SIM Report: North America, Issue 6

Canada & China: Telecommunications giants’ Huawei snub likely to prompt commercial retaliation

On 2 June, Canadian telecommunications companies Bell and Telus separately announced that they would use equipment from Sweden-based Ericsson and Finland-based Nokia in their respective 5G networks. These announcements mirror that of fellow major telecoms company, Rogers, which in January stated it would use Ericsson’s technology in its 5G network. Together, the three companies’ actions effectively lock Chinese giant Huawei out of the construction of Canada’s 5G networks. The recent announcements were particularly significant as both Bell and Telus had previously used Huawei equipment in their earlier networks, while as recently as February, Telus’ CFO Doug French said that the company would use Huawei products in its 5G network.

5G EXPLAINED

5G is the fifth, and latest, generation of mobile internet connectivity. It offers much faster data download and upload speeds compared to its recent peers (4G and 3G). Through an expanded use of the radio spectrum, 5G also allows more devices to use the mobile internet simultaneously.

While the companies’ decisions likely featured multiple technical, operational, and financial considerations, a major reason for their collective avoidance of Huawei equipment was likely due to geopolitical and diplomatic factors tied to Canada’s powerful southern neighbour. Huawei and its 5G offering are core issues in the increasingly hostile Sino-US relationship, with Washington repeatedly accusing the company of using its advanced telecoms systems to spy on behalf of the Chinese government. Unmoved by Huawei’s frequent denials of these allegations, the US government has imposed a series of restrictions on Huawei’s operations in the US. These include banning sales of Huawei devices on US military bases in May 2018, and 12 months later prohibiting US companies from doing business with the telecoms giant.

Beyond its borders, Washington has also spearheaded an international campaign to persuade third countries to join its boycott of Huawei, amid the steady global rollout of 5G technology. This campaign has had mixed results, with some US allies, such as Australia, New Zealand, and Japan, imposing major restrictions on the company’s operations. Other US allies, including the UK, Germany, and France, have taken a more accommodating approach to Huawei’s involvement in their telecoms networks as a means to maintain good trading links to China. In Canada, the government has been conducting a national security review into Huawei’s involvement in its 5G network since September  2018. Despite the US government threatening to reassess intelligence sharing with its northern neighbour and Five Eyes ally, and calls for a ban from the opposition Conservative Party, Prime Minister Justin Trudeau has yet to declare his stance publicly. This is likely an attempt to avoid a worsening of Sino-Canadian relations, already damaged by the arrest on a US extradition request of Huawei’s chief financial officer, Meng Wanzhou, in December 2018, and the subsequent rapid detention of two Canadian citizens in China.

Major 5G equipment suppliers by country of origin

Huawei – China

ZTE – China

Nokia – Finland

Samsung – South Korea

Ericsson – Sweden

While no official ban on Huawei was or is in place, Bell, Telus, and Rogers’s decisions on 5G partners took place within the context of complex and uncertain Sino-Canadian ties. The decisions reflect this tension, with all three telecoms companies ultimately partnering with firms from allied countries with stable longstanding relations with Canada and the US. The moves, however, are likely to prompt disappointment and retaliation from Beijing, which is likely to view the commercial decisions as unrelated to Huawei’s commercial and technical standing, and a product of hostile political relations. Possible forms of retaliation include moves to hamper Canada’s commercial interests in China, or a lengthening of the protracted dispute over the country’s citizens detained in China.

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