Rivada Networks CEO highlights risks of Mobile Carriers preempting National Security 5G Decisions

Narration: EE, One of the top two mobile carriers in the UK, began deployment of 5G networking using Huawei equipment without waiting for a government decision on whether the Chinese company will be banned.

Declan Ganley: You have retail mobile carriers who are an extremely powerful set of lobbyists, deciding not to wait for the government to make a national security decision, but who decided to make a national security decision for Britain alone.

Narration: Huawei is deploying 5G in 60 plus countries, and the US is leading the way to stop its momentum.

Simone Gao: Some of the major technology companies in the US, such as Google and Facebook, have all stopped letting Huawei use their software, so will this have a big impact on Huawei?

Declan: That has been a very effective measure. But it’s not enough.

Simone: So what is your estimation of the prospect of the wholesale model in the US?

Declan: I think it’s inevitable. It has to happen, because otherwise the U S is going to lose to China in 5G eventually.

Simone: Amidst the battle to keep Huawei from dominating the global 5G network, my interview with Declan Ganley, chairman and president of Rivada networks. He’s a leading voice on a new way to acquire spectrum that could change the mobile service industry’s business model in the western world. I am Simone Gao, and you are watching Zooming In.

Mobile Carriers Shouldn’t Make National Security Decisions for a Country: Declan Ganley

Narration: On May 30th, EE, one of the two major mobile carriers in the UK switched on 5G in 6 cities in the country. EE confirmed that its range of 5G phones would not include Huawei, and it is in the process of removing Huawei equipment from the core of its 4G networks. However, EE is using Huawei within its radio access network (RAN), which allows users to send data to and from the core. In other words, EE is using Huawei equipment in its 5G roll out.

Marc Allera, chief executive of BT’s consumer division, which owns EE told the BBC that, “There is no current government guidance to suggest we should not use Huawei, but if the guidance changes we will reconsider. That will be disruptive but there are other people that provide equipment.”

Allera also thinks that a ban on Huawei could be problematic, not just for EE but for all the UK’s operators, because it is a significant part of their networks.

Simone: Declan, it is great to have you here, I really appreciate it. EE recently deployed 5G in six cities using Huawei equipment. Can you give us some context as to how this happened and tell us what the implications are?

Declan: It’s been an interesting last few weeks. You’ve had the resignation of the British Prime Minister Theresa May, the forthcoming election for a new leader of the conservative party, the governing policy in the UK, you had European and local elections that were enormously disruptive in UK politics and shockwaves through British politics, and then you had EE in the absence of a government decision, where the government is very publicly, having an enormous, heated debate. That is one of the leadership issues, by the way, for the leadership of the Tory policy, debating whether or not Huawei and Chinese 5G equipment should be allowed into the UK, with the clear understanding that there may be a ban, that a ban might be one of the things that is imposed in the same way that it has in the US, the same way that it has in Australia. And yet in the absence of a decision, you have a retail mobile carrier, EE, who has decided to deploy Huawei 5G technology anyway. And when they launched, some days ago, you had Huawei tweeting and announcing this as a great victory, and as a “first” and all sorts of things. And it was a very significant moment because this is a moment where, and we’ve talked about this before, you have retail mobile carriers who are an extremely powerful set of lobbyists, deciding not to wait for the government to make a national security decision, but who decided to make a national security decision for Britain alone, and they said, we’re going to do this anyway. We don’t care that the government hasn’t decided what the policy is yet. We’re going to deploy this, we’re going to create facts on the ground and you’re just going to have to accept what we’ve done.

Simone: So how has the British government responded?

Declan: Well, the British government is in a little bit of limbo at the moment. So there is a vacuum, because with the resignation of the prime minister, and we’re now waiting to see what happens in terms of who’s going to become the next leader of the British government, of the Conservative Party, not a lot of big decisions are being made, understandably so. And when president Trump visited the UK, this was one of the issues that was discussed. Of course he said this will be resolved. He thinks amicably and I believe he’s right about that.

Simone: Resolved in what way?

Declan: Well, that remains to be seen. I hope that it’s going to be resolved in that the decision will be made in Britain not to allow technology backed by the Communist Party of China to be deployed into the cyber domain in the UK. And in this case, it’s, Huawei’s the company that everybody’s focused on. I think that there should be a ban. I think there are powerful reasons for that ban. The former British defense secretary, Minister of Defense, ended up having to resign over this, a leak surrounding this debate, this issue. Apparently he was very much in favor of a ban as were others. There was a leak, from wherever it came from and he ended up resigning the next day. So this issue has cost Britain a defense minister. It has cost the “Five Eyes,” one of the key pillars in terms of, that you have have, a company, a wireless company in the private sector making a national security decision for the UK, and clearly indicating that, “We don’t care what the British government thinks.” Now they’re either indicating one of two things: that they do not care and that they are more powerful than the British government and therefore they can decide and make something that is a national security decision or they’re so confident of their regulatory capture ability and of their relationships, and of the power of those relationships, that they feel confident enough to say, “We’re going to make this decision, we’re going to do this rollout anyway. And whoever becomes the next Democratic leader there, it doesn’t matter what they think because we are so embedded, and we’re so powerful, and our lobby has got such reach that no one will dare to make us reverse our decision or make us have to undo the fact that we’ve created these facts on the ground and deployed Huawei 5 G.” That’s remarkable when you think about it, remarkable.

Simone: Practically, can this be reversed?

Declan: Oh it can be reversed, it absolutely can be reversed. And one of the big reasons that it, well one reason that it should be reversed is from a national security standpoint. The second reason is a commercial standpoint. But the third reason is because when lobbies get so powerful, when oligopolies are so powerful that they think they can conduct foreign and security policy on their own, that they do not need to wait for the democratic system, for the checks and balances to work, that their relationships are so good that it doesn’t actually matter what the next prime minister of Britain’s position will be with this and that Britain and her allies are not going to be allowed to interfere with our rollout in our decision, I think that a message needs to be sent. So and this is something EE needs to understand, or anybody that’s doing this is: You may have to face a rip and replace order, being told that you have to take this stuff out and get rid of it from your system. If you are deploying Huawei, ZTE 5G infrastructure and technology, you are doing it in the full knowledge of the risk that you are taking. Because I’ll tell you the other thing that’s going to happen. When these orders to rip and replace are issued, and that’s going to happen in some places, they’re going to be in line saying; “Compensate us, because we’re going to lose all of this money that we’ve invested.” No, you’re investing at your own risk and in the full knowledge that you are arrogant enough to make a decision to do this without waiting for a decision that the whole world knows is being contemplated. They went and did this anyway.

Simone: I’m curious to know, what do the British people think about this? Do they know what’s going on?

Declan: There are enough people, there are a lot of people that do know what’s going on. And certainly it’s an important enough issue that it is, as I say, part of the leadership debates for the next prime minister of the UK in terms of what’s their position. There is the lobby, the pro-Huawei lobby, is misinformed in some cases and that’s to be kind, some of them are just misinformed. I’ve seen people like Lord Sugar tweeting that Huawei should be allowed in and everything else and I challenged him he didn’t respond. But Lord Sugar clearly doesn’t know what he’s talking about when it comes to this issue. The tweet that he put out was misinformed. It was taking a position that this is something to do with, you know, “free trade.” It’s got nothing to do with free trade. The terms that are being offered, the subsidies that are being offered are market distorting. There is clearly a plan, and this isn’t a conspiracy theory, it is the policy of Beijing to capture the cyber domain, via 5G and to have that done by 2025. There’s the digital belt and road initiative. This is not a secret. This is government policy. This is, we don’t have to speculate about this. We know, because Beijing has told us that this is what they’re doing. So why some people are hiding behind and trying to pretend that this is, well, we can’t risk annoying Beijing because in a post-Brexit Britain we have to be friends with everybody. Well you can’t be a “Five Eyes” intelligence partner and be friends with everybody on exactly the same terms. Sometimes you have to pick your friends. And Britain picked its friends a long, long time ago and they’re very good friends. And I’m not saying that communist China has to be an enemy. But it’s hard to see it being a friend on equal terms with the United States of America. And certainly the Communist Party of China is going to increasingly challenge democracies and the interest of the free world globally and is doing so.

Narration: Coming up, can America alone stop Huawei?

Simone: Do you think the Trump administration will give a lot of pressure to the British government to reverse this?

Declan: It has been widely reported that the US State Department has been very proactive in letting other countries know, friendly countries know, that this is a massively important issue for those countries. In fact, so much so that in some circumstances the pushback, there has been some pushback making this, “Well this is a Trump thing.” It’s not a Trump thing. It’s not a Republican party thing. This is bipartisan in the US. If you watch the Senate Judiciary Committee hearing where you had Lindsey Graham, Dianne Feinstein, you know, the respective leaders, Republicans and Democrats, co-chairs of that committee, in that hearing it was clear that there is no space between them on this issue. The Democrats, the Republicans are on the same page where this issue is concerned. Rightly so, because it’s actually obvious, this is a no brainer. But there are some countries where, and I think encouraged by a PR campaign probably coming from certain quarters, where it’s like: “Oh, let’s make this the Americans are trying to bully us,” or “The Americans are trying to bully Europe into not selecting Chinese 5g.” Ironically, Europe has a lot more to lose from Beijing dominating the cyber domain than the US does. Europe already, Europe has two of the three remaining major players in 5G technology, equipment, manufacturing and provision, Nokia and Ericsson. The other one is Samsung in South Korea. Europe, by allowing Beijing to dominate its 5G domain, and neither Nokia nor Samsung would admit to this, but if you starve them of business in their own backyard, in their own home markets, if they are not being allowed to compete because the market is being so distorted by subsidies and discounts and cheap financing, it’s not realistic to expect Nokia and Erickson and Samsung to be around by the time we get to mass deployments of 6G or 7G network infrastructure. We used to have Alcatel, Nortel, Lucent, Siemens were in this industry, many more. Nortel’s gone, Alcatel’s gone, Lucent’s gone. We’ve got, you’ve got Nokia and Ericsson left and Samsung. That’s it. Now that’s not to say that there aren’t other upstarts that can do parts of this, there are. But this is a big play, and there aren’t that many companies of scale that can do this. And it happens that two of the most viable remaining ones are European companies. So Europe has more to lose in terms of jobs, productivity, and from a national security standpoint, because it doesn’t have the defense capabilities of the United States, and it doesn’t have that scale, and it doesn’t have the defense budgets, because they won’t spend the money. So why would you take this kind of risk? And my answer to that is the only reason these kinds of risks are being taken is because through regulatory capture and the aggressiveness of vested interest in Europe, we are having certain vested interests make decisions in the absence of their government’s making those decisions. And we see the real example of that in the UK this week with EE’s deployment of Huawei, 5G.

Simone: How is Huawei doing in other parts of Europe?

Declan:Well, Huawei are winning a lot of business. They are being deployed in 5G in countries like Austria, in Spain, in Italy, Germany is not absolutely finalized yet, but in Hungary, and many other countries, Poland, they have signed contracts for deployment in many countries in Europe.

Simone: It looks like recently Huawei has suffered some major setbacks on some of the major technology companies in the US, such as Google, Microsoft and Facebook, have all stopped letting Huawei use their software. So will this have a big impact on Huawei?

Declan: That’s going to have an impact everywhere and it’s a very good point. Although, and it does affect the network infrastructure side of things as well, but it’s more immediately impactful on the handset side of the business. That’s where it will be felt first, and so for example in the UK, while Huawei handsets are not being included in this first 5G rollout, because there’s concerns over the, basically the supply chain on the software, will they be able to do the update, so on and so forth. So that has been a very effective measure. But it’s not enough. It’s not at all enough on its own. We, we are still playing in a general set of rules in the wireless industry, in the way that we do these one-off auctions for spectrum, in the way that we allow our retail carrier, mobile carrier oligopoly, to really do the regulatory capture and sort of set the terms. This is a model that is not free market that is dysfunctional. It’s been dysfunctional for the best part of 15 years and Beijing has exploited that, because without it they wouldn’t have been able to make these advances. But the restrictions that you’ve talked about in terms of software and supply chain coming from the US into Huawei, those are very positive steps, and they are good, and they should be maintained, but they are not enough on their own.

Simone: EE is one of the major telecommunications companies in the UK and it uses Huawei equipment to deploy 5G. So do you think other companies in the UK will follow suit?

Declan: Well, Vodafone is very clearly planning to do it and very soon. And Vodafone have been a huge cheerleader for Huawei in Europe. They’re deploying, their tech, they’ve announced they’re going to deploy their top technology in Spain for example, where they also have a network and in other networks that they have. So clearly it’s their intention at the moment, to use them in the UK. Whether that ends up happening or not, at least they haven’t gone ahead in the same way that EE has. The EE deployment however, we shouldn’t overly focus on this as being an entirely done deal because it is only in certain city centers. This is not a nationwide 5G deployment or anything like it. This is very, it’s a kind of a Beta launch, if you will. It’s a first phase in very limited geographic areas. It’s in a number of cities. But this is by no means a nationwide rollout. So undoing it’s not that hard.

Simone: If Europe doesn’t support America’s plan, do you think the US can stop Huawei alone?

Declan: I think changing the business model in the wireless industry will stop Huawei. That’s the one thing that I know will definitely stop them. Because that destroys the business model that they have been using by getting these, because all of these retail carriers are hooked on cheap financing. That’s what they want. It’s not for technology. It’s not because it’s the best equipment in the world, because it isn’t. But they want the cheap—it is the cheapest financing in the world and it’s the cheapest financing in the world because Beijing figured out that you can own one of the five strategic domains of conflict really cheap, by just subsidizing a bunch of retail mobile carriers, and they’ll do all the work for you in terms of the lobbying and creating the facts on the ground. And that’s what’s been going on. You change that business model and in effect drop the average price of a gigabyte on a network, and the business model that Beijing’s bet the farm on and all of their banks are supporting is gone. Then they will have to go back to the drawing board.

Narration: Coming up, what is the wholesale open access model and how can it change the way mobile business is run?

Narration: The retail model that Declan refers to is that the major commercial networks pay a large amount of money upfront to purchase spectrum from the government, leaving no one else in the field, because smaller players can’t afford the price. Then they charge consumers as much as they possibly can for data. Meanwhile, they naturally look for the cheapest equipment and rollout costs. This equipment comes from China. And these big commercial carriers end up serving as lobbyists for Chinese companies to gain regulatory favors from their governments. According to Ganley, in order to change this, the retail model needs to be flipped to a wholesale model where everyone—Apple, Amazon, Walmart, Uber, or small operators serving rural areas—could all buy spectrum at a reasonable price. By doing so, the desperate need for the cheapest equipment and rollout cost will disappear, competition will increase, and Huawei’s ShashouJian of state subsidization will melt away.

Simone: How has this wholesale open access model been doing?

Declan: Well, it’s where there’s been a huge effort, in a number of places, but primarily in the US to get the thing up and running. It’s been a topic of hot debate. There has been an ongoing topic of hot debate. AT&T and Verizon, especially AT&T are ardently opposed to it. They see this as an existential threat to them. It’s not, but they do see it that way. They’re mistaken about that. Their lobbying power is immense. They’ve got more lobbyists in America than, than the likes of Rivada has employees. And they have a broken business model and therefore they don’t want to do anything or see anything happen that will bring real competition. At the moment in the US you have this ongoing debate about going from four carriers to three, with a possible merger of Sprint, T-Mobile. In any other market where that’s happened, price declines have slowed down or prices of sometimes even gone up. For the internet of things to really take place for the, you know, the huge increase in connected devices to take place, the average price of connectivity has obviously got to come down a lot. America and Canada are paying the highest mobile wireless prices in the world, which is outrageous. It screams. Frankly, it looks like a cartel in terms of the numbers. How do you have in a country that’s got cheap fuel, cheap food, cheap clothes, all of these, you know, these areas. And yet you’ve got, and quite a flat country geographically apart from the Rocky Mountains. I mean, there are other mountain ranges, but relatively flat. This isn’t Switzerland. And yet wireless is so expensive, and wireless connectivity is so expensive, and then rural communities are so enormously underserved, because these guys generally concentrate on the built-up urban areas in the big population centers. So American wireless coverage, the quality wireless coverage is concentrated on the coasts, and coastal cities, and a few places in between, but rural America’s getting an extremely bad deal. Even urban America’s getting a bad deal because of what it’s being charged. The only guys that are making out on all of this stuff are these carriers and their oligopoly, and they don’t want the challenge of a wholesale marketplace that’s privately financed, privately operated, privately run. So they lie, they say, oh, this, this looks like nationalization. It’s actually the exact opposite of nationalization. It’s the most anti-nationalization thing that you can do. America had nationalized its wireless spectrums back in the 1920s, it was Calvin Coolidge’s administration that did that. But these guys don’t want to see price drop because they’re going to have to work harder. And if the US was only where the UK is in terms of mobile wireless pricing, mobile wireless prices in America would be half of what they are today. American families are paying a lot of money for their mobile wireless connectivity. That’s got to change, and you will not have an internet of things, and you will not leave for the 5G ecosystem environment and development if the price of accessing capacity is double the price it is in a place like the UK or anywhere else in the world.

Simone: So what is your estimation of the prospect of the wholesale model in the US?

Declan: I think it’s inevitable. It has to happen, because otherwise the U S is going to lose to China in 5G eventually. Not immediately. I mean that is slowly happening, but nothing yet is irreversible. Sometimes it looks that way, but nothing is completely irreversible yet. So from a national security standpoint, it’s essential. From an economy standpoint, to keep your economy competitive, to reduce the cost of access, to lower the barriers to entry, to get this network built into rural America and deployed using private dollars, not government dollars, where the private sector will do this using mid band spectrum currently held by the DOD, and the DOD shouldn’t have to give up for their missions as part of this effort. I think it’s inevitable that it will happen. Because if it doesn’t happen, the West will definitely lose this contest. So it has to happen.