Is the clampdown on Chinese tech giants prescient or paranoid?

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Is the clampdown on Chinese tech giants prescient or paranoid?

Telecoms firms in China are attracting unprecedented attention for being too closely aligned with its government. Adrian Weckler hears from a trenchant critic – Rivada founder Declan Ganley


Bad deal: Declan Ganley believes spectrum allocation policies have been ‘wrong-headed’ and that the auction system is bad for the mobile industry and its customers. Photo: AFP/Getty
Bad deal: Declan Ganley believes spectrum allocation policies have been ‘wrong-headed’ and that the auction system is bad for the mobile industry and its customers. Photo: AFP/Getty

Can the world trust Chinese telecoms infrastructure firms to build our 5G mobile networks?

This is arguably the biggest issue facing the telecoms industry as countries prepare the rollout of next-generation cellular systems that could control vast swathes of vital infrastructure.

Everything from national traffic management and self-driving cars to the power grid and health systems is expected to pass through the 5G networks now being planned.

But a growing chorus of critics claim that some of the companies leading the 5G industry can not be trusted because of overly close links to the Chinese government. This, the mostly American agitators claim, is unacceptable because it could give Beijing potential access to critical national assets. The critics charge that Chinese companies are, by necessity, tied closely with Chinese authorities that demand a much closer grip on communications than Western countries.

In recent months, a series of international incidents involving Chinese telecoms firms has heightened tension around the topic.

The Chinese firm Huawei, in particular, has been embroiled in controversy. Last week, it fired an employee who was arrested for spying in Poland. Late last year, Canadian authorities arrested Huawei’s chief financial officer, Meng Wanzhou, on foot of a US warrant. The CFO is also the daughter of Huawei’s chairman.

Huawei comes in for close attention because it’s such a big player in communications network infrastructure. It now has 28pc of the world’s networking market, overtaking Ericsson and Nokia to become the biggest player.

This means it is to the fore in the new generations of 5G mobile networks and core broadband infrastructure.

For example, Eir is planning to invest €150m in a 5G mobile network upgrade that’s based on Huawei kit. Vodafone and the ESB, through their nationwide Siro fibre broadband venture, build their key infrastructure using Huawei. BT Ireland uses it too.

What US authorities claim is that using infrastructure on this scale opens up the possibility of manipulation, even if unintentional, by the Chinese government.

But are such claims sheer paranoia?

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One telecoms executive who thinks the Americans are right to protest is Declan Ganley, the Galway-based Rivada Networks founder. Ganley is known to Irish people more for his political forays into issues like European treaties and abortion. But in the telecoms world he has been a long-standing figure, with substantial contracts in the US. His company, which has raised close to €100m in funding and counts the billionaire Peter Thiel as a backer, is developing a speciality in spectrum arbitrage, an idea that the frequencies and bandwidth that mobile operators use should be freed up using a commercial exchange system.

It has also been heavily involved in bidding for international contracts, including an expensive pitch for a major Mexican state service which it controversially lost last year.

In Ireland, Ganley has a long history in the mobile business, losing out on a cellular licence in the 1990s. In recent times, however, he has emerged as one of Ireland’s most vocal critics to giving Chinese telecoms infrastructure companies such as Huawei contracts to build new 5G networks in European countries.

Is this an ideological crusade? Does he hate Chinese tech companies?

“I don’t hate Chinese technology companies,” Ganley says. “What I do strongly dislike is unfair competition. What I don’t like with regard to China is that they have made their technology companies an arm of Chinese strategic foreign policy. I don’t think that’s good for those companies and I don’t think it’s good for the world. As we get into the ecosystem of the Internet of Things, you’re going to have everything from air conditioning, to refrigeration, transport, storage, medical devices, pharmaceutical dispensing, automated manufacturing machines, agriculture, municipal power supplies and everything else connected. In a cyberwar, if you wanted to take down the electrical grid in a city like New York, all you’d have to do is get everybody’s air conditioning turned up by two degrees on a hot day.”

But isn’t this a little paranoid? Where’s the proof that any of this is on the horizon in any way? “Chinese companies are required by law to share data and information with the Chinese government,” says Ganley. “This is not an option for them and it’s not a secret.”

This message is one that US politicians have been touting for some time, with damaging effect on Chinese firms.

Eighteen months ago, Huawei was humiliated when the main US mobile operators pulled out of arrangements to sell Huawei phones after US authorities advised them to do so. This destroyed any chance of Huawei making an impact on the US market, the most important after China and the EU. It was a big deal because Huawei is now the world’s second-biggest smartphone seller, recently creeping ahead of Apple to trail only Samsung.

Last month, Britain’s biggest telecoms operator was reported to be scaling back its use of Huawei equipment for security reasons. British Telecom will now move Huawei kit away from ‘core’ network functions in rolling out 5G infrastructure, the ‘Financial Times’ reported.

The Australian and New Zealand governments have also adopted policies against equipment from Chinese telecoms manufacturers.

But all of this begs an obvious question: why telecoms firms? If there is some Chinese plot to infiltrate our communications using Chinese equipment, why do Ganley and many other critics use iPhones and laptops that are universally built in China under Chinese supervision?

“This is going to be an issue for all of those companies,” says Ganley.

But he still uses a smartphone, right?

“Absolutely. And yes, its many components are manufactured in China right now. But that is going to become an issue. As we enter into this more connected cyber world, trusted sources of supply are going to become much more pertinent than they have been up until now. And this is going to become an issue for more than just the companies that we’ve talked about.”

There is another element nagging at the narrative of why the West should avoid using Chinese telecoms networks for reasons of security and infiltration – Edward Snowden.

The revelations that the US whistleblower brought to light made us realise that the US-based services we use everyday, from Gmail to Microsoft to Facebook, are routinely scanned and infiltrated by US authorities. Any partially interested tech industry observer would also assume that the UK’s GCHQ security services do likewise.

If he is worried about backdoors into infrastructure and nation-state infiltration, does this not bother Ganley?

“It would if I didn’t trust the US system,” he says. “While the US system has its flaws, it’s arguably the least worst system of government we have in the world. I trust them more to be responsible guardians of the rules that govern my data than the Communist Party of China.

“Without getting into the weeds on this, I don’t like violations of privacy by any government. I believe in freedom. I believe in small government. And small government is not a government that knows everything that you’re doing every hour of the day. They shouldn’t have the ability to know that. But if I had to pick one that was going to potentially have access to that, who would I trust to allow my data to be looked at? At the very bottom of the list would be the Communist Party of China.”

Chinese companies aren’t the only telecoms-related topic on Ganley’s mind.

The shape and purpose of 5G services themselves, independent of who builds them, is also something that the businessman believes needs addressing.

Ganley is a long time critic of mobile licensing systems. He believes that spectrum – the critical, finite bandwidth in which companies are allowed to offer mobile services – is being wasted.

“Our policy towards spectrum allocation in the West has been wrong-headed for the best part of almost 20 years,” he says. “In fact it has been since we started doing the 3G licence auctions. We created a situation where we ended up with oligopolies or concentrations of ownership of wireless spectrum in companies that have become rent-seekers.”

Ganley believes that the auction system, in particular, short-changes the entire industry and consumers, too.

“It leaves them short when you actually have to start developing services for it,” he says. “Because if you’ve written a massive cheque up front for the government, then obviously the amount of money that you can then raise to invest in infrastructure in developing the asset is going to be a bit less.”

But isn’t that a basic market calculation done by the investing operator? If they can’t afford to develop the service, they won’t bid as much for the licence, right?

“The market theory should go that way except that this is much more akin to feudal economics than free-market economics,” says Ganley.

“It’s like picking a few landowners. If we sold real estate the same way that we sell spectrum, we’d be saying you can own real estate as long as you can bid 500 million acres at a time and that you’ll be one of only three or four bidders at that point. There aren’t going to be many bidders for that. And whoever is in is going to have to write a really big cheque to the government for the rights to that.

“Then what are you going to invest into your 500 million acres? Great high tech cities? Probably not as you’re not going to have a lot of spare cash to do that. So you’re going to do what the feudal lords did, you’re going to charge your rent and you are going to become a rent-seeker. And you’re only going to invest enough in your property so that you can continue to collect the rent.”

In other words, mobile services and bandwidth availability aren’t being as developed as quickly as they might optimally be.

But if this is true, what about the iPhone economy? Haven’t smartphones changed things more quickly than any other product we’ve had in history? They have only been able to do that given the 3G and 4G networks they’ve operated on. Isn’t that proof that the system is actually working?

“I very strongly believe that we would be much further down the track in terms of where technology would have bought us,” says Ganley.

“The cost of data is so high that if you did not have the need to pay it off and service these massive one-time auction fees, the money would have been free to be invested into research and development.”

Indo Business


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