CAA’s Articulate – The new tech cold war


Context: 

  • A report (nearly a decade ago) by the US House Intelligence Committee flagging issues posed by Chinese telecom companies Huawei Technologies and ZTE, has now turned into a full-scale duel between the two global technology powerhouses, threatening to draw in the entire world.

More on the news:

  • The latest US steps against Huawei and a subsequent move by the UK to reverse an earlier decision and block Huawei from its 5G networks.
    • The UK’s decision aligns with the US view and marks an escalation of the Sino-American tech slugfest to beyond just these two countries.
  • A new set of US restrictions imposed on the use of chipmaking tools means Huawei could face shortages in its supply of specialist chips.
    • Chip-Making is an area where the Chinese are currently trying to build expertise.

Background: 

  • Until now, there have been significant dealings between the two countries on the technology issues, despite China’s resistance to American big-data companies such as Facebook and Google to operate within its jurisdiction. 
  • Apple recorded $100 million of daily sales in China, while Huawei Technologies reported record revenues primarily from its exposure in western markets, including the US last year.
  • The fresh wrangling could end up in cascading actions by other western countries some of whom perceive the same threat as the US, and others who are wary of trade sanctions. 
  • The growing competition to dominate next-generation technologies such as 5G networks and artificial intelligence could impact the plans of most countries (including india) preparing to transition to a 5G regime.

Source: IE

Chinese dominance in the high-end hardware market:

  • Started in the late 1980s, Huawei has come a long way from being a reseller of PBX switches imported from Hong Kong. 
  • Huawei went on to sell its products and services in more than 170 countries, leaving behind Ericsson as the largest telecom’s equipment manufacturer in the world in 2012. 
  • Overtook Apple as the world’s second-largest manufacturer of smartphones in 2018, and had an annual revenue of $122 billion and some 194,000 employees.
  • Other players:
    • The European players such as Ericsson and Nokia, and South Korea’s Samsung are the leaders in the telecoms network equipment market, apart from Chinese players. 

US dominance in chipmaking: 

The US has tried to retain its control on this key aspect of communication technology that is otherwise dominated by just one major non-Western company – Taiwan Semiconductor Manufacturing Company.


Action against hardware makers:

  • In 2011, the House Permanent Select Committee on Intelligence began an investigation into the counter-intelligence and security threat posed by Chinese telecommunications companies doing business in the US.
  • The House panel, in its report submitted in 2012 noted that Huawei and ZTE cannot be trusted to be free of foreign state influence and thus pose a security threat to the United States. 
  • Recently, the US Federal Communications Commission designated the two companies as national security threats.

Danger of a tech cold war:

  • Beginning of blocs: Most observers see this as a technological cold war that could extend beyond just the US and China, and compel other countries to effectively choose between one camp and the other
    • The Huawei action could indeed signal the rising of a formidable economic iron curtain.
    • It is being described as a geopolitical struggle over technology that threatens to divide the world into two distinct technological blocs, with both countries striving to limit the other’s access to its advanced know-how.
  • Challenge: While the US has blockaded Huawei on the ground that its equipment is designed to aid snooping, the question is whether the risks are high enough to dump a cheaper, viable option.
    • The action has come at a time when 5G is set to be rolled out globally, with Huawei generally ahead in the race. 
    • For a lot of countries, a viable 5G rollout will need Chinese firms. 
    • But the 5G network in China relies on key components from the US and the new American restrictions on the use of chipmaking tools mean Huawei could face shortages in the supply of specialist chips.

India’s standing in this battle:

  • Skepticism towards Chinese equipment: 
    • In 2009, the Department of Telecommunications (DoT) had asked Indian mobile companies to suspend deals with Chinese equipment makers after fears of hacking and spying. 
  • India, a fence-sitter since then: 
    • Never fully banned Chinese companies from its telecom equipment industry. 
  • Current situation: 
    • After the standoff in Ladakh, India has asked state-owned telecom service providers to exclude Chinese companies from the scope of their network upgrade contracts.
    • This was part of the wider decision to signal curbs on Chinese investments and tech companies in the country. 
    • In official statements, India justified the ban on 59 mobile apps with Chinese links on grounds of a threat to national security
  • India’s telecom growth and Chinese contribution: 
    • Much of India’s telecom growth story has been supported by Chinese companies in both hardware and software.
      • India’s hesitation in acting against Chinese equipment makers in the telecom industry has derived from the view that the Chinese have brought competitiveness to a market earlier dominated by European firms.
      • However, the border clashes and the US action could now force New Delhi into the anti-China camp.

Implications for other stakeholders in the telecom industry:

  • Competitive advantage for others: 
    • With the Chinese being increasingly blocked by governments in 5G networks, other global players could be at a competitive advantage. 
  • Promote domestic manufacturing: 
    • Small operators will no longer be able to access federal subsidies to buy or maintain Chinese equipment in the USA. 
      • They will be forced to deploy components by other manufacturers. 
      • This could have a bearing on countries especially outside North America and Europe, including India.