Huawei’s crisis and the future of standards

US sanctions on Huawei have created confusion and some dismay among standards-setting stakeholders, but Chinese companies gain too much from their participation in global standards development to walk away

The US Department of Commerce restrictions announced against Huawei in May 2019 have forever altered the course of one of China’s biggest technology success stories.

Huawei and 68 of its affiliates around the world were placed on the entity list maintained by the Bureau of Industrial Security (BIS) with effect from 16 May 2019. Being added to the list effectively bans firms from transferring US technology to the Chinese company without a US government licence, requests for which are reviewed with a presumption of denial.

The most immediate ramification for Huawei is a disruption to its existing supply chain that could be an existential threat. US firms such as Qualcomm, Intel, Micron and Google supply a range of essential components and software that power Huawei’s smartphones and other devices. Much of that business is still permitted, pursuant to a 90-day temporary general licence that was granted a few days after the blacklisting (see postscript).

Observers both inside and outside China agree that regardless of whether Huawei is eventually fully cut off from US technology by law, the measure is a significant wake-up call for the Shenzhen-based company and similar firms. Efforts by the Chinese government to reduce its dependence on the West for everything from cellular modems to operating systems will be redoubled.

So, where does all this leave standards setting? It is a question that few in government and the industry had contemplated until Huawei’s blacklisting. “The BIS classification for Huawei surprised a lot of people,” says Jorge Contreras, a professor at the University of Utah College of Law, “especially in the standards-setting world where Huawei is a longtime and valuable contributor to standardisation processes”.

The temporary general licence issued just four days after the blacklisting sought to provide clarity around the 5G standards-setting process, but confusion remained, and standards bodies and technology companies reacted in different ways.

The situation will have a number of short-term effects on the continued development of 5G and other standards. The bigger question is what it all means in the long term for the ways in which Huawei and other rising Chinese tech brands engage with global standards setting.

Table1. Top 10 owners of 5G patents declared standard essential

Declaring company

5G declared patent families

Filed at the USPTO, EPO or under the Patent Cooperation Treaty

Granted

Huawei Technologies

2,160

1,545

608

Nokia (including Alcatel-Lucent)

1,516

1,484

1,134

ZTE Corporation

1,424

1,014

74

LG Electronics

1,359

1,339

1,100

Samsung Electronics

1,353

1,330

1,015

Ericsson

1,058

1,046

525

Qualcomm

921

905

536

Sharp Corporation

660

635

374

Intel Corporation

618

600

62

China Academy of Telecommunications
Technology (CATT)

552

332

47

Source: IPlytics platform, July 2019

Top 10 owners of 5G patents declared standard essential

Confusion reigns

“I think it’s relatively clear when they imposed these restrictions on Huawei they weren’t really thinking about technical standardisation,” observes Contreras. The temporary licence contained four general carve-outs from the export ban, the last of which explicitly addressed 5G standards setting, but it seemed to cause confusion nevertheless.

Outside of 5G, there has been a range of responses from organisations, and some seem in retrospect to have overreacted. The Wi-Fi Alliance said that it would temporarily restrict Huawei from participating, while JEDEC, a semiconductor standards association, said that the Chinese company had voluntarily withdrawn for the time being. Huawei disappeared from the SD Association website, but this was later blamed on a technical error.

On 27 May Huawei told Nikkei that it had not violated the articles of association for any of these bodies and that its suspension from them was “without any legal basis”. Reports say that it has since been reinstated at all three.

Wang Peng, IP director for China’s Telecommunications Development Industry Alliance, says that such moves “undoubtedly deviate from the basic principles of standards orgnisations” and that the standards bodies’ reversals have “somewhat alleviated the industry’s concerns”.

No incident was more rousing than the decision of the Institute of Electrical and Electronics Engineers (IEEE) scientific journals (not its standards-setting arm) to ban Huawei employees from acting as peer reviewers or editors in its publications. This measure was also reversed within five days, but not before it caused an uproar in academic circles within and beyond China.

The confusion can arguably be chalked up to the fact that this is uncharted territory for most standards bodies. Contreras served as outside counsel to the Internet Engineering Task Force (IETF) for two decades and says that Huawei was an active member: “I know IETF’s internal rules and policies very well, and this kind of situation never came up. The placement of a strong, legitimate company on such a list was a surprise.”

5G standards

The temporary general licence provided more clarity around 5G by explicitly allowing the following:

4. Engagement as Necessary for Development of 5G Standards by a Duly Recognized Standards Body: BIS authorizes, subject to other provisions of the Export Administration Regulations (EAR), engagement with Huawei and/or the sixty-eight non-U.S. affiliates as necessary for the development of 5G standards as part of a duly recognized international standards body (e.g., IEEE—Institute of Electrical and Electronics Engineers; IETF—Internet Engineering Task Force; ISO—International Organization for Standards; ITU—International Telecommunications Union; ETSI- European Telecommunications Standards Institute; 3GPP—3rd Generation Partnership Project; TIA—Telecommunications Industry Association; and GSMA, a.k.a., GSM Association, Global System for Mobile Communications).

However, this also raised questions. Rather than setting standards, 3GPP sets technical specifications which are then transposed into standards by regional or national standards development organisations, such as the European Telecommunications Standards Institute (ETSI), which is mentioned in the licence, and North America’s Alliance for Telecommunications Industry Solutions, which is not mentioned in the licence.

There was also the question of how broadly 5G should be defined. There is the basic cellular technology whose specifications are developed by 3GPP, but there is also a set of use cases for 5G networks, which include everything from smart homes to self-driving cars and 3D video. Groups such as IEEE and IETF do not engage in the traditional 5G cellular work but their activities could fall under the rubric of 5G use cases.

“The way [the licence] was written confused a lot of people,” says Jim Harlan, InterDigital’s senior director of standards and competition policy. “Nobody really knew how broad of a licence this was.”

The 3GPP itself told members that it was “business as usual” at all meetings until further notice. Public information is not subject to the Export Administration Regulations (EAR), and 3GPP pointed out that contributions, documents, emails and meeting minutes are all publicly available. The group’s statement also pointed out that non-public information is sometimes exchanged between stakeholders in informal settings outside the official meetings and email lists. This, it said, is fine to continue to the extent that it is necessary for the development of 5G standards.

Figure 1. Top 5G meeting attendees

Picture: IPlytics Platform, July 2019

Picture: IPlytics Platform, July 2019

Short term effects on 5G work

Despite the business as usual message from 3GPP, caution prevailed at meetings held in early June in Newport Beach, California.

Companies including Intel, Qualcomm and LG Uplus instructed their employees to limit informal conversations with Huawei representatives. According to a report by Reuters, researchers taking part in the meeting expressed alarm, with one commenting: “This could push everyone to their own corners, and we need cooperation to get to 5G.”

According to Prakash Sangam, founder and principal at Tantra Analyst, it is too early to know how much the situation might affect progress on the 5G specifications. “3GPP is a consensus-based organisation,” he explains, “and sometimes differences can be solved in off-the-record coffee breaks”.

Balazs Bertenyi, the Nokia-affiliated chair of 3GPP RAN, told meeting attendees that the organisation would document more of these informal exchanges than usual in order to make them part of the public record. “I don’t think the quality of discussions or information exchange would be affected, but it’s more a question of how tedious it might be to do it in a more formal way,” Sangam admits.

The next 3GPP meetings are scheduled for September. Sangam says that 3GPP is traditionally particular about timelines and we will know more after groups re-convene in Newport Beach to provide updates on their progress and raise any concerns. But as of now, the short-term effect on 3GPP’s 5G efforts looks to be that of an inconvenience or nuisance.

If the temporary general licence continues to be renewed periodically or is made permanent with respect to 5G activity, it will be because industry has persuaded the US Department of Commerce that there is no threat from Huawei’s continued participation in the standards-setting process.

Politics and standards

In the medium term, Huawei’s ordeal will do nothing to curb the influence of geopolitics on the standards-setting process.

As Wang puts it: “It may be that some enterprises will deviate from selecting the optimal technology, and instead participate in standards work based on political choices.” This situation, he adds, could produce more complex proposals and difficulties in finding consensus, which could affect progress on setting technical specifications.

Some contend that this issue has been around forever, while others say that it has intensified in recent years. Most agree that it is not an ideal way to develop an effective technology.

Last year, Lenovo faced public backlash in China when a reporter discovered that the Beijing-based company had initially taken sides with Qualcomm against Huawei in a 3GPP vote. Back in 2016 several technologies were competing to become part of the specifications for a 5G use case called Enhanced Mobile Broadband (eMBB). The candidates were Qualcomm’s LDPC, Huawei’s Polar Code and Turbo, which was led by LG and NEC.

eMBB had two parts: a data channel and a control channel. In the vote to determine which technology would be used in the data channel, Qualcomm’s LDPC won with Lenovo’s support. Huawei had backed its own solution, Polar Code, while the rest of the Chinese participants had voted for an option which combined the two. Polar Code was later adopted for use in 5G’s control channel, this time backed by Lenovo.

In response to Chinese media reports characterising the data channel vote as unpatriotic, Lenovo founder Liu Chuanzhi pointed out that the company owns patents related to LDPC and had backed Polar Code in the second vote after having “comprehensively considered the country’s overall industrial cooperation”.

Huawei offered its support for Lenovo, with founder Ren Zhengfei saying that the company had no problems with its peer’s 3GPP voting activity. Liu suggested that if the media report was intended to pit two of China’s biggest companies against one another, it would not work, concluding: “Chinese companies should be united and cannot be provoked by outsiders.”

Observers of voting processes at 3GPP and other tech and standards bodies argue that Chinese companies are increasingly acting as a bloc when voting on technologies and leadership positions. Some see this as antithetical to the traditional belief that the best solution should win, period.

However, Contreras says that bloc voting is neither surprising nor necessarily about politics: “At a very practical level, a Chinese participant in a Western standards-setting organisation often doesn’t have the same language skills as other participants, so the individual engineers are likely to vote with whoever the leader of their delegation is.” He also points out that Chinese firms might simply calculate that their commercial interests are best protected by sticking together.

Whatever its causes, Sangam states that the phenomenon is not going away. “Chinese companies used to loosely vote as a bloc, but I think going forward they will vote as one single bloc in 3GPP,” he predicts. Only time will tell whether this significantly affects the final technologies.

Huawei joins IEEE naysayers

Just a few days before it was added to the entity list, Huawei staked out its position in a long-simmering debate over SEP licensing under the IEEE’s patent policy. The Chinese company joined mega-licensors Qualcomm, Ericsson, Nokia and InterDigital in objecting to a 2015 policy change perceived as unfavourable for rights holders.

The Chinese company submitted a negative letter of assurance indicating that it would license patents declared essential to the 802.3 ethernet standard under an older policy from 2007 instead. The company said: “As a primary contributor to the IEEE standards, Huawei believes fair treatment to standard contributors [is] essential to the thriving of IEEE standards.”

The move was seen as significant because Huawei is a major standards contributor with both a substantial SEP patent portfolio and a large hardware business.

Moreover, Huawei had taken an essentially neutral position in the 2014 debate leading up to the new policy. The comments that it submitted at the time were not supportive of the change, but did not explitictly oppose it either.

The evolution of Huawei’s stance on the IEEE patent policy is just one of many indications that monetising SEPs may play a significant role in its corporate strategy going forward. However, it is becoming clear that the company could face severe hurdles to doing that in some jurisdictions.

A fork in the road?

The big long-term question is what this episode might mean for the participation of Chinese firms in global standards development, especially if the ‘technology cold war’ between the United States and China continues.

Huawei made a massive investment in the global standards-setting process for 5G and is due to reap significant rewards, including a position of leadership in a key technology and a large SEP portfolio to boot. Now it appears to be a victim of its own success. Breathless headlines about its dominant position in 5G are part of the reason why it is now facing not only a possible cut-off from US technologies, but also proposals that could make it harder to enforce its patents in US courts.

Huawei itself warned about the long-term ramifications of being excluded from groups such as the WiFi Alliance and the SD Association, saying in a statement: “Decisions like this will result in fragmented standards… and will only serve to drive up costs and risks for everyone along the value chain.”

One telco executive told IAM that Western stakeholders harbour some concerns about the Standardisation Law promulgated in China two years ago. Specifically, they worry that the law strongly encourages indigenous innovation and developing standards that can quickly and easily be converted into national standards.

But when it comes to 5G at least, most observers think that the global standard is here to stay. “I seriously don’t think a split is going to happen,” declares Sangam.

In the 3G era, Chinese companies with state backing developed a version of the basic 3G standard called TD-SCDMA, which was certified by 3GPP as an acceptable variant. China’s goal was to jump start its domestic telecoms industry and potentially reduce its IP royalty outflows. But any hopes that a quick rollout in China’s massive domestic market might push the standard globally were dashed, as it was never deployed in a major way outside China. “It was a disaster, and they had to move onto LTE to provide good broadband,” Sangam recalls.

Moreover, it would not be in the interest of big global players like Huawei. “Huawei’s goal, I assume, is to sell products,” notes Contreras, “and it has been shown over and over that when products are interoperable and we don’t have competing standards, you will sell more products”. Today’s Chinese consumers would likely also demand products that work internationally.

Wang cites the famous opening line from the Chinese literary classic The Romance of the Three Kingdoms: “The empire, long divided, must unite; long united, must divide.” After several generations of wireless, the world has reached a consensus that 5G will be a unified standard. “Whether there is trade friction or a ban on Huawei, these will not change that global consensus,” Wang predicts.

On a recent earnings call, InterDigital CEO Bill Merritt assured analysts that the industry is fairly united against a possible 5G split: “Conversations that we’re having with the GSMA and other people, no one wants to go back there. So notwithstanding the political battles, there’s a pretty strong industrial weight behind maintaining this single standard out there.”

Postscript

As this issue of IAM went to press, the 19 August expiry of the 90-day temporary general licence arrived. At the last possible moment, and after some rhetoric from President Trump hinting otherwise, the licence was extended for an additional three months.

But in an unexpected development, the paragraph expressly permitting “engagement as necessary for the development of 5G standards” disappeared from the licence altogether. BIS explained the move as follows:

BIS has determined that existing provisions of the EAR suffice for purposes of addressing the application of the Entity List-based license requirements to activities in connection with standards development bodies, including 5G standards bodies.

The body also published a two-page legal opinion on how a company’s addition to the entity list will impact standards activities, along with several examples of transactions that would run afoul of the EAR. From the looks of it, a lot of compliance decisions will turn on whether technologies involved in any informal or closed-door exchange are made fully available to the public. Its impact will likely vary according to the normal practices of each standards body. In general, it looks much like the eventuality that many companies had planned for by telling their engineers to avoid informal exchanges with Huawei.

In a statement provided to IAM, a 3GPP representative said: “We are currently taking further guidance internally on how the changes to the revised TGL and the ‘General Advisory Opinion’ issued by [BIS] should be applied.” It will be instructive to see whether the body sticks to its previous assessment that it is “business as usual” for 5G work.

The US government may have concluded that the existing provisions of the EAR already adequately protect the development of 5G specifications. But Huawei might well view it as another attack on its ability to participate in global standards work.

Several key potential effects of Huawei’s blacklisting were identified in this article: short term confusion over compliance, inefficiencies caused by a lack of informal exchanges between engineers, and greater politicisation of the whole process. This latest development looks likely to heighten all three of those dynamics.

Global standards are common interest

The above has demonstrated that a wide range of stakeholders – Huawei itself, Chinese industry, US licensors and individual engineers involved in standards setting – believe that unified global standards are a good thing. Although there are concerns about voting patterns among China’s representatives at standards bodies, there are no serious calls to exclude them.

“This is global work. It is important to have everybody at the table,” says Harlan.

The question is whether the politicians will be persuaded of this. US Senator Marco Rubio’s bill targeting Huawei is a good example of a measure that was introduced for its political expedience despite the fact that virtually the whole industry – across both the United States and China – sees it as counterproductive.

From the US perspective, the industry message is that security-related concerns can be addressed without affecting standards participation. First, the technical specifications set by a body such as 3GPP are high level. It is at the level of chip design and writing software code (an entirely different process) where most security issues would arise. Even so, the open standards process ensures that there are a lot of eyes on every aspect of the specifications – which should help to ensure that the final technology is as secure as possible.

More broadly, this episode provides an opportunity for the industry to communicate the value of standards, which is not just a US-China issue, but a big topic in IP policy generally. As Contreras puts it: “From the standpoint of US and global consumers, it seems important that all of the major technology developers in this field participate in standardisation because that will result in the most effective, most technically advanced and cheapest products.”

From the China perspective, one thing to remember is that creating national standards will not necessarily lead to less royalty outflows. It is overseas sales by Chinese firms that are the key revenue driver for foreign licensors, and units shipped outside China would likely use an international standard. Moreover, patents are written broadly and many SEPs registered in China for 5G or a future standard would likely read on a domestically produced standard too. “It obviously would not be as easy as licensing under the current ETSI model, but I don’t think it would take too much of a re-tooling,” comments InterDigital’s Harlan.

For now, there are many more questions than answers. Further clarity should emerge in the coming months, with the September 3GPP meetings, further decisions about the temporary general licence, ongoing US-China talks and a possible trade deal and the next US presidential election.

Action plan

Drastic US government action against Huawei has caused both short-term and long-term questions about the future of standards development. Here is what you need to know:

  • A 90-day temporary general licence issued by the US Department of Commerce explicitly allowed engagement with Huawei as necessary for the development of 5G standards.
  • Some companies have issued guidance to engineers telling them to avoid informal technical exchanges with Huawei representatives at standards meetings.
  • Standards participants say that they have seen more bloc voting by Chinese firms recently and expect this to continue.
  • The industry remains committed to a unified 5G and other standards, and seeks to avoid a splintering of the technology.
  • However, geopolitical uncertainty will remain as long as the US-China trade dispute continues and supply chains ‘decouple’.

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