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56 EE|Times EUROPE

OPINION

30 Reasons Why

Licensing Huawei 5G

Could Be a Bad Idea

By Joe Hoffman
Figure 1: Mobile subscribers: global pop-
Late last year, The Economist published an interview with Huawei ulation, cellular subscribers, and year-on-
founder Ren Zhengfei in which Ren proposed cloning Huawei’s year growth (Image: SAR Insight & Consulting)
5G technology stack by licensing patents, code, blueprints, and
production know-how. The article points out that this would BEEN THERE, DONE THAT
be an outlandish idea in normal times but then says it deserves Sourcing someone else’s kit can work but
consideration. is fraught with risk, so why is this offer
Patent licensing and trading are a normal part of a technology different? Motorola was a leading infrastruc-
business, but this offer is much more than that: Huawei is offering ture vendor in 2G but stumbled with 3G and
the ability to replicate its entire cellular portfolio. Trying to replicate eventually sourced a Huawei kit for its 3G
Huawei’s product line sounds like a bad business idea, so let’s break it down. offering, which was interpreted by the market
as a going-out-of-business strategy. Motorola
REASONS 1–23: THE TELECOM INFRASTRUCTURE ECOSYSTEM could have borrowed the Zenith slogan, “The
It’s not cynical to say the mobile telecom ecosystem is past the high-growth stage (2000–2010). [Huawei] quality goes in before the [Motorola]
Figure 1 shows global population, cellular subscribers, and subscriber year-on-year growth from name goes on.”
1990–2025, with worldwide mobile subscriptions exhibiting a classic S-curve. This chart includes While not an impossible task, building a
the cellular evolution from 1G to 5G, but the implications for infrastructure and handset markets new entity and executing a successful busi-
are telling. Both markets evolve from new-market ness plan are daunting in the telecom market,
Is there enough business expansion to slower replacement sales. Equipment so don’t expect to see a full-scale competitor
in countries where vendor opportunities come with the introduction of based on Huawei technology any time soon. ■
new technology, such as 5G, to operators and con-
Huawei is banished sumers. Without those sales, the ecosystem relies on Joe Hoffman is director of wireless connec-
to justify replicating replacement, densification, and population growth. tivity and machine sensing at SAR Insight &
Consulting, where he focuses on the emerging
Table 1 lists 23 of the major telecom infrastructure
Huawei’s 5G portfolio? vendors from the global cellular rollout. The compet- strategies and shifting value chains of the
itive forces that drive market rationalization are still
machine economy. He holds a B.S.E.E. from
present, with Huawei, Ericsson, and Nokia dominating the University of Kentucky, an M.S.S.E. from
the market for infrastructure and with newcomers facing long odds against the incumbents. Virginia Tech, and an M.B.A. from Arizona
Outside of the dominant vendors, most have left the business, have been acquired, or participate State University. His career includes posts at
in local and small-cell markets. IBM, Lockheed-Martin, Motorola, and Nokia.
REASONS 24–30: BUSINESS CHALLENGES Survivors Casualty Emerging
Markets. The primary markets for this proposal are those that have banned Huawei, namely the
United States and some allied nations. In every market, the new company could expect fierce AIRSPAN ALCATEL AUTOSTAR
competition from others. CISCO ALVARION CASA
Patents. Huawei will include its patents in the stack, but the new entity would likely soon SYSTEMS
hear from intellectual-property rights (IPR) lawyers representing the other infrastructure ERICSSON APERTO COMBA
vendors, including Qualcomm. Licensing Huawei patents will not shield the new entity, and it TELECOM
will need to make additional arrangements. FUJITSU LUCENT JMA
Field service. Telcos are notoriously conservative and look to long-term supply continuity, WIRELESS
including the field service team. HUAWEI MOTOROLA MAVENIR
Software. There are billions of lines of code here to parse through and support if the vendor NEC NORTEL PARALLEL
wants to surmount the security allegations. Understanding and maintaining someone else’s WIRELESS
software is a Herculean task for any company to take on. NOKIA SIEMENS
Legacy. 5G needs LTE to work in non-standalone (NSA) mode for the immediate future. It will
be many years before telecoms shut down the legacy 4G technologies. Recent 4G LTE base stations PANASONIC
are software-upgradable, reducing the market opportunity and raising barriers for a new entity. SAMSUNG
Scale. Where does this new venture compete, and how does it gain sufficient economy of ZTE
scale? The banishment markets are not enough, not even for Nokia and Ericsson.
Supply chain. Be sure that Huawei and China Inc. are working furiously to rid themselves of Table 1: Telecom infrastructure vendors
American choke points; it is an existential issue. What happens to the new entity when it needs from the global cellular rollout
to source the Chinese components and then sell into the banishment markets? (Image: SAR Insight & Consulting)

MARCH 2020 | www.eetimes.eu