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Europe’s still ‘buffering’ over 5G

By: Ng Xiao Yan, Joshua Yuen

Research Head: Mrunali Doshi

Editor: Sakshi Sanganeria

Illustration by Ng Jia Ying Abstract The age of the internet is set for a big improvement, leading a new wave of industrial revolution named Industrial 4.0. Industries will see transformation with automation, robotics and artificial intelligence. However, a major fiasco concerning a top Chinese telecommunications firm, Huawei, has impacted the launch of 5th Generation (5G) and in this article, we will analyze the impacts and implications it has on Europe, in terms of its growth and future of trade, with both China and USA as member states make their decision on whether to adopt Huawei or not.


5th Generation, or 5G for short, is the next new thing for the world in terms of telecommunications standard. 5G will lead a new industrial revolution named Industrial 4.0, which focuses heavily on interconnectivity through Internet of Things (IoT), automation, machine learning and real-time data (Epicor, n.d.). Healthcare and logistics are just two industries that will benefit heavily through new and accessible technology- such as remote surgery and driverless systems (Voirin, 2019). Improvements in data capacity and networks lowers costs for companies, resulting in an increased ability to innovate. Over time, the downward shift in cost and upward shift in ability to innovate will radically benefit consumers. 5G is expected to bring US$13.2 trillion in global economic output (IHS Markit, 2019). 1. In a world geared towards high speed innovation, Europe is still ‘buffering’ Despite the global trend of working towards rapid development of 5G, Europe is slower in development of 5G compared to other countries such as Japan and the USA, as seen by the graph below. Analysts predict that Europe (as represented by EU5) will take longer than these other regions and countries to achieve wide coverage of 5G at its current pace.


5G Population coverage forecast (Northstream, 2019) The primary reason for this is a high economic barrier to entry due to high spectrum costs (Voirin, 2019) and poor market conditions, resulting in a lack of investments. Currently only Swisscom is aiming for 90 percent 5G coverage within 8 months of launch (Northstream, 2019). As a result of such high barriers to entry, Europe is investing less compared to other forefront runners in 5G. Telecommunications executives are still grappling with the massive amount of investment required for the development of 5G infrastructure. (Financial Times, 2019). 2. Understanding the dilemma The major players in the telecommunications equipment industry present in Europe are Ericsson, Nokia and Huawei. Globally, the 2 Chinese firms, Huawei and ZTE have a combined market share of 40%. (Barzic, 2019). Huawei is leading the 5G revolution in Europe- having signed at least 32 European contracts. (Busvine, 2019).


Market share of telecommunications equipment firms (Dell’Oro Group, 2019)

Impending this trailblazing route of Huawei in Europe came United States’ allegations of corporate espionage. The ban of Huawei in the States due to ‘security reasons’ has led to global complications. The US has rallied for its allies to apply the ban, but the situation is complex for Europe who is facing different forces of pressure from both the US and China. The biggest issue Europe faces, should they choose to exclude Huawei completely, is cost. Companies will incur a cost of about 55 billion euros to replace existing Huawei equipment as well as an 18- month delay in launching 5G (Barzic, 2019). An 18-month delay on top of its current slow progress would be detrimental for companies who are expecting to rely on 5G to increase competitiveness. This can lead to slower growth in the Eurozone. Nokia has denied such claims, that the costs are inaccurate because Nokia has the ability to overlay its equipment over another vendor’s (Barzic, 2019). However, the fact remains that if Huawei is banned due to security reasons, their 4G equipment would be removed and replacing the equipment would incur costs before upgrading them to 5G.

EU T op T rading Partners (Edmond, 2019) 3. Stuck in between a rock and a hard place Europe seems to be stuck in a tough spot- it cannot ban Huawei completely and does not want a backlash from the United States. Choosing the moderate route, The European Union recently has stopped short of outright banning Huawei and ZTE. Rather, it allowed individual states to review their suppliers and limit them if deemed necessary (Stevis-Gridneff, 2020). In response to the EU’s ignoring of the blanket ban of Huawei in Europe, the US President Donald Trump has threatened to impose a 25% ban on European car imports, a move Brussels says it would counter with tariffs on its own (Reuters, 2020). The US was given the right to impose tariffs up to 100 per cent on EU goods such as cheese, digital services taxes and aircrafts worth up to $7.5 billion (Financial Times, 2019). A trade war with the US can be further detrimental to the EU’s slowing growth, especially when the US is the largest partner for EU exports. In addition to the US blanket ban of Huawei, US officials are considering funding Nokia and Ericsson to help them compete against Huawei’s low costs (Financial Times, 2019). Last month, a bipartisan group of US senators introduced a bill to provide more than $1 billion to develop Western-based 5G equipment to provide alternatives and block Huawei (Advanced Television, 2020). The issue with Huawei cannot be lightly handled given the economic relations between China, Europe and USA. Tariffs and trade restrictions will limit Europe in its competitiveness, further worsening the problems of lagging behind in global 5G rollout. Further supporting US claims of cyber espionage, a study by Finite State has found a myriad of security problems such as having outdated components and a large presence of known


vulnerabilities (Finite State, 2019, p. 17). On top of Europe’s poor market conditions, this might exacerbate an insecure and unstable foundation of 5G-tech in Europe. The EU should take multiple factors into consideration such as the poor quality of Huawei’s 5G patents and infrastructure in order to avoid worsening its global position in the 5G race. In response to the United States’ claims of cyber espionage, the European Commission is wary. It has further endorsed the EU toolbox and has released a set of guidelines for member states to mitigate security risks. 4. Division within the EU Within the EU, there is division between member states on the use of Huawei. Germany faces a tough choice regarding Huawei, with threats of tariffs or retaliations from both China and the US in its automobile industry, affecting companies like BMW, Mercedes and Daimler (Kastner, 2020). On the other hand, France’s Orange has gone with Nokia and Ericsson as their 5G equipment provider, cutting out Huawei even before the government has made a decision on whether Huawei can be used in France- resulting in some backlash and threats from the Chinese (Reuters, 2020). The UK has also set restrictions to Huawei’s influence by banning Huawei from supplying equipment to “sensitive parts” of the network and has set a limit of 35% in their network’s periphery, excluding it from sensitive areas such as military bases and nuclear sites (BBC, 2020). Further, they encourage to avoid dependency on a single supplier by adopting a multi-vendor strategy (Medianama, 2020). 5. Future Outlook Moving forward, Europe should continue its policy of adopting a multi-vendor strategy to avoid dependency on Huawei, especially in light of their dubious quality of infrastructure and intentions. However, both the Europe and the United States should encourage cooperation to identify and prevent potential vulnerabilities that can undermine our global collective security.


Reference List: Barzic, G. (2019). Europe’s 5G to cost $62 billion more if Chinese vendors banned: telcos. Retrieved February 13, 2020, from Reuters website: https://www.reuters.com/article/us-huawei-europe-gsma/europes-5g-to-cost-62- billion-more-if-chinese-vendors-banned-industry-idUSKCN1T80Y3 Busvine, D. (2019). Despite political headwinds, Huawei wins 5G customers in Europe. Retrieved February 13, 2020, from Reuters website: https://www.reuters.com/article/us-huawei-tech-europe/despite-political- headwinds-huawei-wins-5g-customers-in-europe-idUSKBN1WU2GI Epicor. (n.d.). What is Industry 4.0—the Industrial Internet of Things (IIoT)? Retrieved February 12, 2020, from https://www.epicor.com/en-sg/resource - center/articles/what-is-industry-4-0/ Ewing, J. (2020). European Economic Growth Slows Almost to Zero. Retrieved February 13, 2020, from New York Times website: https://www.nytimes.com/2020/01/31/business/economy/european-union-eurozone- economy.html Filde, N. (2019). 5G: Can Europe match the US and China on mobile networks? Retrieved February 13, 2020, from Financial Times website: https://www.ft.com/content/650d3bf8-1e32-11e9-b2f7-97e4dbd3580d Finite State. (n.d.). Finite State Supply Chain Assessment - Huawei Technologies Co. Ltd. Retrieved from https://finitestate.io/wp-content/uploads/2019/06/Finite-State - SCA1-Final.pdf Hedge, Z. (2018). Five reasons why Europe has already lost the 5G race. Retrieved February 13, 2020, from IoTNOW website: https://www.iot - now.com/2018/06/27/84975-five-reasons-europe-already-lost-5g-race/ IHS Markit. (2019). The 5G Economy. Retrieved from https://www.qualcomm.com/media/documents/files/ihs-5g-economic-impact-study- 2019.pdf Kalnins, N. (2019). Europe needs to embrace 5G — before it’s too late. Retrieved February 13, 2020, from The Next Web website: https://thenextweb.com/podium/2019/11/16/europe-needs-to-embrace-5g-before- its-too-late/ Kastner, J. (2020). Squeezed by China and US, Germany faces key Huawei decision. Retrieved February 13, 2020, from Nikkei Asian Review website:


https://asia.nikke i.com/Spotlight/Huawe i-crackdow n/Squeezed-by-China-and- US-Germany-faces-key-Huawei-decision

Northstream. (2019). Northstream 5G Outlook for Europe. Retrieved from https://www.ericsson.com/en/blog/2019/9/can-europe-compete-in-5g-not-without- addressing-barriers-in-our-way

Reuters. (2020). China to France: Don’t discriminate against Huawei on 5G networks.

Retrieved February 13, 2020, from Reuters website: https://www.reuters.com/article/us-france-china-huawei/china-to-france-dont- discriminate-against-huawei-on-5g-networks-idUSKBN2030NP

Stevis-Gridneff, M. (2020). E.U. Recommends Limiting, but Not Banning, Huawei in 5G Rollout. Retrieved February 13, 2020, from New York Times website: https://www.nytimes.com/2020/01/29/world/europe/eu-huawei-5g. html

Tao, L. (2019). Huawei, ZTE expand share in global telecoms gear, but all eyes are on the second half amid trade tensions. Retrieved February 13, 2020, from South China Morning Post website: https://www.scmp.com/tech/gear/article/3025158/huawei-zte- expand-share-global-telecoms-gear-all-eyes-are-second-amid

twoBirds Pattern. (n.d.). Who is leading 5G development? Retrieved February 13, 2020, from https://www.twobirds.com/~/media/pdfs/who-is-leading- 5g- development.pdf?la=en&hash=AB57AC4B01AD1F8BE641A590222DE8BDA1D 8B082&hash=AB57AC4B01AD1F8BE641A590222DE8BDA1D8B082

Voirin, H. (2019, June 24). 5G is arriving — but is Europe ready? Retrieved February 12, 2020, from Politico website: https://www.politico.eu/sponsored-content/5g- is- arriving-but-is-europe-ready/

Images:

Adapted from “5G population coverage in mid-band spectrum (3.5GHz-6GHz)”, by Northstream, 2019, Northstream 5G Outlook for Europe. Retrieved from https://www.ericsson.com/en/blog/2019/9/can-europe-compete-in-5g-not-without-

addressing-barriers-in-our-way.

Adapted from “Worldwide SP Equipment Market”, by Dell’Oro Group, 2019, Key Takeaways

- Worldwide Telecom Equipment Market 2018 . Retrieved from https://www.delloro.com/telecom-equipment-market-2018-2/

Adapted from “EU Top Trading Partners, 2000-2018”, by Charlotte Edmond, 2019, Chart of the day: The EU's trading partners. Retrieved from https://www.weforum.org/agenda/2019/04/this-is-who-the-eu-trades-with-992cfd51f7/

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