Germany pushes back against US Huawei threats

It tried scaring her, to convince her with niceties, the diplomatic approach and finally threats, but the US cannot seem to break the will of German Chancellor Angela Merkel over Huawei.

Speaking at the Global Solutions Summit this week, Merkel has continued to defy the desires and demands of the US over China and its telco champion Huawei. Germany is not only standing resolute against the political propaganda, but this message seems to be more of a push back against the White House.

“There are two things I don’t believe in,” Merkel said during the interview. “First, to discuss these very sensitive security questions publicly, and second, to exclude a company simply because it’s from a certain country.”

This has been the on-going message from Germany and it seems the US threat of intelligence exclusion has landed on deaf ears. Germany wants proof of nefarious activities, and it will not make a knee-jerk reaction to punish a company (or a country for that matter) when the drivers are political and economic.

While there is of course a threat of espionage from the Chinese Government, this on-going narrative is one chapter in the wider US/China trade saga. Threats should of course be assessed and mitigated in a reasonable fashion, but you must consider all branches of the storyline. And Germany isn’t buying into US chest beating.

In terms of what has actually been said, there are five key takeaways:

Each of these points made by Merkel this week, and various German government agencies for months, are completely fair, reasonable and pragmatic. But fair, reasonable and pragmatic does not help the US.

Why is Germany resisting?

The simple answer is that it doesn’t make sense to ban Huawei.

Firstly, from a competition perspective the telco industry is not flush with vendors, especially ones which can offer the same scale as Huawei. Removing Huawei, and Chinese vendors across the board, reduces the number of vendors available for telcos to choose from. This weakens the negotiating position of the telcos and, theoretically, slows down the deployment march.

Secondly, a Huawei ban would impact some European nations more than others and Germany is one of them. Huawei has deep relationships with German operators, with equipment embedded into 4G networks. Banning Huawei would potentially result in kit having to be ripped and replaced, slowing down progress, while backward compatibility becomes more difficult also, again, slowing down progress.

With the world increasingly being defined by wireless, Europe’s largest economy cannot afford to slip too far behind in the 5G race. According to data from Opensignal, Germany has been falling behind numerous European nations when it comes to average 4G speeds.

While it might not have a massive impact on what we associate with connectivity today, primarily consumer smartphone applications and entertainment, with 5G promising a revolution in the way connectivity influences enterprise and the economy, this could become much more of an issue in Germany.

In short, Germany cannot afford to stomach the consequences of banning Huawei.

The turning tide of momentum

The anti-China rhetoric from the US has been consistent and loud over the last couple of months, though it does not seem to be gathering the same support as during the initial propaganda assault.

After Australia, Taiwan, South Korea, Japan and New Zealand seemingly turned against Huawei and China, the ear-whispering has not been as successful in Europe. The European continent has been a successful arena for Huawei in recent years, and such is the dependence of telco infrastructure on the vendor, it is unsurprising these nations are resisting the call to ban Huawei.

While individual states have been pushing back against US ambitions, this leaves the governments in slightly precarious positions. Such is the power and influence of the US economy, individually European nations will be in a frustrating negotiating position when defying US requests. However, escalating to a European level changes the dynamics.

This is perhaps why Merkel is keen to escalate this discussion to European Commission level. The power of the collective against US ambitions is an excellent way to mitigate risk on an individual level. Sovereign nation states often begrudgingly hand over power to the Brussels bureaucrats, but in this instance, it might prove to be a very pragmatic idea.

The European Commission was reportedly looking into new rules which would effectively ban member states from purchasing equipment from Chinese companies (although China would not be mentioned specifically), but we can’t see this carrying through. Brussels would face a huge amount of backlash when seemingly contradicting the wishes of the majority of its member states.

That said, should the US be able to produce concreate evidence of Chinese espionage and collusion with Huawei, attitudes could shift incredibly quickly.

What does this mean for Huawei?

This is neither good or bad; it’s pretty much maintaining the status quo.

Being banned in the US won’t really impact the prospects of the business, it never really cracked this market, while it will continue to maintain its healthy position in Asia. Europe is a key battle ground though.

Europe is in a difficult position. It needs to tread carefully to ensure it can still use equipment from the vendor. European governments will not want to ban Huawei and this continued resistance is a good sign for Huawei. Germany and the UK, two influential voices across the bloc, are both preparing frameworks to allow Huawei’s business to continue, and should such ambitions be escalated to the European Commission, these trends would likely continue.

Due to on-going security concerns, some of which are not fairy tales despite a lack of evidence, and telcos desires to introduce more diversity in the supply chain, Huawei is unlikely to dominate the 5G world in the same way it did 4G. This is far from a secured position, politics has a way of U-turning occasionally, but the anti-Huawei brigade is starting to run out of puff.