China's Huawei is at centre of fight over 5G's future

[HONG KONG] When top tech minds sat down to set the global standards underpinning today's cellphone networks, China was left largely on the sidelines. Companies in the West owned much of the crucial technology, and they prospered.

Now, as the world prepares for a new generation of mobile Internet that could let you download a feature-length movie in mere seconds, a Chinese company is determined to lead, putting it at the centre of an international fight over the technology's future.

Huawei, the giant maker of telecommunications equipment, has been pouring money into research on 5G, or fifth-generation, wireless networks and patenting key technologies. It has hired experts from foreign rivals and pushed them to guide international groups that are deciding the technical standards for tomorrow's wireless gear.

But the company has also been a top concern of Washington officials. It was effectively shut out of the United States after a 2012 congressional report said Beijing could use Huawei's equipment to spy on Americans. And this week, a US Treasury official flagged Huawei's 5G push as the American government investigates the proposed takeover of Qualcomm, a San Diego-based chipmaker, by Broadcom, a rival based in Singapore.

In a letter, the official, Aimen Mir, deputy assistant secretary for investment security, said that being bought by Broadcom would sap Qualcomm's ability to influence worldwide standards for 5G. Broadcom's statements suggest it would slash investment in research and development, Mr Mir wrote, and focus instead on short-term profitability.

As a result, he wrote, Chinese companies such as Huawei could get the technological edge.

"A shift to Chinese dominance in 5G would have substantial negative national security consequences for the United States," Mr Mir wrote. Broadcom sought to assuage the concerns on Wednesday by pledging to increase research spending.

With 5G standards due to be completed this year, the outcome of the Broadcom deal may not affect the complicated protocols themselves much. One major set of standards was already delivered in December.

It is clear, though, that Huawei, which is not state-run, wants to drive the global charge towards 5G - and that Washington would rather it didn't.

Huawei has evolved, over the last three decades, from a seller of cheap telephone switches to a powerhouse partner to cell networks around the world. Yet until recently, it had lagged behind Western companies such as Qualcomm, Intel, Nokia and Ericsson in taking part in wireless standard-setting, and in owning crucial technology.

"It's part of China's technological coming-of-age," said Chris Lane, an analyst with Sanford C Bernstein in Hong Kong. "They're saying: 'We're a technological powerhouse. We should be sitting at the table with the Germans, the British, the Americans, the Japanese and the Koreans and doing our part.'"

The US government has pushed back before. In 2011, Washington blocked Huawei from buying a California tech startup, 3Leaf Systems. Huawei is also under investigation by the Treasury and Commerce Departments over whether it broke US trade sanctions in countries including Iran and North Korea.

Officials in Washington have also watched with trepidation as Huawei has become a major international smartphone brand. In January, after lawmakers wrote to the Federal Communications Commission to reiterate the security worries, AT&T ended a deal to sell Huawei's new flagship phones in the United States.

A Huawei spokesman on Wednesday called the company "an early driver and leader in 5G research and development," as well as "a key architect and contributor" to 5G standards. The company has previously said it complies with the law wherever it operates. It has denied that its products carry security risks.

For China, taking a top role in 5G is no mere matter of national pride. The new technology will not only permit ultrafast video streaming and communication between, say, a self-driving car and a traffic control system. It is also meant to accommodate simultaneous connections with large numbers of devices - everything from consumer wearables to industrial sensors.

That dovetails with China's aim, outlined in its most recent five-year plan, to transform its cities and upgrade its manufacturing capabilities using the Internet of Things.

Chinese companies' efforts in earlier generations of wireless technology mostly flopped. Despite government-inspired efforts by state-run China Mobile - the world's largest cellular provider - during the development of 4G, few carriers in other countries chose to rely on China Mobile's preferred standard.

With 5G, Chinese companies started developing know-how early. Huawei has invested US$600 million in 5G research since 2009, according to a company spokesman, and has committed an additional US$800 million for this year. The company has also signed agreements to test 5G equipment with European telecom operators including BT, Deutsche Telekom and Vodafone.

As at early 2017, 10 per cent of the 1,450 patents essential for 5G networks were in Chinese hands, according to analysts with Jefferies, who wrote they expected the figure to rise. That number includes intellectual property rights held by Huawei; another Chinese equipment maker, ZTE; and others. Qualcomm alone owned 15 per cent of 5G patents, Nokia 11 per cent and Ericsson 8 per cent.

As at 2011, Huawei and ZTE owned a combined 7 per cent of 4G patents, according to Jefferies's estimates. Qualcomm, at the time, owned 21 per cent.

Chinese companies have also been increasing their influence at 3GPP, or the Third-Generation Partnership Project, the international body that decides wireless standards and includes representatives from telecom operators, equipment makers and more. The work of deciding technical matters at 3GPP is divided among different groups and subgroups, and Chinese organisations have expanded their presence in the top ranks.

The number of Chinese representatives serving as chair or vice-chair of a group or sub-group was 10 last year, up from eight in 2013, according to Jefferies. There are almost 60 leadership positions in total. Huawei holds five top spots among the different groups; China Mobile has three. The chair and vice-chair are elected by each group's members.

Some of Huawei's representatives were hired from other global telecom players, such as Nokia and Nortel, according to their LinkedIn profiles. Other companies well represented atop the standards groups are Ericsson (six representatives), Samsung (five) and Qualcomm (four).

In 2015, Georg Mayer, a Huawei executive born in Germany, was elected chairman of the group responsible for core network equipment and network terminals, one of the most influential groups, a position he still holds. In an important sub-group that sets specifications related to radio transmission, however, Qualcomm's representative beat out Huawei's last year for the chairmanship.

Once 5G networks begin to be built and deployed, the technical protocols will help determine which companies win lucrative equipment contracts.

NYTIMES