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China can afford to lose the Huawei battle, if it wins the war to control O-RAN specifications and manufacturing, reports Strand Consult.
Mobile cellular networks are costly to build. In 2019, the world’s mobile operators earned just over $1 trillion and spent $30 billion on Radio Access Network (RAN) equipment, some 3 percent of revenue. To reduce cost, mobile operators leverage the pool of network equipment vendors, for example by developing new interfaces in network equipment to lower barriers to entry, under the industry term OpenRAN or Open Radio Access Network. OpenRAN is not a per se standard but a collection of technological features purported to allow different vendors to supply 5G networks with “standardized open interfaces” specified by the O-RAN ALLIANCE.
Note that O-RAN only addresses internal RAN components. The industry still relies on 3GPP, the 3rd Generation Partnership Project, to build an end-to-end mobile cellular network and to connect end-user devices. OpenRAN has become a hot topic in tech policy as an antidote to Huawei equipment in mobile networks, but dozens of Chinese companies have joined the O-RAN ALLIANCE and are poised to drive OpenRAN standards and manufacturing
Chinese technological threats extend beyond Huawei
As the unsavory practices and relationships between Huawei and the Chinese government have been revealed, many nation state leaders have demanded the removal of Huawei equipment from communications networks. Huawei itself has not succeeded to demonstrate that it is an employee- owned company free from Chinese government control. China’s practice of civil military fusion means that all economic inputs can be commandeered for military purposes. Its de facto information policy asserts sovereignty over the internet and can thus enjoin any Chinese firm or subject to participate in surveillance and espionage. This means that restricting Huawei alone is not sufficient to secure 5G; the presence of any Chinese product in the network poses a security risk. Now that the Huawei brand name is toxic, many non-Chinese firms see an opportunity to enter the 5G network equipment market, but it is not clear whether and to what degree they will use Chinese standards, components, and manufacturing.
The O-RAN ALLIANCE was established in 2018 by Deutsche Telekom, NTT DOCOMO, Orange, AT&T, and China Mobile and has grown to 237 mobile operators and network equipment providers. The US has 82 members; China, 44 (3 from Hong Kong); Taiwan, 20; Japan, 14; United Kingdom, 10; India, 10; and Germany, 7. Notably the 44 Chinese member companies exert significant control on the technical specifications and supply chain of OpenRAN 5G products and services. The conundrum of engagement with restricted Chinese entities does not end there. Citing security concerns, the Federal Communications Commission rejected a US operating license to China Mobile and may revoke approvals for China Telecom for its failure to demonstrate that it is not influenced the Chinese government. Other O-RAN ALLIANCE members include Inspur, Lenovo, Tsinghua, and ZTE, companies the US government restricts for security reasons given their ties to the Chinese government and/or military. The O-RAN ALLIANCE did not return a request for comment.
Some mobile operators cite OpenRAN to avoid ripping and replacing Huawei equipment
While many mobile operators are taking precautions to protect their customers by removing Huawei equipment, Vodafone, Telefonica, and Deutsche Telekom have resisted. They posit the promise of OpenRAN (with the O-RAN ALLIANCE specification) to justify a delay of rip and replace efforts, knowing that OpenRAN products will not be available for some years. Thus, these three operators can extend the life of Huawei in their 5G networks with the promise of using so called “open” equipment built with Chinese government standards. Separately the cost to rip and replace Huawei in European networks is minimal, about $7 per European mobile subscriber. The mobile operators which have switched out Huawei equipment have not experience increased cost or delay to the rollout of 5G.
Local politicians jump on the OpenRAN bandwagon thinking it has no Chinese connection
ith the manufacturing base decimated in the countries they represent, many policymakers have looked to OpenRAN to get back into the network equipment game. Presumably OpenRAN would provide some high-end software jobs, though manufacturing is likely to be dominated by established Chinese entities. A US House bill would offer a whopping $750 million for OpenRAN development, though the location of manufacturing is not conditioned. Similar bills have been offered in UK, Japan, India, Germany, and Brazil. However commendable the notion of OpenRAN may be from a technical perspective, it appears that China has already outwitted Western leaders. China can afford to lose the Huawei battle if it wins the war on standardizing and building billions of “open”, “interoperable”, and “vendor neutral” devices. As long China influences the O-RAN specifications and manufacturing, it does not care whose brand is used.
Policymakers in the US and EU have today a lot of focus on communications network equipment from Chinese vendors. In 2019 and 2020 Strand Consult published many research notes and reports to help telecom companies navigate a complex world. We focused heavily on the problem of Chinese equipment in telecommunications networks. While the media has largely focused on Huawei, the discussion should be broadened to the many companies that are owned or affiliated with the Chinese government including but not limited to TikTok, Lexmark, Lenovo, TCL, and so on. Although some of our customers disagree with our views, Strand Consult’s job is to publish what is actually happening and how policy decisions may affect their business in the future. Here are some of our key research.
