Cheta Nwanze, Lead Partner, SBM Intelligence
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Subjects of Interest
- Fiscal Policy
- Geopolitical Analysis
Trump’s executive order, Huawei and Google’s response 10 Jul 2019
On May 15, 2019, United States President, Donald Trump, issued an executive order declaring a national emergency with respect to the threat posed to the U.S. by telecommunication companies and equipment owned or controlled by "foreign adversaries." The order did not mention any specific company as a threat. But shortly after Trump issued the order, the U.S. Department of Commerce added Huawei to its so-called 'Entity List,' a trade blacklist of companies the government considers are undermining the country's interests.
The order bars American companies from selling or using technology and components by Huawei or exporting to the Chinese company – and other foreign-made telecom companies deemed a threat – without first obtaining a U.S. government licence. In less than a week after the order was issued, Alphabet Inc., the parent company of Google, suspended business ties with Huawei, effectively blocking the Chinese multinational technology company from Android apps and services. Spokesperson for Google said the company was simply "complying with the order and reviewing the implications.”
Huawei is not only the world's largest telecommunications equipment maker; it is also the second largest smartphone maker in the world – ahead of the American giant, Apple Inc. The Chinese tech company is also the current global leader in the 5G race, a field where no U.S. firm is a major player. It started to develop its own 5G technology back in 2009. In 2013, Huawei hired more than 300 top experts from around the world and announced $600 million investment in 5G research. In 2017 and 2018, Huawei invested almost $1.4 billion in 5G product development. Today, thousands of the company’s employees are engaged in 5G product development.
There are a number of reasons Huawei is seen as a target of Trump's executive order. For one thing, the company has been accused by the American government of intellectual property theft, among other allegations. Another allegation is that the company's telecom equipment and smartphones can be used for cyber-espionage by the Chinese government. Huawei has consistently tried to assure the international community it's neither involved in information sharing with the Chinese government nor do its products and services pose national security threats to any country.
Prior to the issuance of the executive order, the White House had warned American allies not to use Huawei's equipment. This warning has had mixed success. However, the latest action appears to be a body blow for the tech giant. Qualcomm, an American semiconductor manufacturer, has stopped supplying its products to Huawei in compliance with the government’s export restriction. Other manufacturers in the semiconductor industry that have also ceased ties with Huawei are Intel and ARM.
Last month, Facebook also announced it was banning Huawei from pre-installing its apps – Facebook, Instagram, and WhatsApp – on Huawei phones under the arrangement whereby smartphone vendors pre-install popular apps during the manufacturing process as a 'value added' to boost sales.
No doubt, Facebook and its sister social media apps are some of the most popular apps in the world. A severance of ties does not mean users of Huawei devices cannot install the apps by themselves. Even the Google ban still allows Huawei to use the Android Open Source Project (AOSP), the public version of Google’s operating system (OS). With regard to inputs from the U.S., Huawei would have to find alternative suppliers of its inputs from elsewhere. In any case, only a fraction of the company’s inputs come from the United States.
This is not to deny the potential dampening of the sales outlook of Huawei's products and services. But the unintended consequence of the Trump administration's protectionist policy is that it undermines Google and the tech company's position as the world's leading mobile OS. At face value, I don't see this as a bad thing. But let's discuss briefly the implications of Google’s decision by looking at how Android attained its global dominance.
Android was launched at a time when Nokia was the dominant player in the smartphone ecosystem. At the time, Nokia’s OS was the now-defunct Symbian, which was closed-source but also used by other mobile phone brands. All the software platforms on the major mobile players were proprietary. Microsoft had Windows Mobile; Research in Motion (RIM) had Blackberry OS; and there was the Palm OS developed for the handheld personal digital assistants (PDAs) made by Palm Inc.
Android came with a different paradigm by creating an open-source mobile OS that was corporation-agnostic and had a co-ownership, the co-owners being the Open Handset Alliance (OHA). Founded by Google, this alliance – which still exists – is a loose federation of companies that developed Android and introduced standards for mobile devices.
While the OS was still by and large open source, Google started to shape a new direction for Android quite early. Google’s flagship services like Gmail and the Play Store were tied to Android. (Gmail itself is not based on the Simple Mail Transfer Protocol (SMTP) standard used by mail servers to send and receive mail messages, but instead has a proprietary and closed non-standard API. However, Gmail is amenable to the SMTP standard to enable Gmail accounts on other mail clients, like Microsoft Outlook.)
Gradually, more and more apps became part of Google apps portfolio through acquisition. At some point, Android sort of stalled in development. Android Gallery became Google Photos. Message became Hangouts. Camera became Google Camera. Even the Android Launcher became Google Now Launcher. Before you knew it, much of the nuts and bolts of Android became closed and proprietary. This was a wake-up call for companies like Samsung and even Huawei – member companies of the OHA – who then started to develop their own apps to rival Google.
Samsung developed its mail app, launcher, camera app, calendar, etc. The company’s strategy was to abstract the underlining Android system and develop its own OS such that should Samsung decide to switch over to its OS, most users would not necessarily want to switch back to Android. However, with the power and influence of Google, it was hard for Samsung to push this strategy too far. Besides, smartphone manufacturing companies already understood that most users were already familiar with Google apps.
But the ongoing trade war between the U.S. and China, whereby Huawei is now in the crosshairs, is an opportunity for tech companies to consider their Google strategy. This means developing their own portfolio of apps and limit their exposure to other services, such as Google’s. While Android is to mobile devices what Windows is to the world of personal computers, this virtual monopoly of Android – in the non-Apple platforms – can be whittled down if the major smartphone vendors deploy their own operating systems. In fact, Huawei already said it has “backup systems” it developed to use in the event it can no longer use Android and Windows – which are the company’s first choices for mobile OS.
Apart from still having access to the publicly-available services of Android via open source licencing, Huawei can also leverage other open source software development platforms, like KDE Community, to develop and launch apps it can later proprietise. Another option Huawei has is to embark on apps acquisition spree, a la Facebook.
Google needn't put itself in this position, regardless of the U.S. government order. There are several incidents where companies contest new legislations and court actions they consider to be infringements of existing laws. For instance, FedEx has already sued the U.S. Commerce Department over the export restrictions, which affect its business with Huawei. According to a report by CNN, the logistics company is arguing it should not be required to enforce the ban because "FedEx is a transportation company, not a law enforcement agency." Essentially, the ban makes FedEx liable for any shipment to Huawei that may violate Trump's order, which gives the Department of Commerce the authority to regulate commerce in response to a national emergency.
It is unlikely the American-led embargo on the use of Huawei’s telecom equipment and smartphones will extend to Africa. To start with, Africa is not on the front burner of the Trump administration’s foreign policy. This has expanded China’s trade with Africa and given Chinese companies, like Huawei, much leverage to do business on the continent.
Moreover, most of the mobile and fixed Wi-Fi routers sold by telecommunications companies in Nigeria and many other African countries are manufactured by Huawei. The question of discontinuing the use of Huawei’s products in Africa does not even arise given the virtual ubiquitous nature of the brand in the region. As a result, it is almost inconceivable that Huawei would not be the dominant player or driver in the event of Africa’s eventual upgrade from its currently-nascent 4G network to 5G.
This is not to say African governments should wave aside allegations of Chinese neo-colonialism in Africa. Nor should national security concerns raised by U.S. security agencies concerning Huawei be ignored. Early last year, French newspaper, Le Monde, alleged China had built a backdoor into the computer network it designed at the Chinese-built headquarters of the African Union in Addis Ababa, Ethiopia.
Apart from the security risks that should be thoroughly investigated and avoided, African countries should increase our own innovation capacity to advance in technology. For how long are we going to continue to be consumers of technological and other manufactured goods from Western and Asian countries? For Nigeria and Africa to compete on the global stage, we need to reposition technologically.
NB: During a meeting with Chinese President Xi Jinping on June 29th on the sidelines of the G20 Summit in Osaka, Japan, US President Donald Trump reversed the ban on Huawei as the two countries agreed to restart trade talks.