How Huawei used the UK to become a global giant

A sketch on the back of a napkin captured the moment when the global telecoms market opened up to Huawei. Ben Verwaayen, the former chief executive of BT, drew the sketch to illustrate how he wanted to transform the UK’s telecoms network, changing it from an antiquated analogue system to a digital one capable of routing data at speed, one that could even carry television signals. But when he started contacting BT’s traditional suppliers, such as the British equipment maker Marconi, the former telecoms arm of GEC, they were inflexible.

By contrast Huawei, an unproven Chinese firm, was willing to work with BT on the GBP10bn project. In April 2005, Huawei won a contract to provide devices that aggregate customer lines and connect them to the main part of the network. “It was the creation of an exit out of China,” said Mr Verwaayen. “They got a foothold, the rest is history.”

Britain was the springboard

Indeed, while Britain has become one of the most vocal critics of Huawei’s penetration into western telecoms systems in the run-up to the arrest of the company’s chief financial officer this week, it was also the country where it made its global reputation.

From an obscure equipment maker in southern China with only one international contract of note — with Hong Kong’s Hutchison Whampoa — Huawei was able to use its BT work to legitimise its systems in other European markets and become the world’s largest maker of telecoms equipment.

The UK also shows the cost borne by legacy equipment makers that have failed to match the speed and aggressiveness of the Chinese upstarts: Marconi shares fell 40 per cent on the day the BT contracts were announced, and the British firm — which traced its roots back to the world’s first radio factory in Essex in the 19th century — saw its business decline until it was acquired by Ericsson nine years later. Ever since the deal, Huawei has used the UK as the base for its international operations, employing 1,500 people. In February Sun Yafang, Huawei’s chairwoman, met British prime minister Theresa May to announce that the company would spend GBP3bn in the UK in the next five years.

UK politicians have always been uneasy

But the success of the Chinese company has always provoked unease among UK politicians and intelligence agencies, who have fretted over the time its founder, Ren Zhengfei, spent in the People’s Liberation Army and a possible risk to national security.

Huawei itself has always insisted it is a private company and is not directed by the Chinese state. Those fears range from eavesdropping to the monitoring of data flow to fears of a backdoor within the code that could be used to shut down the network and cripple the economy. US officials have warned their counterparts in the UK and Germany of national security threats.

In 2013 a report by the Intelligence and Security Committee, headed by Malcolm Rifkind, said that civil servants, wary of the diplomatic and trade consequences of blocking a deal, had not briefed ministers about Huawei’s contract with BT until after it had been signed. The report noted: “The government is [ . . .] sometimes put in the position of trying to shut the stable door after the horse has bolted.” Nevertheless the committee concluded that it was impractical to try to limit telecoms equipment contracts to British companies, and that since most telecoms equipment is manufactured in China, there would always be some risk of intrusion.

To manage the risk, Huawei agreed to set up and fund a Cyber Security Evaluation Centre and release its software code to UK inspectors.

Huawei equipment on the edge of networks

Today, the Chinese company provides radio equipment, such as masts, that broadcast mobile network signals and relay communications back to the core network for several operators. This ranges from 5 per cent of the equipment used by O2 to a third of that used by Vodafone. Huawei also sells smartphones and WiFi hubs to millions.

One senior network executive said he was concerned that Huawei, which has signed several 5G trial deals with UK operators, could build up a significant share of the 5G radio network. “This is the risk we run.

We have been asleep at the wheel and they have picked us off bit by bit,” he said. But Britain’s largest telecoms companies argue that the network is designed to ensure that the Chinese equipment is only used in the benign parts of the network that cannot be remotely accessed or take down the entire system. “The fear of a big red button in Shenzhen that can turn off the network isn’t realistic,” said one network architect.

‘Blast radius is limited’

A mobile telecoms network can largely be broken down to three constituents: the radio access network, the transmission technology and the “core” network. UK telecoms executives insist that Huawei is kept out of the core — or control plane — which is broadly described as the “intelligent” part of a telecoms network.

That network “brain” is where customer data monitoring and routing takes place and where traffic is managed. Instead Huawei’s equipment is used for more mundane tasks at the radio access and transmission levels such as carrying the data from masts on to the fibre cables. Executives concede that the architectural system of the network means that a single mast could potentially be compromised but not a federated system.

Suppliers including Cisco, Siena, Nokia, Fujitsu and Israel’s ECI are also used across telecoms networks, which reduces the potential for one supplier to dominate the infrastructure. “The blast radius is limited,” said one network executive. Another said that to do “real damage” Huawei would have to be able to access the core of the mobile network — such as the “home subscribe server” databases that contain user information.

BT has long said that there is no Huawei kit in its core network but, as reported by the Financial Times, it is in the process of ripping out Huawei equipment from the core of EE’s 4G network that it inherited when it bought the network in 2016.

Fears grow over shift to 5G

Mr Verwaayen does not regret handing the contract to the Chinese. “Not at all. We didn’t go in blind,” said Mr Verwaayen, who is now on the board of Ofcom, which is leading an audit of the national telecoms networks. He insisted that the deal kept Huawei’s equipment on the periphery of the network and was signed off by Britain’s security services at the time.

BT also insisted that the code for the equipment sold to BT should be held in escrow so that the telecoms company could not be frozen out of its equipment should Anglo-Chinese relations sour. The recent fears over Huawei revolve around the shift to 5G, and fears that the Chinese company will have more power as more and more devices become connected to the network. Neil McRae, BT’s chief network architect, told delegates at a Huawei-sponsored event in London last month that the Chinese company was leading the way on 5G. “In reality there’s only one true 5G supplier and that is Huawei,” he said. “The others need to catch up.”

Telecoms engineers say Huawei has taken the lead in 5G development, with its “army” of 80,000 research engineers and £13bn annual research and development budget.

Network executives have also balked at the potential cost of banning Huawei from bidding for 5G contracts, which would require telecoms companies to replace existing 4G equipment to overlay alternative 5G kit. “Who is paying for that?” asked one network executive. Others have pointed out that with Huawei so deeply saturated in the existing telecoms networks, simply barring the supplier from 5G would not eliminate its presence. “You have a problem now.

You can’t just dream them away,” said one senior industry source. “It bleeds down into a network that is already there.”

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