that allows you to have the kind of hardware gear that you want in your in your network. We need free trade. Fair reciprocal trade. We don’t have it right now. So it’s not just a wholesale model that’ll fix it. You actually have to have protections for the industry itself. Right now we we used to have Lucent in the United States, Nortel in Canada. Both gone. Ericsson, Nokia, Samsung…Samsung for equipment manufacturing. None of them will survive Huawei, if we don’t protect them. So it’s not just about, Hey we can’t do Huawei, we actually have to provide another mechanism to protect the industry as well. ”
“And also with the wholesale model these players can do without Huawei. But in the old model it’s almost like they can’t leave Huawei. They can’t afford it. ”
Robert Spalding: “But even in a wholesale model they can still go to Huawei, they just make more margins. Right? And Huawei supposedly has the best, some of the best technology, at least that’s what some of the telecom operators say. OK. So if they’re the only ones that are investing in new technology and advances in 5G and none of the other equipment manufacturers have any ability to do that, then how does that put us in a better position 10 years from now when we’re looking at the next iteration of infrastructure? It puts us in a worse position because then all we have is Huawei. And so it just can’t be we’re going to have a wholesale open access model. You actually have to think about how today you incentivize industry to build the kind of industry architecture that you need going forward for national security. In the National Security Strategy we said: Data is a strategic resource in the 21st century. Because data can be used along with artificial intelligence, machine learning, big data analytics and social media to do targeted influence to do mass surveillance and also to do other things that are inimical to the liberal order that you have to actually look at the world in a different way. And it forces you to think about industrial policy again in targeted areas. It forces you to think about how important it is that we have a secure internet for our nation and how we look at things like individual liberty, rule of law, private property, sovereignty in a digital sense. All of these are made worse when we allow consolidation for both the equipment and the infrastructure by a totalitarian regime that believes in none of those.”
Simone:“ So eventually it should be the government who makes the decision to keep Huawei out, not the free market.”
罗伯特·斯拜尔丁将军（哈德逊研究所高级研究员）：“绝对应该是政府拍板，因为它牵涉到我们的各种自由未来命运的问题，你想生活在什么样的环境里。AT&T公司不可能夜不能寐地操心怎么确保美国的民主安全，他们考虑的就是怎么赚钱。Verizon 公司也如此，T-Mobile 公司也如此，任何网路运营商都不例外，保护一个国家的公民并不是他们的职责，而是政府的职责。由此看来，政府在数据保护方面做得很差，那可是一种战略资源，所以，你的数据、我的数据、行业的数据和政府的数据，都需要像业主一样得到保护，这当然需要政府介入。”
“It is absolutely a government decision because it’s talking about our freedoms going forward.
What kind of you want to live in? AT&T does not sit up at night and think about how do we make the America safe for democracy. They think about how to make money. So does verizon, so does T-Mobile. So does any network operator. It is not their job to protect the citizens of a country is actually the government’s job. And so in this case the government is doing a very poor job of actually looking at how do we protect data. That’s a strategic resource so that your data and my data and industries data and government’s data all maintains along with the owner. That’s something that certainly government needs to be involved with. ”
萧茗（Host/Simone Gao）:我们已经多次讨论过这个话题，几十年来，美中关系一直有追逐利益的公司主导，最终的结果一直很糟糕。如何防止这种情况再度发生？也许我们可以从这样一个类比中得到启示：美国永远不会从中国军方雇一位将军，不管他要的工资待遇有多低，网路领域也不无类似之处。欢迎您在推特上@ZoomingInSimone 分享您的见解，您也可以加入我们的Facebook 互动页面，订阅我们的youtube频道：Zooming in with Simone Gao ,下次再见。
I have talked about this several times. In the past few decades, the U.S.- China policy had been dominated by a profit-driven business sector and the results have been very bad. How do we prevent that from happening again? Maybe we could use this analogy: The U.S. would never hire a general from the Chinese military no matter how much cheaper he is. With cyber, it is similar. Let me know what you think on Twitter @ZoomingInSimone. You can also join the conversation on our Facebook page and subscribe to our YouTube channel: Zooming In with Simone Gao. Goodbye until next time.
Editors：Bonnie Yu, Frank Lin, Tang Bin, Melodie Von, Jule Kuo, York Do
Cameraman: York Du, Teddy Lin, Ken Li
Narrator: Rich Crankshaw
Transcription: Jim Battaglini
Translation：Greg Yang, Juan Li, Xiaofeng Zhang, Bing Tang, Chu Yue
Special Effects：Harrison Sun
Assistant producer： Bin Tang, Merry Jiang
Host accessories are sponsored by Yun Boutique
New Tang Dynasty Television
May 1, 2019