Why the German Debate on 5G and Huawei is Critical

The heated German debate over 5G is approaching fever pitch. The United States, Australia, and New Zealand have effectively banned the technology from China’s IT companies Huawei and ZTE from their 5G roll-out. Several European countries, including France, Britain, Spain, Poland and the Czech Republic are reconsidering their strategy based on national security concerns. Some major providers (Orange in France, BT in Britain) have already stated that they would strip existing Huawei technology out of the network core and will not use Huawei equipment for their 5G infrastructure.

Germany remains undecided about a blanket ban of Chinese companies for building its 5G network – and the country’s role in the European conversation is critical. It is currently in the process of auctioning the frequency bands for the 5G network to the operators. The German agency responsible for the auction, the Federal Network Agency, has set out the criteria that each bidder would have to meet. These include a need to cover 98 percent of all households in each federal state with at least 100 Mbit/s and all federal highways with 100 Mbit/s and a maximum of 10 milliseconds of latency by the end of 2022, the necessary standard to operate 5G-enabled technology across the country. 

Four providers are said to be bidding: Deutsche Telekom, Telefónica, Vodafone, and a new and smaller entity, 1&1 Drillisch, a subsidiary of United Internet. 1&1, according to newspaper reports, has considered outsourcing network infrastructure construction to the Chinese company ZTE and later renting it back to defray some of the significant costs, as it does not currently possess its own network infrastructure. The Federal Network Agency has encouraged greater competition among the operators who are entering the 5G bid with a straightforward logic: More choices, better prices. It has thus created a lower threshold for newcomers like 1&1.

In Germany, the economic argument looms large. To meet the ambitious targets set out in the auction and desired by the German economy – and still remain competitive – the bidding companies say that they cannot afford any delays or higher costs, which they expect if Chinese companies are excluded from building the network. Detailed figures and assessments have yet to be presented and would help inform the debate about the perceived and actual costs of relying on European providers.

A variety of German researchers have argued that the proponents of a blanket ban of Chinese technology have failed to provide convincing evidence proving direct links to the Chinese security services. 

Huawei technology is cheaper and meets the highest technological standards. In addition, in contrast to the United States, all German operators already have Huawei and/or ZTE components in their networks. As the 5G network builds upon the 4G infrastructure, the cost of replacing Chinese components in the existing network would need to be added to the overall investment. It comes hardly as a surprise that German operators are not particularly thrilled about demands to exclude Chinese tech companies.

But it is not just a debate between business interests and security concerns. A variety of German researchers have argued that the proponents of a blanket ban of Chinese technology have failed to provide convincing evidence proving direct links to the Chinese security services. Without convincing evidence, they argue, Chinese vendors should not be excluded. There is also a significant debate on whether it is sensible to address the 5G question without looking at the entirety of the information and communications technology infrastructure and its supply chain. Others argue that, while it may be sensible to exclude Huawei and ZTE technology from government networks to avoid cyber security risks, Chinese technology can be used in other parts of the infrastructure where back-up structures can be provided as a reasonable and cost-effective strategy that limits risk.

The question of why Huawei technology is so much cheaper is rarely asked, which is surprising as European tech champions Ericsson and Nokia have to compete against a Chinese company that does not have to play according to market-economy rules in its pricing and risk assessment.

Everybody is watching, and Germany has a lot to lose. It is a huge and lucrative telecommunications market and its economy is heavily intertwined with China, so Beijing will watch the outcome of the German 5G deliberations carefully. So will Washington. The U.S. government has exerted significant pressure on its allies across Europe to take the security concerns seriously. Germany fears economic repercussions from Beijing in what it feels has become an overly politicized, antagonistic climate. It has tried to stay as neutral as possible in the trade war between the United States and China. German prosperity and jobs are at stake.

But others expect Germany to take a stand. Smaller EU member states want a joint European position on the issue, which would shield them from the direct gaze of Beijing’s potential anger. 5G has become yet another litmus test for European unity.

In the meantime, Washington’s increasing pressure is likely not going to have the intended effect in Germany. With transatlantic relations in disarray, public distrust of the United States’ intentions – especially in the realm of cyber security – is huge. Remember the NSA scandal and Chancellor Angela Merkel’s hacked phone? Well, the Germans do. Therefore, the United States would be well-advised not to make this a “with us or against us” matter.

Germany might be able to find a legal solution to its 5G conundrum. On a recent trip to Japan, Merkel has argued that Chinese companies would have to provide assurances that they will not provide information to the Chinese state. The problem is that Huawei and ZTE are required by Chinese law to do exactly that. Squaring this with German legal requirements will likely be impossible and could offer a legalistic off-ramp to a highly political question. For now.