The US threats prove that a friend needs Huawei

(Bloomberg) – Ultimately, the prospect of costs and delays in introducing critical technologies turned out to be more daunting for the British government than the American threats.

On Tuesday, the United States lost its long struggle to persuade the United Kingdom to ban China’s Huawei Technologies Co. from fifth generation cellular networks. The decision to let Huawei build the periphery of the 5G system showed the awkward position of the US allies who wanted to choose between Washington and Beijing. It also reflects the declining US debt levels in Europe – including Britain after Brexit – at a time when the transatlantic alliance is tense.

President Donald Trump’s government has made it clear what it sees as a problem: a possible Chinese violation of Allied national security. It is less clear which solution is feasible for countries that do not want to be left behind in the race for the infrastructure that will underpin such advances as driverless cars and automated factories.

Read more: United Kingdom enables Huawei to build 5G networks

With few alternative companies able to supply the 5G market, the U.S. was unable to compensate for the significant additional costs and delays associated with Huawei’s total ban. Secretary of State Michael Pompeo arrives in London on Wednesday and it is now up to the United States to decide whether the temperature should be raised in a public dispute between close allies.

So far, threats have included cuts in information exchange, although this would be a significant cost to the US itself and British officials do not believe it will enforce it. GCHQ, the British counterpart to the US National Security Agency, operates a hub for the “Five Eyes” members – Australia, Great Britain, Canada, New Zealand and the USA.

But when Britain leaves the European Union on Friday, much more is involved. The response to the Huawei decision could affect trade negotiations, UK plans for a digital tax on technology giants, and the broader post-Brexit relationship, including a burgeoning political friendship between Trump and Prime Minister Boris Johnson.

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“It is a gift from the United States to accept that, even if we do not agree on the details, we will agree on the basics and address the much more important issue of developing western providers,” said Malcolm Chalmers, a former British diplomat and now deputy director of the Royal United Services Institute (RUSI) in a briefing.

QuicktakeHow Huawei ended up at the center of a global conflict

The EU is expected to release guidelines on Wednesday for member states to apply when deciding 5G issues, including rules that allow governments to restrict or prohibit but not mandate the use of Huawei devices.

According to Chalmers, countries will have to fix the market failure that is causing the Huawei dispute in the future: the small number of providers – none of them Americans – who are able to build 5G networks on a large scale. Not only does this force you to rely too much on Chinese suppliers, it also reduces the ability to incorporate backups into networks – an important tool for cybersecurity – so that one manufacturer’s antenna stops working if another manufacturer’s antenna continues to work.

Britain’s National Cyber ​​Security Center technical director Ian Levy said Britain’s confidence in just three suppliers, including Huawei, is “crazy”. He made the comment in a blog post released Tuesday to explain how UK security agencies are planning to protect their 5G network.

Samsung Electronics Co. Ltd. announced last year that its share of the global telecommunications market should increase from less than 7% to 20%. But the hurdles for newcomers that Levy has cleared in his post – including low profit margins, high research and development costs, patent license fees, and scale – are considerable.

US options

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This month, Thomas Donahue, former senior director of cyber operations at the U.S. National Security Council, wrote that the federal government had three options: Invest heavily in Huawei, Ericsson AB, and Nokia Oyj’s European alternatives, buy one, or massively fund it Development of a US competitor.

The US Defense Research Office recommended in June that the federal government provide start-up funding for Huawei’s “western industrial base alternatives”.

However, when it comes to an immediate ban on Huawei, the U.S. is struggling to convince European countries to follow Australia’s example, a Pacific nation exposed to an immediate security threat from China.

The argument focuses on whether the risks of a potentially hostile equipment supplier can be managed in 5G’s new world. British electronic intelligence services appear to have rejected US claims that the core in 5G networks has become “virtual” and so widespread that the distinction between a sensitive core and a stupid periphery that made Tuesday’s decision did not more exists.

The edge of a network is still facing the consumer and, if hacked, provides almost all access to metadata, not the core sensitive material, said James Sullivan, director of RUSI cyber research. “5G networks are not revolutionary,” said Sullivan, who had just completed a nine-month study on the subject. “They are evolutionary.”

Huawei has been building a cellular network infrastructure in the UK for more than 15 years. British officials were concerned enough about the security risks involved that they set up an inspection center in 2010 to reverse engineer the company’s equipment and test it for security risks.

The centre’s annual reports were damned. Last year’s conclusion: “It will be difficult to adequately risk manage future products as part of deployments in the UK until the underlying shortcomings in Huawei’s software development and cyber security processes are resolved.”

Because of the Centre’s work, “we know more about Huawei and its risks than any other country in the world,” UK Foreign Minister Dominic Raab told Parliament on Tuesday. He also promised to attract more 5G providers.

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However, when it shares US concerns about Huawei, the UK is also in a completely different position. In order to ban Huawei, the existing Huawei 4G hardware would first have to be torn out, which would result in considerable costs and delays. This is not just a waiver of the high price discount that the company offers to its competitors. In the United States, the Chinese company only sold devices to a few smaller rural networks.

This cost raises questions about how much safer it would be to use non-Chinese hardware, another gray area. The equipment supplied by Western companies is pierced with Chinese components, while some of the most productive hacks are carried out by Russia, which does not produce any of the hardware products it hacked.

“The initial argument – why would you allow a Chinese vendor, an enemy, to penetrate directly into the core of your network – sounds crazy,” said Emily Taylor, managing director of Oxford Information Labs, a cyber consulting firm. “But if you look at it, no device will ever be 100% safe.”

To contact the author of this story: Marc Champion in London at mchampion7@bloomberg.net

How to contact the editor responsible for this story: Rosalind Mathieson at rmathieson3@bloomberg.net, Rodney Jefferson

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