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The China-U.S. 5G Battle Upends a Telecom Industry Consortium – The Wall Street Journal


The competition between the U.S. and China is roiling the previously humdrum process of setting technical specifications for wireless communications.

The O-RAN Alliance, an industry consortium founded in 2018 to develop standards to make cellular equipment interoperable and thus cheaper, found itself dragged into the U.S.-China tensions in late August. That is when Finland’s

Nokia Corp.


NOK 0.20%

, a major telecom-equipment supplier, told fellow O-RAN participants that it was temporarily suspending its work in the group—over concerns that two of the group’s more than 300 participants were Chinese companies on a U.S. Commerce Department blacklist.

Nokia wanted to ensure it was complying with U.S. laws and regulations, says

Tommi Uitto,

who runs Nokia’s wireless-equipment division.

U.S. officials said the two companies—Kindroid and Phytium Technology Co.—work on technology that could aid China’s military, among other concerns. Since the revelation, a U.S. congresswoman has introduced legislation to scrutinize whether O-RAN presents national-security risks. And governments in Europe are lobbying the consortium for access to participate in the development of the tech specs, so they can safeguard against security loopholes.

The O-RAN Alliance’s mission is to develop standards to make cellular equipment interoperable and thus cheaper.



Photo:

Wolfram Schroll/Bloomberg News

High Stakes

The O-RAN Alliance is the latest iteration of how rivalry between the world’s two largest economies has upended the global telecom industry. Washington has already used diplomacy and export controls to weaken the world’s largest cellular-equipment maker, China’s Huawei Technologies Co., over cybersecurity fears. Such moves have blocked Huawei’s access to the high-end chips the company needs for its products, and have led to some European countries banning the firm’s equipment from their 5G networks.

Such competition threatens to disrupt existing models of global technological cooperation, and create bifurcated systems between the U.S., China and their allies.

The O-RAN Alliance, led by

AT&T Inc.


T -1.36%

and other mobile carriers, aims to create technical specifications so that important pieces of cellular equipment would rely more on software—which lets them get upgrades remotely—and be interoperable. Right now, equipment from different companies won’t work together—imagine if a Dell computer worked with only a Dell monitor and Dell printer.

Industry analysts view the O-RAN Alliance as a way to potentially break up the oligopoly that currently dominates the telecom-hardware business: Huawei, Sweden’s

Ericsson


ERIC -0.21%

AB and Finland’s Nokia. It might also give American players a stronger foothold in the market.

“The O-RAN architecture is particularly useful in this battle for technological supremacy because it plays to the strength of the United States, which is software development,” says

Hossein Moiin,

who was chief technology officer of Nokia’s wireless division until 2018. Research firm Dell’Oro estimates equipment based on such concepts will account for more than 10% of the $90 billion cellular-equipment market by 2025.

Two of the big three suppliers—Nokia and Ericsson—are among the O-RAN Alliance’s biggest contributors; people close to Ericsson and Nokia say it appears inevitable that the group will achieve at least some of its goals, so it is better to have a voice in the process than not. Huawei, however, has opted out of the alliance, saying that integrated bundles of equipment perform better.

U.S. Commerce Department officials told the alliance members that the participation of American companies in the group was important, and that they had to follow export controls, according to people familiar with the matter.

Since Nokia raised the alarm,

Rep. Abigail Spanberger

(D., Va.,) introduced telecom-focused legislation that would order the State and Commerce departments to investigate the involvement of Chinese companies in bodies including the O-RAN Alliance, and to determine whether companies that do business in the U.S. should be allowed to collaborate with them in the group.

Rep. Abigail Spanberger introduced legislation that would order the U.S. State and Commerce departments to investigate the involvement of Chinese companies in bodies including the O-RAN Alliance.



Photo:

Jacquelyn Martin/Associated Press

Phytium and Kindroid, both semiconductor manufacturers, were added in April and July this year to a Commerce Department list that limits companies from exporting U.S.-origin technology to listed firms without a license. Besides the blacklisted Chinese companies, one of the group’s leading board members is

China Mobile,

which some U.S. officials deem a national-security threat.

British officials have also raised concerns. The U.K. National Cyber Security Centre is pushing the O-RAN Alliance to allow it and similar organizations to participate in deliberations over technical specifications, according to people familiar with the matter. It wants the industry group to increase its focus on the cybersecurity of its specifications—which it hopes will eventually be used in products that replace Huawei equipment in the U.K.—and to monitor how the group’s Chinese participants sway the specifications, the people said.

The U.K. government has banned installation of Huawei’s 5G equipment in the country as of this month, and has demanded operators remove all of such equipment by 2027.

“If stuff with bad security gets deployed in a country, and then the phrase ‘O-RAN’ becomes a bad word and is banned by everyone because it’s not secure, that’s the wrong outcome,” says

Ian Levy,

the National Cyber Security Centre’s technical director. “We’re trying to help it so it can flourish.”

Germany’s cybersecurity officials have relayed similar concerns to the group, according to people familiar with the matter.

O-RAN officials didn’t respond to requests for comment.

An engineer replacing Huawei Technolgies components with Nokia equipment on a rooftop in Hull, England.



Photo:

Ian Forsyth/Bloomberg News

A split industry

Since Nokia raised the concerns, the O-RAN Alliance has decided to overhaul its processes and procedures. The group, which is governed by a board with representatives of 15 wireless carriers from around the world, agreed to give telecom-equipment makers more influence, according to people familiar with the matter. It is also considering ways to let governmental agencies, such as Britain’s National Cyber Security Centre, participate, the people said.

The consortium is also working to make its technical specifications, which are currently confidential to only its participants, more public, according to people familiar with the plans. U.S. export controls generally don’t affect technology that has been made public. Three weeks after sounding the alarm, Nokia said in a statement that it was resuming work with the group, thanks to the recent changes.

Still, the recent chaos at the O-RAN Alliance may be the first sign that a once-unified global telecom industry may be splitting into a U.S.-backed one and a Chinese-backed alternative. “It’s a moment of bifurcation,” Mr. Moiin says. “It might no longer be possible to move forward as one global ecosystem. That’s definitely in trouble because of the China-U.S. political challenges.”

Mr. Woo, a Wall Street Journal reporter in London, can be reached at stu.woo@wsj.com. Ms. Lin, a Wall Street Journal reporter in Singapore, can be reached at liza.lin@wsj.com.

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