In a letter to GCSB Minister Andrew Little and Communications Minister Kris Faafoi - leaked to Newstalk ZB - Huawei says that if it continues to be blocked from 5G upgrades, it may exit the New Zealand market.

The letter, from Huawei NZ managing director Yanek Fan - says it would be "arbitrary and capricious" to single out his company under a "country of origin" approach when others involved in 5G technology have links to China.

"This would have a significant effect on Huawei New Zealand's revenue, to the point where there is a real risk that Huawei New Zealand may not be able to continue to operate in the New Zealand market", the letter says.

The Huawei boss notes that his company's US rival Cisco, and its European rials Nokia Networks and Ericsson, all have Chinese joint ventures. And he notes that Nokia's joint venture, Nokia Shanghai Bell, is with the Chinese government, whereas Huawei is private.

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Nokia Networks primary mobile customer in NZ is Vodafone.

Vodafone spokewoman Nicky Preston told the Herald this afternoon, "We are engaged with the GCSB and have provided details about our 5G deployment as required by the Telecommunications (Interception Capability and Security) Act [TICSA]. We are confident that our 5G deployment meets all current requirements under TICSA. It's worth noting our infrastructure Nokia has already rolled out 5G networks around the globe."

In the letter, Yan reiterates Huawei's longstanding complaint of a lack of engagement from the government.

Speaking to Heather du Plessis-Allan on NewsTalk ZB Drive, Huawei deputy MD Andrew Bowater said the letter's reference to pulling out of New Zealand was not a threat but "setting out the reality of the situation."

Huawei is willing to let the government "looking under the hood," Bowater said. "There's nothing to fear."

The letter was borne out of Huawei's frustration that the government has refused to meet with Huawei, and what Fan calls a "closed-door" process."

Little has said on several occasions that legislation requires the GCSB alone to vet network upgrades, and that the Crown must be removed and neutral from the process - a stance he reiterated this afternoon.

Bowater told du Plessis-Allan that the GCSB Minister had to ultimately approve any decision made by the agency to block 5G and that Little was obliged to "reflect on the broader economic impact ... What we're saying is if you've got concerns about us, please tell us so we can address them."

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Vodafone goes with Nokia, Spark could drop Huawei under time-pressure

The leaking of Fan's letter (which is dated July 4), comes just days after Vodafone NZ confirmed, as expected, that it would use Finnish-based Nokia Networks for its 5G (fifth generation) mobile network upgrade, which will go live December.

Spark used Huawei for its 4G mobile network and its outgoing managing director Simon Moutter was a strong advocate for Huawei. But in his final Herald interview (see below), Moutter said his company might have to drop the Chinese company to make its July 1, 2020 5G upgrade deadline.

He noted Spark is also using gear from US company Cisco and Sweden's Ericsson in its 5G trial. A "multi-vendor" approach could be pursued.

2degrees is the most Huawei-centric of our big three telcos, but its new chief executive Mark Aue recently told the Herald that a 5G upgrade could be put off for years. He was confident the issues with the Chinese company would be resolved in the meantime.

$400m hit?

Earlier, 2degrees spokesman Matthew Bolland said blocking Huawei would make the mobile network market less competitive. The cost would ultimately be born by consumers, he said.

An independent voice - Telecommunications Users Association (Tuanz) head Craig Young - agreed, telling the Herald, "The removal of one of the competitive vendors from the market may lead to increased costs by the providers and thereby increased costs for users."

He added, "Given that two of our UFB built networks are using Huawei technology, it would be a huge disruption to the UFB project, as well as a significant cost." (Although Chorus - which is responsible for the lion's share of the UFB - has plumbed for Nokia Networks kit for the most part, smaller network operators have used Huawei gear, notably Ultra Fast Fibre in Hamilton and Tauranga and other central North Island areas).

In its letter to the ministers, Huawei quotes a survey it commissioned from Frontier Economics which states excluding it would add between 15 per cent to 35 per cent to the cost 5G rollout equipment, or around $400 million over the next 10 years.

Huawei's headquarters in the Auckland CBD. Photo / Chris Keall.
Huawei's headquarters in the Auckland CBD. Photo / Chris Keall.

It sees savings in that Spark and 2degrees both have us Huawei for their 4G networks, making it cheaper and easier to upgrade to 5G using the incumbent's technology.

"Ultimately, it will be the average New Zealander that will bear the burden of any decision that excludes Huawei New Zealand," Fan writes in his letter.

Last year, Huawei NZ revenue rose 25 per cent to $189 million, but its profit dipped to $5m as expenses rose.

Bowater recently told the Herald his company has between 150 and 200 staff in New Zealand, with the number depending on current contracts.

If Huawei did exit NZ, those jobs would go - though it's likely some would be picked up by whichever company took over the Chinese giant's contracts.

Nine months on, Spark yet to resubmit

On November 28 last year, Spark revealed that the GCSB had blocked its 5G upgrade proposal, which included Huawei gear, on the grounds that it posed a "significant network security risk."

The risks were never detailed, but Huawei has faced accusations from the White House that it carries out espionage on behalf of the Chinese government. Huawei has denied the claim. It says no evidence has ever been tabled, and that it has opened itself to more scrutiny than any other company.

GCSB Minister Andrew Little said that it was not a political decision. It was purely up to the GCSB, which since 2013 has been required to vet network upgrades under Telecommunications (Interception Capability and Security) Act or TICSA. This afternoon, Little reiterated that approach and reiterated that there was no blanket ban on Huawei or any other company. TICSA applications were heard on a "case-by-case basis."

Similarly, GCSB director-general said Spark was welcome to resubmit a 5G proposal that addressed its concerns.

Huawei NZ MD Andrew Bowater. Photo / File
Huawei NZ MD Andrew Bowater. Photo / File

Bowater grasped the nettle, publicly proposing a series of compromises including Huawei voluntarily declining to tender for the core (or "brain' of Spark's 5G network, and Huawei staff being banned from direct access to Spark's network, or only a small number of vetted staff enjoying access.

But nearly nine months on from the ban, Spark has yet to resubmit a proposal.

Ex-MD Moutter hinted strongly in his June 22 exit interview that his company would have to drop Huawei to make its self-imposed deadline to launch 5G by July 1 next year (a deadline that now looms more keenly, thanks to Vodafone NZ's plan to upgrade by December).

"It would seem pointless to advance the discussion around whether they [Huawei] are involved in any spying activity when they're not going to be able to serve a lot of the technology if they are on these banned technology lists," Moutter said.

"Our intention will be to have more than one vendor in our 5G portfolio so we can progress without Huawei, with another vendor."

Herald Graphic
Herald Graphic