Last week, following a two-hour interview of Huawei’s CEO and founder (Ren Zhengfei) by The Economist, the vendor’s 5G network solutions became the buzz of the mobile tech industry, yet again. For much of this year, those solutions have been in the news because of a potential (and, in some cases, real) prohibition against operators deploying them. The news last week was different.
Over the course of the interview, Ren said he would be willing for Huawei to license its 5G technology (existing patents, code, production techniques), allowing a third party to control and alter the code, building 5G kit based on these assets and ensuring that Huawei would have no control over any infrastructure that results.
And, over the course of the week that followed, various folks weighed in on what this all means. To their credit, the punditry generated a lot of great insight into why Huawei would make such an offer. That’s an important question. But it’s not nearly as important as questions around what comes next and how the market (including operators and other vendors) might react to Huawei’s offer.
What’s the Huawei strategy behind all of this?
This is an easy one, if only because it’s been discussed so much already.
The concept of licensing existing 5G assets (patents, code, technical blueprints) and giving a buyer permission to alter the source code is all about building trust while monetising existing R&D. If another company can leverage Huawei’s core 5G assets in order to build its own solutions, that company can (in theory) ensure that it’s secure. The licensee benefits by capturing business based on Huawei’s 5G know how. Customers benefit from equipment they know is safe (without dependency on a party they don’t trust). Huawei benefits by generating revenue that it wouldn’t otherwise have access to. Win-Win-Win.
There is another angle here too. We’ll come back to that at the end.
Who would buy third party kit powered by Huawei?
Past performance, as they say, is no guarantee of future results. Putting that aside for the moment, Huawei claimed earlier this month that it had secured more than 50 commercial 5G contracts. In other words, there’s a good body of empirical evidence suggesting that Huawei’s 5G kit is compelling, and not just in price sensitive markets. If another vendor could replicate these products, then their offer should be compelling as well.
And if there was ever a time for a new vendor to enter the market with a compelling product offer, that time is now.
In a poll of 100 operators across the globe (think the vast majority of mobile connections and capex), the GSMA Intelligence team checked on whether or not 5G was going to be an occasion to bring on new network suppliers (see chart left, click to enlarge). The verdict? More than half plan to do just that. Just as importantly, only about 20 per cent think it’s unlikely that they’ll bring on new suppliers in their 5G builds.
What’s been holding back operators from introducing new vendors to date? From integration issues to corporate culture and tepid RoI expectations, a plethora of considerations keep incumbents in place. But the number one factor conspiring against new suppliers? Network security concerns. If trust is the issue Huawei is looking to solve with a potential licensing scheme, it seems well-aligned with operator thinking around new suppliers.
Who would license Huawei’s 5G know-how?
Of course, before any product based on Huawei’s 5G assets gets built, there would need to be an interested licensee. On this front, two factors come into play: costs and future R&D.
It’s no major insight to note that a 5G licensing agreement with Huawei would find many more takers if priced at US$5 million vs. US$5 billion. But given the investments (time and money) Huawei has already made in 5G, it’s likely that the vendor would be looking for something closer to the latter sum. And there are only so many companies who would be interested and able to pony up that amount of money.
But then there’s the question of future R&D.
If Huawei is only offering up its current patents, code and processes, any licensee would need to be ready to invest heavily in future development. Huawei will certainly be investing on this front; any third party products based on a Huawei license circa 2019 will quickly be uncompetitive without similar investments. This is probably the biggest sticking point in the plan. Given Huawei’s R&D scale, it’s unclear that a licensee could keep their offer competitive going forward. And if the goal is to assuage government fears over security, there’s no real assurance that Huawei won’t alter its code going forward in a way that isn’t transparent – or that third party licensees could be trusted.
Presumably, Huawei and its CEO know all of this and understand the slim odds of this actually moving forward. If so, then the licensing proposal needs to be looked at from a different perspective. Rather than looking at it as a clear, easy, workable solution, it needs to be seen as an attempt at a solution. It might not be a great (or even viable) solution, but it’s a signal that Huawei – in the middle of a seemingly intractable problem – is actively looking for ways to get past current trust concerns and potential geo-political technology splintering. That’s got to be worth something.
– Peter Jarich – head of GSMA Intelligence
The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.Subscribe to our daily newsletter Back