How the UK’s proposed ‘D10 Club’ telecom strategy would fare against Huawei

China was Huawei's predominant source of revenue in 2019

UK Prime Minister Boris Johnson wants to establish a 10-nation alliance in an effort to prop up alternative telecom network equipment vendors to China-based Huawei, according to The Times. The proposed coalition, dubbed the “D10 Club,” would consist of the G7 countries plus Australia, India, and South Korea.

Amid escalating tensions between the US and China, UK officials set a goal last week to cut Huawei out of domestic networks by 2023. This overruled the UK’s decision in January 2020 to rebuke US pressure by allowing Huawei to supply up to 35% of the UK’s 5G networking equipment. Johnson has engaged the US in discussions regarding how the coalition would go about its mission: The two options under consideration are establishing new market entrants; or pooling funding to Ericsson and Nokia through the D10 Club.

Here’s what the two strategies proposed by the D10 might look like, and how they would fare in terms of bolstering a stronger Huawei alternative:

A new market entrant would struggle to overcome the knowledge gap in developing networking equipment. A new entrant in the telecoms space would struggle to easily ramp up its technical abilities such that it could compete with companies — including Samsung, Nokia, Ericsson — that have invested billions in R&D over the years. Huawei plans to spend over $20 billion on R&D in 2020, which will likely put it in the top five global companies in terms of R&D spend. Even if the D10 pooled together billions in funding to launch a new entrant, the new company would struggle to assemble a formidable research team — Huawei, for instance, had over 96,000 employees working on R&D in 2019. Research efforts could be accelerated through knowledge-sharing between the new entrant and existing tech companies, but the most advanced D10-aligned companies in the telecom equipment space would not be willing to just hand over their proprietary research. The new market entrant idea is rather unrealistic, and even if the D10 moved forward with such a plan, the entrant likely wouldn’t be able to produce viable networking equipment for several years.
Flooding Nokia and Ericsson with D10-provided funding would help them better compete against Huawei, but corporate governance complicates this strategy. One key to Huawei’s success is its access to state funding — the company received as much as $75 billion in support from the Chinese government since its inception, according to the Wall Street Journal. These sorts of investments play a key role in China’s hybrid centrally planned economic model, but it would be harder to execute them within the context of a transnational coalition funding publicly-traded entities. Nokia and Ericsson still have a legal obligation to maximize shareholder value first and foremost, which could limit the appetite of D10 member countries to contribute to a funding pool. The funding …read more

Source:: Business Insider


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