Is the Battle Half-won for Huawei in Europe?

Article By : Anne-Françoise Pelé

Huawei plans to spend more than €200 million on a new wireless equipment plant in France. But will France light up Louis XIV’s Hall of Mirrors and run the Grand Fountains in celebration? Not yet...

France secured a total of €8 billion in investments from business leaders in January at its third Choose France Summit, held at the Palace of Versailles. That doesn’t include Huawei’s plan to spend more than €200 million on a new wireless equipment plant in France. Should we light up Louis XIV’s Hall of Mirrors and run the Grand Fountains in celebration? Not yet.

China’s Huawei Technologies announced it would build its first European manufacturing plant — and the second outside China — on French soil. The “highly automated and intelligent facility” is expected to produce 4G and 5G equipment and to have a demo center that will showcase the wireless base station production, software loading, and testing process. The €200 million investment, which covers the acquisition of the land, construction, and setup of the machine tools and equipment, is just the first phase. Huawei estimates that the project will create 500 jobs and that the direct annual economic activity will amount to €1 billion.

“This site will supply the entire European market, not just France,” Huawei chairman Liang Hua told a press conference in late February.

So why center the operation in France? “As one of the world’s most advanced manufacturing centers, France has mature industrial infrastructure and a highly educated labor pool, and its geographic positioning is ideal for Huawei,” the company stated.

Indeed, Huawei has had a presence in the country for some time. In 2018, the telecom giant picked Grenoble for an R&D center dedicated to sensors and parallel processing software. At the time, Huawei already had three R&D centers in the Paris region and one in Provence-Alpes-Côte d’Azur. It currently employs 1,000 people in France and 12,000 in Europe.

A charm offensive?

No matter how genuine its intentions, it is tempting to think that Huawei’s aim is to court France — and Europe. Huawei, caught up in a full-fledged trade war between Washington and Beijing, is accused of threatening U.S. security. The Trump administration has been pressuring European allies to ban the Chinese company from building their 5G infrastructure. Despite the arm twisting, the U.K. government recently announced that it has allowed Huawei to build non-critical parts of the country’s 5G network, and the European Commission confirmed that it would not exclude Huawei on the continent.

Is the battle half-won for Huawei in Europe? Not really. Germany is struggling to reach consensus, and France is in the early stages of rolling out its 5G network and has not yet selected suppliers. Wait. If Germany and France are involved in a decision-making process, assessing the pros and cons, isn’t it the best time to offer reassurances and build confidence? Isn’t it an opportune time to announce a plant likely to generate extra cash and extra jobs for the local economy?

No need to answer; Liang himself felt the need to justify Huawei’s project when he said, “This is not a charm offensive.” One detail caught my eye: The plant location has not been unveiled yet. Why would Huawei make such an announcement if it doesn’t have a city nailed down? The only reason is to draw the attention of the media and let the news ricochet through the politicians as they fight for their regions.

The French Ministry of Economy diplomatically welcomed the announcement, regarding it as the obvious proof of France’s attractiveness. Nonetheless, it is not rolling out the red carpet, as it usually does for foreign investors.

Words need to be chosen wisely before they are uttered, especially after the Chinese embassy in Paris urged the French government not to discriminate against Huawei. “If, due to security concerns, the French government truly does have to impose constraints on operators, it should establish transparent criteria around this and treat all companies equally,” stated the embassy, specifying that security fears about Huawei were unfounded.

In a mid-February TV interview, French minister of economy and finance Bruno Le Maire said that France would not discriminate against Huawei, but “some decisions will be taken to protect our sovereignty.” He further commented, “When you have a military camp or a nuclear plant with sensitive technologies, it is normal for the French state to protect them and apply restrictions.”

Pro-European Le Maire added that it would be “perfectly understandable” to favor European 5G equipment suppliers, namely Nokia and Ericsson. “When we have two European 5G suppliers with quality equipment, it makes sense to see if they can provide us with solutions.”

France’s No. 1 mobile operator, state-controlled Orange, is committed to using 5G equipment from Nokia and Ericsson. Bouygues Telecom, however, has been collaborating with Huawei since 2012 on 4G and was one of the first operators worldwide to conduct field trials of 5G technology in real conditions in Bordeaux.

There has been rising discontent within the ranks of French telecom operators since French parliamentarians voted on a new law to give the government the power to control the rollout of 5G networks and infrastructure. Under the law, the telecom operators must seek formal permission from the French prime minister for their network projects. The process is burdensome, and operators are afraid it might delay rollouts.

Neither Huawei nor ZTE is mentioned, but there’s no doubt that the law targets both Chinese equipment providers. It is commonly known as the Huawei Law. 5G will transform the way we live and work. Connecting everyone and everything, it promises higher economic and societal benefits than any previous generation of mobile technology.

There is a lot of money on the table, and much at stake, for mobile companies willing to compete. 5G is indeed expected to account for 15% of global mobile connections by 2025 and to contribute US$2.2 trillion (€1.98 trillion) to the global economy over the next 15 years, according to a report by telecom-industry lobby group GSMA, which represents the interests of 750 mobile operators.

GSMA, however, assessed that excluding Huawei and ZTE from Europe’s rollout of 5G telecom networks would cost European mobile operators up to €55 billion. Nokia and Ericsson simply don’t have the capacity to address migration from 3G and 4G networks to 5G, and Europe risks to lose ground in this race.

With the U.S. turning its back on Huawei, Europe has become a major battleground. Building a European 5G factory in France is well-played, but Huawei has not won the game yet.

We don’t know exactly what the word “restrictions” encompasses and if France is not just being too politically correct to say no.

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