It’s not every day that the CFO of a $100 billion company gets arrested.
On December 1st, Huawei’s CFO Meng Wanzhou was detained in Vancouver, accused by the US of covering up sanction violations in Iran, and subsequent reporting has uncovered multiple other financial violations over the years. Founded in 1987, Huawei is one of the largest information and communication technology companies in the world, with more than 180,000 employees operating in more than 170 countries. It is also China’s largest privately-held company. Meng Wanzhou is the daughter of Huawei’s founder Ren Zhengfei.
Days before this arrest, the Wall Street Journal reported that the US government had embarked on an “extraordinary outreach campaign” to persuade key allies to not use Huawei telecom equipment due to security concerns.
The US is not alone in this. On July 17th, the intelligence chiefs of Canada, the U.K., New Zealand, and Australia reportedly met to discuss and disclose their concerns about allowing Huawei equipment to continue operating in their countries and governments. Australia joined their ranks in mid-August when it barred firms “who are likely to be subject to extrajudicial directions from a foreign government” from participating in its nationwide 5G rollout. New Zealand took a similar step in November when its intelligence agency banned Huawei from participating in 5G development, with Japan following suit.
The dominoes did not stop falling here. BT Group recently announced it was removing Huawei equipment from its existing mobile networks, Orange has ruled out using Huawei in France, and Deutsche Telekom is closely reevaluating procurement of Huawei products in Germany.
These international developments, on top of the US accusing Huawei of spying on behalf of the Chinese government via a backdoor and the Chinese accusing US lawmakers of “hooliganism”, it’s easy to focus on the political tensions and miss the technology at the core of the debate. The telecom equipment in question is 5G, a blazing fast fifth-generation mobile network that has the potential to form the world’s telecommunications backbone for decades to come. The technology is incredibly lucrative, with major players like Ericsson, Hewlett-Packard, and Intel racing to adopt and monetize in this space.
As New Zealand’s intelligence minister Andrew Little said: “It’s not about the country, it’s not even particularly about the company, it’s about the technology that is proposed.”
Why is 5G such a big deal anyway?
5G networks are the next generation of mobile network connectivity, improving both speed and reliability. Because of 5G’s higher capacity and priority-sliced networking, it is seen as an effective enabler for new next-gen technologies like 4k+ video streaming, AR/VR, and IoT devices, technologies that require the underlying infrastructure to carry an exponentially larger amount of data. Take driverless cars, for example. Smart cars of the future will need to exchange very small packets of information almost instantly between each other and with other safety devices. This is where 5G’s sub-one-millisecond low latency would be critical to minimizing accidents.
To put this in a layman’s analogy, moving to 5G isn’t like trading your old iPhone in for a new one. It’s like shifting to a mobile phone after an age of landlines.
However, this telecom upgrade, while powerful and exciting, also comes with inherent cautions — since 5G is considerably easier to exploit than current technologies. Traditional networking consists of a “core” which takes care of access control, authentication, and routing and an “edge” which connects the core to other devices. With 5G, the division between these two components gets blurred, moving sensitive security functions outside of the protected core environment. Or, as New Zealand Intelligence minister Andrew Little notes, “The difference between 5G networks and conventional 4G and 3G networks is the configuration of the technology. With 5G technology, every component of the 5G network, meaning every part of the network, can be accessed.”
Given this structural difference, there are many possible security risks inherent to our adoption of 5G — new ways to steal or manipulate data and credentials that we have not yet anticipated. Take IoT, for example. It is not entirely unrealistic to imagine businesses coming to a standstill because IoT sensors used in their operations or factories have been compromised due to a DDoS attack.
Jeremy Fleming, head of the UK’s Government Communications Headquarters, encapsulated our new future by saying, “This new digital landscape will transform lives and economies as data analysis, artificial intelligence, 5G, the internet of things, quantum computing and many other technologies still being developed permeate all areas of human endeavour. But they also bring risks that, if unchecked, could make us more vulnerable to terrorists, hostile states and serious criminals.”
The importance of compliance and oversight
Despite the clear advantages of 5G adoption, we must more proactively embrace compliance and oversight to temper growth with safety. Developing the necessary internal compliance infrastructure allows companies to fully adhere to the Foreign Corrupt Practices Act (FCPA) and other regulations.
Need another cautionary tale beyond Huawei? In June 2018, another Chinese manufacturer ZTE settled with the US government after admitting to breaking an embargo on trading with Iran. The settlement included more than $1B in fines and a requirement to retain US-appointed compliance coordinators for the next 10 years. Australia and Japan have both banned ZTE alongside Huawei.
Compliance is a key area of focus for our team at DASAN Zhone Solutions, which is publicly traded on NASDAQ. Most recently, our South Korean business unit was selected by LGU Plus to be integrated into the first commercial 5G wireless network in South Korea. The transition to this newer, better technology has already started — it just needs to move forward at the right pace, with the right rules around it.
5G is the future, and it is important to safeguard it.