Where's Europe?

ZTE Shows U.S. Has the Stomach for One Big Tech Fight

Europe has taken the lead on Facebook, but it's way behind on China's dominance of telecoms kit.
Photographer: Qilai Shen

When it comes to the regulation of Big Tech, the U.S. has been letting the EU take the lead.

Take Mark Zuckerberg’s appearance before Washington lawmakers last week, when senators and congressman invoked the EU’s General Data Protection Regulation almost 20 times. The U.S. seems set to introduce similar privacy laws.

Yet there's one crucial bit of the tech industry where American regulatory sheriffs are still very much at the front of the posse: telecoms equipment. In the latest twist, the Commerce Department has cut off Chinese equipment maker ZTE Corp’s access to chips and optical components made by U.S. suppliers.

Matrix Makers

Network infrastructure makers, eight largest by 2016 revenue

Source: Gartner

This is a trend. Last month, the Federal Communications Commission proposed a ban on U.S. mobile operators using government subsidies to buy equipment from the likes of ZTE and Huawei Technologies Co. Ltd. Under government pressure, AT&T Inc. and Verizon Communications Inc. have abandoned plans to sell Huawei-made handsets. The Chinese company is blocked from federal tenders. Even Broadcom Ltd.'s acquisition of Qualcomm Inc. was halted because of fears about the U.S. losing technology ground to China.

These moves are ostensibly driven by national security concerns, namely the suggestion that kit from ZTE and Huawei could serve as a backdoor for Chinese surveillance. And, in fairness, it's not as if U.S. companies are big winners here. The chief beneficiaries are ZTE and Huawei's big European rivals, Nokia Oyj and Ericsson AB.

So why is Europe not doing more to obstruct Chinese companies, given its own concerns about security and the potential benefits to its own industrial champions? Well, parts of Europe would like to take action. Others don’t.

Last year, Germany, France and Italy detailed their worries about foreign (read Chinese) acquisitions of key European technologies in a letter to the Commission. Yet, as Control Risks consultant Elisabeth Braw points out, nations such as Greece and Hungary are desperate for overseas investment. It's similar for telecoms equipment. For every nation worried about Chinese state monitoring, there’s another happy to get hold of cheap Chinese gear.

Given the lack of consensus, it's been simpler for the European Commission to regulate by focusing on the consumer, which means concentrating on price and privacy rather than national security. 

Indeed, it's hard for the EU to suggest a crackdown without evidence that China is in fact exploiting back doors into networks. And the Commission backed off an investigation into alleged dumping of telecoms equipment in 2013 because of the risk of a trade war. At present, it can only block M&A activity, not supply agreements, although new measures are being discussed to stop more foreign investments

But China's access to Europe's telecoms networks is an increasing worry in the industry. Even before Donald Trump's election, the U.S. was making life difficult for Huawei and ZTE, showing that its concerns go beyond political grandstanding by one administration.

America the Inscrutable

Huawei's revenue has soared in China and EMEA, while it has stagnated in the Americas

Source: Bloomberg

Still, it wouldn't be easy to put the cat back in the bag. Huawei gets $24 billion in yearly sales from Europe, the Middle East and Africa. 1  Ericsson and Nokia generate a combined $18 billion from the same regions. After being stymied in the U.S., Huawei has targeted Europe so its equipment is at the heart of telecoms networks. It's working with Deutsche Telekom AG and others on standards for 5G.

If Brussels thinks that Washington's concerns have merit, it would need to act quickly. Not easy when you're trying to corral the interests of 28 member states.

  1. Huawei doesn’t break out Europe-specific revenue.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Alex Webb in London at awebb25@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net

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