Huawei, ZTE blocked from rolling out Australia’s 5G network due to security concerns

“Political” moves to effectively block Chinese firms will mean higher costs for Australia’s 5G network, says Beijing.

Treasurer Scott Morrison.

China’s media has warned Australian consumers face higher costs after Canberra effectively blocked telecommunications giants Huawei and ZTE from involvement in rolling out Australia’s 5G network due to security concerns.

The federal government says the involvement of any companies “likely to be subject to extrajudicial directions from a foreign government that conflict with Australian law” presented too great a risk.

Huawei, which labelled the move “extremely disappointing”, has publicly argued it would never hand over Australian customer data to Chinese spy agencies, but the government today announced that technical controls could not deal with such a risk.

“This new architecture provides a way to circumvent traditional security controls by exploiting equipment in the edge of the network — exploitation which may affect overall network integrity and availability, as well as the confidentiality of customer data,” acting Home Affairs minister Scott Morrison and Communications minister Mitch Fifield said in a statement on Thursday.

“The government has found no combination of technical security controls that sufficiently mitigate the risks.”

While Huawei and ZTE are not directly named in the statement, the government has made it clear to Australian telecommunications companies that involving groups like Huawei and ZTE “may risk failure by the carrier to adequately protect a 5G network from unauthorised access or interference”.

“While we are protected as far as possible by current security controls, the new network, with its increased complexity, would render these current protections ineffective in 5G.”

Reacting to Australia’s announcement, Chinese state media focused on how Australian consumers would face higher costs as a result of the effective exclusion of Huawei and ZTE from Australia’s 5G network.

“Australia’s ban on Chinese telecoms equipment provider Huawei Technologies is a huge loss for Australian 5G development, as local companies may face higher costs in building and upgrading networks, Chinese experts said,” The Global Times wrote.

“The ban on Chinese telecoms companies will lead to higher costs for building 5G networks in Australia, “which could be 30 per cent higher,” Xiang Ligang, chief executive of telecoms industry news site cctime.com, told the Global Times.

The same outlet quoted a Chinese expert who said that the 5G rollout will face delays and that it was a “political” move.

“Australia will see very slow progress in its 5G development now that it has blocked these Chinese companies, which is also a political gesture,” Fu Liang, a Beijing-based telecoms industry expert, told the Global Times.

Australia’s directive effectively rules out Huawei and ZTE, which are both subject to China’s national security laws, which can be used to compel the vendors to act in accordance with their national security directives.

The ministerial statement said the government had “expectations of the application of the TSSR (Telecommunications Sector Security Reform) obligations with respect to the involvement of third party vendors in 5G networks, including evolution of networks leading to mature 5G networks.

In a brief tweeted statement, Huawei said the development was an “extremely disappointing result for consumers. Huawei is a world leader in 5G. Has safely & securely delivered wireless technology in Aust for close to 15 yrs”.

The company, which has 700 staff in Australia, has so far declined to clarify whether it will continue to operate in the country.

Australian ambassador to the US, Joe Hockey, responded to the news of the Huawei had been blocked by labelling the decision as “significant”.

“A very significant tweet,” he said in response to a Huawei’s tweet confirming the news.

We have been informed by the Govt that Huawei & ZTE have been banned from providing 5G technology to Australia. This is a extremely disappointing result for consumers. Huawei is a world leader in 5G. Has safely & securely delivered wireless technology in Aust for close to 15 yrs

— Huawei Australia (@HuaweiOZ) August 22, 2018

A very significant tweet. https://t.co/HeenP7ZIKX

— Joe Hockey (@JoeHockey) August 23, 2018

China-facing Australian stocks have also been caught up in the reaction to Canberra’s decision.

Treasury Wine Estate, which has ridden growing Chinese demand to record profits, dropped 23c to $18.55 in early afternoon trade, amid fears of a trade backlash from the exclusion of their technology flag bearers.

Qantas shares were down 14.5c to $6.57 after announcing a 15 per cent profit increase. Flight Centre shares were $6.18 or nearly 10 per cent lower at $60.94, although they are also the subject of media reports about staff underpayment and questionable business practices.

APA shares were 72c or nearly 7 per cent lower at $9.42, on fears that its recommended $13bn takeover by Hong Kong’s CKI would also be blocked.

Milk exporter Bellamy’s shares dropped 52c to $9.79. Private education provider Navitas was flat at $4.61

Huawei was founded in 1988 by former Chinese army officer Ren Zhengfei, but the company has strongly denied any links to the Chinese military.

Huawei Australia chairman John Lord has consistently stated that the company poses no threat to Australia’s national security.

However, the government’s directive to the telcos indicates that both Huawei and ZTE are seen as high risk vendors.

Huawei currently operates in the radio access network (RAN) layer of 4G mobile networks for Optus and Vodafone. It’s not involved in the core network, where the more sensitive functions such as access control, authentication, voice and data routing, and billing are carried out.

The RAN layer consists of the radios and other equipment used to connect customer equipment (such as handsets, laptops and tablets) to the core network.

In a 5G network, the core and the RAN layers are much more closely aligned through software. According to the government, that shift introduces new challenges for carriers trying to maintain their customers’ security.

Rather than specifically target Huawei and ZTE, the government’s guidelines are framed within the Telecommunications Sector Security Reforms (TSSR) measures, which are due to go live next month.

Under the TSSR, telcos will be required to “do their best to protect networks and facilities from unauthorised access and interference” and also keep the government abreast of any changes that could compromise their networks.

The telecom sector is still digesting the news, with Vodafone Hutchison Australia warning that the government’s guidelines could potentially undermine Australia’s 5G future.

“We have always said that national security is paramount, we always have and always will meet our obligations under Australian law.”

“However, major decisions of this nature need to be made with rigour, accountability and careful consideration of the economic, productivity and social implications for the country.”

“This decision, which has been dropped on the eve of the 5G auction, creates uncertainty for carriers’ investment plans,” the telco added.

Vodafone and Optus have relied heavily on Huawei’s equipment to build their 4G mobile networks and there is no indication that they will have to remove the kit from their respective networks.

While Telstra has relied on more expensive equipment provided by the likes of Nokia and Ericsson, it would have considered Huawei and ZTE’s equipment as part of its 5G network development initiative.

With Primrose Riordan, Andrew White