Next-generation 5G networks are about a lot more than your mobile phone. They’ll help run factories, offices, farms, hospitals, airports and more: the much vaunted “internet of things.”
That’s why the implications of President Donald Trump’s dual actions on Huawei Technologies Co. are so significant. On the one hand, stopping the Chinese maker of network equipment from buying gear from the U.S. will make it all but impossible to manufacture its products, as about a third of its budget is spent on American components.
But even if Trump backs down from that sanction, the second prong – preventing Huawei from selling its telecommunications gear in the U.S. – would cut it out of a major growth opportunity, and clear the way for rivals Nokia Oyj, Ericsson AB and Cisco Systems Inc. to dominate the enterprise market.
Let’s backtrack a little. Right now, any carrier seeking U.S. government contracts is already effectively outlawed from using Huawei kit. There’s nothing stopping a private factory that runs its own network from buying Huawei’s equipment. That sort of business contributes to the $1 billion or so a year that Huawei generates in U.S. revenue – about 1 percent of its global total.
Equipment makers are incredibly bullish about enterprise applications for 5G, not least because they’re largely a new opportunity: historically their main customers have been telecoms firms. Now they envision smart factories where robots and machines lean on high-speed 5G connectivity to communicate with one another, rather than relying on cables and wi-fi. They’re gearing up sales teams to build a whole new pillar of business.
Although a small market right now, it’s rapidly expanding. Global spending on private 4G and 5G networks will grow from $2.5 billion last year to more than $5 billion by the end of 2021, according to market intelligence firm SNS Telecom & IT. To be sure, that’s a fraction of the $300 billion telecoms equipment market, but it’s among the fastest growing.
The ramifications could extend beyond the U.S. Consider a carmaker such as Ford Motor Co. Although about half of its 196,000-person workforce is in North America, it also has significant global operations. As it kits out its plants with smart manufacturing tools, it likely will want to standardize the equipment it uses everywhere.
There are good reasons for that. For one, an engineer moving from Ford’s Wayne, Michigan assembly plant to the site in Cologne, Germany – both of which make the Fiesta subcompact car – can already understand the equipment. But it also makes it easier for the the company to monitor production globally and in real time. If Huawei isn’t able to supply Ford in the U.S., the concerns about interoperability mean the likelihood of the carmaker giving it major contracts elsewhere would seem slim.
There’s still room for the U.S. to leave the door open for Huawei. The executive order delegates the Secretary of Commerce, Wilbur Ross, to determine the conditions for the ban. He might exempt some commercial applications. But as it stands, the order seems to preclude any U.S. company from buying telecommunications gear from a company which is “subject to the jurisdiction or direction of foreign adversaries.”
Although China is yet to be classified as such an adversary, there is a roadmap for Huawei to be completely cut out of the American market. For its competitors, it’s the clearest path yet to taking advantage of the company’s political difficulties.
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Alex Webb is a Bloomberg Opinion columnist covering Europe’s technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.
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