Last month, India’s DoT appeared to reverse an earlier ban and invited Huawei to join 5G trials and other emerging markets will probably follow suit
By Tim Culpan
At the heart of concerns about Huawei Technologies Co.’s expansion is the Chinese giant’s role in the global telecom infrastructure. Skeptics charge that the company’s relationship with Beijing makes it a tool for Chinese espionage. That is a valid concern. In its 2015 annual report, rotating CEO Guo Ping made a bold assertion about Huawei’s global reach: Our 4G equipment was widely deployed around the world and is now being used in the capital cities of over 140 countries. At the time, Huawei had just reported revenue growth of 23% in its carrier business, which supplies networking equipment. That was the strongest pace in at least five years, driven by demand for 4G networks that offer faster downloads.
Yet, Huawei’s networking business has been a perpetual laggard, and its growth outside China has been lacklustre. Data from the past seven annual reports show that the company is struggling to globalise its equipment business, or even eke out growth from that division. Strong numbers in 2015 and 2016 belie an otherwise weak growth rate.
For the six years through 2017, revenue at the carrier unit climbed an average 12%, which isn’t exciting given that the period saw the introduction and rollout of 4G networks as well as upgrades to older 3G networks. Its consumer business, which sells smartphones, grew at almost three times that pace over the same period. Last year the carrier division accounted for less than half of sales, from 74% in 2011, while more than 50% of Huawei’s revenue came from its home country, compared to 32% six years prior. The Americas accounted for just 6.5% of sales in 2017. This tells us that moves to block Huawei equipment in developed countries, including Australia, New Zealand, Japan, the US and UK are unlikely to bring the company to its knees. Put simply, they were never target markets anyway.
Instead, developing markets in Asia, the Middle East and Africa are ripe for the taking. It is no coincidence that some governments in these nations are less sensitive to privacy concerns. They’re also regions where Beijing seeks to project its position as an emerging global power. Many such markets also have large populations. The cost of equipment to connect 200 million consumers to mobile data in a rich and a poor nation doesn’t vary in proportion to their GDP per capita, making such emerging markets as potentially lucrative as a developed market. Losing Japan or Britain due to espionage concerns is a blow, but by no means fatal.
The advent of 5G, which focuses on data and connecting machines to the internet, potentially afforded Huawei a fresh opportunity to make it in the West. But that door was merely ajar, not open.
Other nations are on the fence. India’s Reliance Jio Infocomm Ltd. went all in with equipment newcomer Samsung Electronics Co. for its 4G networks, and is likely to tap the South Korean giant for 5G. That opened up the prospect that Huawei was no longer needed as a cheaper alternative to European players Ericsson AB and Nokia Oyj, meaning the government might block the Chinese company outright.
Last month, though, India’s Department of Telecommunications (DoT) appeared to reverse an earlier ban and invited Huawei to join 5G trials. Other emerging markets will probably follow suit, given Huawei’s financial resources and Beijing’s clout. That leaves developed countries trying to convince allies to stay away from Huawei, as the US has already done, according to the Wall Street Journal. That is likely to leave the company’s world divided into three parts: Out of bounds, open for business, and contested. It also means that the battle against Huawei won’t be fought on Western shores.
-The author is associated with Bloomberg. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.