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Norway braces for possible China backlash over 5G loss

Norway fears trading relationship with China will suffer as a result of Huawei losing 5G contract to Ericsson

Norway is bracing itself for a possible reduction in inward investment from China, after state telecom Telenor chose Ericsson rather than Huawei as its strategic technology partner for 5G networks.

China described the contract decision as an act of “deliberate discrimination” made under political duress, and signalled a possible review of China’s free trade and direct investment relationship with Norway.    

Having been in poll position to become Telenor’s 5G technology partner since 2017, Huawei’s prospects of securing the equipment supply contract faltered in mid-2019, when national agencies, including the Norwegian military intelligence service E-tjenesten, warned of “inherent security risks” in the use of Huawei’s 5G technologies.

The risk-weighted evaluations were based on Huawei’s adjudged close relationship with the Chinese government and state defence infrastructure.

Huawei has dismissed suggestions that its 5G equipment poses a national security threat to communications networks, or that the company has an irregular relationship with the Chinese state.

Norway hasn’t shut the door Huawei completely. The government has offered to discuss options as to how Huawei might still play a role as an equipment supplier in the countrywide 5G build.

Prime minister Erna Solberg has refuted China’s insinuation that Telenor’s decision to partner with Ericsson, and not Huawei, was due to political pressure linked to the Norwegian state’s 54% shareholding of Telenor. She has insisted the government had no role in Telenor’s decision-making process to select Ericsson as its 5G partner. For its part, Telenor has described the selection process as “fair, impartial and balanced”.

Concerns taken onboard

Although Telenor did consult with security agencies as part of the 5G partner selection process, risk and network threats were just two of the many factors considered, said group CEO Sigve Brekke.

“The criteria for choosing a vendor included technical quality, the ability to innovate and modernise the network as well as commercial terms and conditions,” said Brekke. “We conducted an extensive security evaluation. Our selection was based on a comprehensive and holistic assessment. Overall, we decided to introduce a new partner for this important technology change in Norway.”

Rather than dismiss China’s critical response, the Norwegian government has taken all concerns expressed by Beijing onboard, said Nikolai Astrup, Norway’s digitisation Minister.

“I have been in contact with Chinese officials to discuss their concerns and to assure them that companies from China will not be discriminated against, or treated unfairly, in this market,” said Astrup.

“We have explained that in Norway it is the companies themselves who choose their suppliers, and not the state. The same is true in the telecom sector. We are confident China understands our position and accepts our assurances. We also hope the improving relationship we currently have with China will not change.”

Read more about Huawei’s challenges in European 5G market

The robustness of Huawei’s Telenor 5G bid was also constrained by existing underlying regulations that require telecom operators to select multiple suppliers if one or more equipment suppliers are from countries that do not have a security agreement with Norway. Unlike Sweden, Norway has no such security arrangement with China, meaning Chinese companies such as Huawei are unable to compete for 5G-related equipment contracts on the same terms as Western competitors, such as Nordic suppliers Ericsson and Nokia.

Despite the ongoing security-related controversies around Huawei, which escalated after the US government sought to blacklist the company from participating in 5G-network equipment contracts, the Chinese supplier had maintained a high degree of optimism and confidence in its ability to secure partnership agreements with leading Nordic telecoms Telia, TDC and Telenor. 

Huawei’s confidence was buoyed by blossoming relationships with TDC and Telenor, particularly since 2016. In March 2017, Huawei and Telenor co-launched Norway’s first 5G based E-band1 multi-user MIMO2 demo, which achieved a maximum speed of 70Gbps.

Having previously collaborated on 4G-connected long-term evolution (LTE) technologies, Huawei and Telenor co-established a joint desktop research (JDR) project in 2011 to identify and roadmap the fundamental update steps from 4G to 5G technology in Telenor’s network. The JDR was conducted at Telenor’s and Huawei’s Joint Innovation Center in Pakistan, which was opened in 2010.

Huawei also had a decade of 4G and 5G collaboration with former Danish telecom partner TDC. As an indicator of things to come, TDC ended cooperation with the Chinese supplier in March 2019 to sign a 5G technology partnership deal with Ericsson. Like Telenor, TDC acknowledged that national security played a role in its decision-making process.

The loss of the 5G network contract to Ericsson resulted in Huawei chiefs offering so-called Security-Plus “no spy” agreements to Nordic governments as part of a trust-building gesture.

Huawei’s “no spy” commitment was issued in response to political rumblings across Nordic governments that the supplier might be banned from participating in 5G network projects due to the potential of industrial espionage, and the perceived risk that equipment supplied could be clandestinely used to harvest data on behalf of the Chinese government – charges the company emphatically denies.

Looking for solutions

Governments, including in Norway, are actively looking for solutions that will allow Huawei to remain active in their markets, said Arne Melchior, a senior researcher in foreign trade policy and economics at the Oslo-based Norwegian Institute of International Affairs.

“For governments, solutions are needed that both lay-down requisite security protocols for suppliers and that address the security, risk and threat concerns regarding foreign 5G equipment suppliers such as Huawei. This may be a challenge for some countries, but because of Huawei’s size and presence in the global 5G market, it’s one that needs to be faced,” said Melchior.

China is Norway’s most important trading partner in Asia, and the country’s third-largest trading partner after the European Union and North America.

The significance of China’s displeasure over the 5G contract process run by Telenor is also sharpened by ongoing free-trade negotiations between Oslo and Beijing. The momentum behind progressing the talks, with the aim of reaching a free-trade deal by the end of 2020, has unquestionably been complicated by Telenor’s 5G partnership with Ericsson. 

The Telenor 5G contract outcome marks the latest setback in Norway-China free-trade talks, which began in 2008. Previously, Beijing had halted trade negotiations in 2010, in protest of the Norwegian Nobel Committee awarding of the Nobel Peace Prize to Liu Xiaobo, an activist championing human rights causes in China. After a “cooling-off period”, the two countries resumed negotiations in 2017, with Norway negotiating a €1.3bn seafood trade deal and China covering the export of mainly salmon products up to 2025.

A future trade agreement is expected to contain a long-term commitment by China to increase capital investments in Norway and scale-up joint technology partnerships with Norwegian IT and engineering industry companies.

Norway exported an estimated €3.8bn in goods and services to China in 2019, representing 4.1% of the Nordic’s country’s total exports. China’s imports from Norway rose by over 64% from 2018 to 2019.

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