Caught in the US-Huawei cross fire: Australia and New Zealand

Amid the escalation of trade hostilities between the US government and China, the Department of Justice last week revealed it will be charging the world’s largest telecommunications equipment manufacturer Huawei and its Chief Financial Officer Meng Wanzhou (whose December arrest in Canada made headlines) with a number of offenses. These include theft of trade secrets, obstructing justice, and lying to banks over Huawei’s alleged noncompliance with US sanctions against Iran. The US is currently seeking an extradition order in Canada for Meng, and Huawei and Meng are vehemently denying the charges.

The latest accusations come on top of bans on the use of Huawei (and ZTE, another Chinese company) technology by the US government and government contractors, signed into law by President Donald Trump in August as part of the National Defense Authorization Act (NDAA). The bans cover the use of components or services that are “essential” or “critical” to the system they are used in. Due to its close associations with the Chinese government, Huawei has long been perceived as a threat to national security, and concerns persist that its technology will be used to illegally appropriate sensitive information (that is, spy). However, the NDAA did consider the fact that the ban might have some consequences for businesses required to change their technology as a result of the ban, with several government agencies (including the Federal Communications Commission) being instructed to prioritize funding to assist businesses that will have to change their technology due to the ban.

Regardless of one’s views on the US conducting a trade war with China, or exercising its rights as a sovereign nation to protect its interests, it is clear there is some intention to compensate US firms left out of pocket as a consequence of government decisions. However, the same outcome is unlikely to be on the table for non-US firms caught in the cross fire of the US-China stoush. The pain is already being felt in Australia and New Zealand.

Five Eyes

Since the end of World War II, Australia and New Zealand, along with Canada, the United Kingdom, and the US, have belonged to an Anglophone intelligence alliance now known as “Five Eyes.” The partner countries collaborate in surveillance, signal intelligence, and information sharing activities, notably by sweeping up massive amounts of private and commercial communications.

Historically, this was done through the interception of communication bearers such as satellite transmission and public switched telephone networks (capturing telephone calls, fax, e-mail, and other data traffic). More recently, this has expanded to include user information gathered from technology firms such as Google, Apple, and Microsoft and information gathered directly from the communications of civilians via fiber cables and infrastructure as data flow through.

Quite simply, a ban on the use of Huawei equipment in the US will be impotent against exposure of US Five Eyes data to espionage risk if the information passes at any time on non-US networks comprising Huawei equipment that may be capable of intercepting it. If the members of the Five Eyes alliance are going to be able to continue working together as they have in the past, then arguably they too must take a similar stance on the use of Huawei equipment in their national internet and telephony systems.

New Zealand research and development (R&D) compromised

Unsurprisingly, then, in November 2018 New Zealand’s signals intelligence agency, the Government Communications Security Bureau (GCSB) — which is responsible for the country’s high-level cybersecurity — suggested the Chinese firm not be given the contract to supply major network operator Spark’s planned 5G network equipment, citing “significant national security risks.”

The move has significant implications for network design in New Zealand, because Spark and Huawei had been engaged in world-leading research in Spark Labs in Auckland on the technical implementation of access and core separation, enabling operators such as Spark to operate in a multi-vendor environment, thereby smoothing and accelerating the transition from 4G to 5G deployment. Somewhat ironically, a successful pilot demonstration was unveiled just one week before the GCSB decision came down. Both Spark and Huawei have expressed bewilderment at the decision, which potentially puts at risk a significant R&D activity from which both New Zealand and other telecommunications users worldwide would benefit.

Australian competition curtailed

Similarly, just two days ago, it was revealed that Australian telecommunications company TPG Telecom’s $2 billion plan to use Huawei equipment to build Australia’s fourth mobile network was in tatters, due to the Australian government’s ban on its use, imposed in August following the US move. Just two years ago, the firm committed to investing around $2 billion to bring the new network into fruition. The news was welcomed in a market where concerns about the degree of competitiveness have been frequently voiced. TPG, a “maverick” entrant competing strongly with incumbent fixed-line providers, had made significant investments in spectrum to deploy the new network. Executive Chairman David Teoh observed, “It is extremely disappointing that the clear strategy the company had to become a mobile network operator at the forefront of 5G has been undone by factors outside of TPG’s control.”

TPG is now in merger talks with rival Vodafone.

Security choices not costless

There is no doubt that sovereign states have an obligation to keep those states secure. However, it behooves them to be clear about the magnitude of the risks avoided by actions such as the Huawei ban and the global costs arising from such decisions. It is not sufficient to consider only the effects in the US. The real costs to Australian and New Zealand consumers for US security are already being counted. Both have free trade agreements with China (their largest trading partner), so the telco-related costs may only be the start of a long catalogue. And as Australia (24.6 million) and New Zealand (4.8 million) are very much smaller markets than the US (325.7 million), the proportionate costs per consumer are likely at least an order of magnitude greater than those faced by the US. A high price indeed to pay for membership in the Five Eyes.