Germany approves a de facto Huawei ban

Handelsblatt has the story this morning about a coalition agreement on the main planks of new 5G security legislation. The bottom line is that Huawei will be excluded. But what is interesting is how the German government seeks to bring about this outcome: not through a ban, but by entangling Huawei in a web of bureaucracy.

We think this legislation falls in the having-your-cake-and-eating-it category. Or, as they say in England, too clever by half.

This is how it will work: the approval process occurs in two stages. The first is a security assessment. The second is a political process that involves the big ministries, especially foreign and interior. Everyone has to agree as a precondition for a component licence to be granted. The institution that will co-ordinate the entire process is the federal office for information security. We agree with an assessment by one of the experts quoted in the article, that this procedure will effectively mean the exclusion of Huawei. The federal office for information security has warned against Huawei components. Its most important concern is not related to data protection, but the potential sabotage of critical infrastructure, or of companies that become reliant on the technology.

In an internal paper quoted by the newspaper, the German foreign ministry concluded that Chinese companies cannot be trusted with such sensitive projects. That assessment is also shared by Germany's federal intelligence service.

Handelsblatt reports that the two coalition partners reached agreement on outstanding issues. The legislation is now in the final drafting stage. Cabinet will vote on it in November. The legislation will then pass to the Bundestag. There was pressure from the SPD and sections of the CDU in favour of an outright ban of Huawei, but judging by the first reactions to the compromise, we think it will find a majority.

An interesting snippet of information is that Peter Altmaier, who opposed restrictions against Huawei, has been sidelined in the discussions. They forgot to invite the German economics minister to the final round of talks. Altmaier emerged as the mercantilist-in-chief in the German government. But, on this issue, the foreign and interior ministries have taken the lead.

The procedure relates only to critical components, but there are many of them. This is not a pre-defined list, because technology changes quickly. Critical components exist in both the macro and the small-cell parts of a 5G network. In such a network, much of the critical data processing tasks happen at the periphery level.

We agree with Handelsblatt's assessment that this constitutes a typically German compromise. The German government is really scared of Chinese reprisals, so it does not want to offend the Chinese with an outright ban. At the same time, Germany cannot break ranks with the US, the UK or France. So it goes for this hideously complex compromise. The expectation is that Germany's main mobile operators, Deutsche Telekom, Vodafone and Telefonica, will begin reducing orders from Huawei and shift towards its European competitors. The chiefs of those three companies have warned that the cost of excluding Huawei would be €55bn in Germany alone.