Huawei under pressure: here’s how its hierarchy sees things
- The US is steadily tightening the screw on Huawei
- More countries have recently stopped Huawei installations (or plan to remove existing kit)
- Reports say the Chinese are furious - here’s Huawei’s diplomatic response
Huawei has been having a rough time of it recently. Banned from the US market it’s seen the other Anglophone countries fall into line with America - Australia, New Zealand and the UK are all restricting Huawei telecoms infrastructure installation with Canada likely to follow suit.
The accusation is that Huawei, founded by a Red Army veteran, is likely to follow orders from the government in Beijing when it comes to intelligence gathering and furthering the global aspirations of the communist government.
So Huawei has been judged a security risk: it could, it’s thought, put back doors into its hardware and software to enable Chinese intelligence (for instance) to intercept useful information. If low key hostilities broke out between China and the West, it could cause mayhem by cutting off key technology replacements for any Huawei infrastructure deployed.
But there is also a strong suspicion that the US government (and US companies) are keen to keep Chinese technological prowess in check .
Most recently we’ve seen Huawei’s chief financial officer, Meng Wanzhou, nabbed on a flight stop in Canada to be deported to the US for questioning over alleged Iranian embargo-breaking over high technology exports.
US executives are currently waiting with baited breath to see which of their number gets marched off to detention in China in retaliation.
So far, however, the Chinese are playing it all very low-key: anxious to be seen as the good guys in expectation of world opinion swinging to them if the US pressure keeps up and clumsy moves like detaining a high ranking Huawei officials continues. They may be right.
In the meantime China is playing a deft PR game.
Here’s a slice of it. Huawei’s Ken Hu gives the company’s side of the story.
Huawei's Ken Hu expresses confidence in business and addresses challenges
[Dongguan, China, December 18, 2018] Huawei Rotating Chairman Ken Hu held a press conference with leading global media at the company's new campus in Dongguan on Tuesday, December 18. The journalists visited R&D labs showcasing materials and thermal management technologies developed for 5G equipment, as well as an independent cybersecurity lab.
Hu delivered strong messages of confidence in Huawei's business growth and prospects, citing the trust of hundreds of network operators, nearly half of the world's Fortune 500 companies, and hundreds of millions of consumers. Huawei's 2018 revenue, he said, was expected to exceed US$100 billion.
He also directly addressed recent allegations against Huawei, stating that it is best to let facts speak for themselves, while emphasizing repeatedly that the company's security record was clean. Hu noted that there have been no serious cybersecurity incidents in 30 years.
Here are some highlights from the press conference:
On 5G – Huawei has secured 25 commercial contracts, ranking number one among all ICT equipment providers, having already shipped more than 10,000 base stations to markets around the world. Almost all network customers have indicated they want Huawei, which is currently the market leader with the best equipment and will remain so for at least the next 12 to 18 months, for faster and more cost-effective upgrades to 5G. Some security concerns based on the technology for 5G were very legitimate, noted Hu, but able to be clarified or mitigated through collaboration with operators and governments. "Rare cases" have arisen where some countries are using 5G issues as an excuse for groundless speculation based on "ideological or geopolitical considerations". Security concerns disingenuously raised as excuses to block market competition would slow adoption of new technology, increase costs for network deployment, and raise prices for consumers. If Huawei were allowed to compete in the US for 5G deployment from 2017 to 2020, around US$20 billion of capital expenditure in wireless infrastructure would be saved, according to some economists.
Cyber security – Security is Huawei's highest priority and it overarches everything. Hu was open to a question about building cyber security evaluation centers in places such as the US and Australia, pointing to similar centers in the UK, Canada, and Germany that are designed to directly identify, address, and mitigate concerns. Huawei has subjected itself to the strictest reviews and screening by regulators and customers, while expressing understanding of legitimate concerns that some stakeholders might have. However, no evidence indicates that Huawei equipment poses a security threat. Regarding often-quoted concerns over Chinese law, the Ministry of Foreign Affairs in China had formally clarified that no law requires companies to install mandatory backdoors. Huawei remains open to concerns about its openness, transparency, and independence as well as dialogue. Any proof or evidence could be shared with telecom operators, if not to Huawei or the public at large.
Compliance – Some journalists asked about Huawei's CFO, Ms. Meng Wanzhou. Hu said he was unable to comment due to legal processes underway, but he did express that business operations were not being impacted by this event. Executive travel plans were not impacted, and Huawei remains very confident about its trade compliance system, which has been running since 2007. The company has confidence in the fairness and independence of the judicial systems in Canada and the US.
Hu described the company's recent achievements as exciting, and recalled his almost 30-year history with Huawei during which its people, culture and management had grown. "This is journey of transformation that has helped us grow up from an unknown vendor to the 5G leader". He also recognized that Huawei still faces challenges, thanking the media for interest in dialogue and appealing to employees, customers, and stakeholders.
"I'd like to share a saying from Romain Rolland", Hu said in his closing remarks, echoing the words of the celebrated French writer who was awarded the Nobel Prize for Literature in 1915.
"There is only one heroism in the world: to see the world as it is, and to love it'. At Huawei, we see what we have encountered, and we still love the work we are doing. Similarly, in Chinese, we have a saying: 道阻且长，行且将至. It means that the road ahead is long and hard, but we will keep moving and reach the destination, because we have already embarked on this journey".
See transcript below
Ken Hu: Good afternoon, everyone! Welcome to our new campus. This is our largest campus in the world. We built our new manufacturing center here. We built our training center here, and our R&D center as well. And we have moved many of our employees from Shenzhen to here in Dongguan. What I have learned is that our employees are so excited about this new campus.
I believe in the morning you had a good tour of our technology lab and here in the security lab. The next time you visit here, we'll be happy to take you on a small train tour of our very beautiful campus. This is a lakeside campus, which is very nice. I know that the holiday season is very busy for all of you, so thank you very much for taking the time to meet with us today.
This year has been so eventful, hasn't it? So I believe you must have many questions for today's conversation. Before we start, I would like to take this opportunity to give you a very quick update on our business progress this year, and then go on to the Q&A session.
This year business has been very good for us. We are pretty sure that, by the end of this year, we will achieve more than $100 billion U.S. dollars in total revenue.
This is a big milestone in our history. This is the first time our sales revenue has exceeded $100 billion US dollars. For different business groups, we had very satisfying growth as well.
For example, in our carrier business, which accounts for the largest part in our total portfolio, we secured more than 25 commercial contracts for 5G. Now we rank number one in terms of commercial 5G contracts. This is the result of our far-leading technological innovation across the whole industry. And we have started to ship 5G equipment to the whole world. Actually, we have already shipped more than 10,000 base stations to different markets around the world.
Our enterprise business has seen very good progress as well. We secured more and more contracts with leading global companies. This year more than 200 companies in the Fortune 500 selected Huawei as the vendor for their digital transformation. So this is a big step forward as well.
And our consumer business. We all know that our smartphones sales are very good. This year, we had a big increase in our sales revenue and shipments with the successful launch of our flagship smartphones, the P20 and Mate 20. These new smartphones bring some amazing functionality to the market, including high quality cameras and particularly artificial intelligence.
So in all three business groups we've had very satisfying growth this year. Particularly in October, for the first time we announced our full-stack, all-scenario artificial intelligence solution.
We have been working with artificial intelligence for around ten years, and this year we announced our solution – full- stack, all-scenario. We believe that, with this solution, we will be able to make artificial intelligence eventually become a real GPT – a general purpose technology.
We're trying to make it more accessible and more affordable for the whole society. And we hope that, in the coming years, we will launch more exciting chipsets, hardware and software solutions for artificial intelligence to help our customers maximize the benefits of this emerging technology.
So this is the exciting growth we have achieved this year. Of course, at the same time, we're facing some challenges. You are all aware of the allegations that have been made against Huawei this year. Despite the efforts in some markets to create fear about Huawei, and to use politics to interfere with industry growth, we are proud to say that our customers continue to trust us and recognize our contribution to the industry.
They continue to work with us, innovate with us, and build their networks with our innovative technology. We're so grateful for their support.
When it comes to security issues, as an industry, we believe that we need to talk more about the technology and how to improve. When it comes to security allegations, it’s best to let the facts speak for themselves. And the fact is: Huawei's record on security is clean. We believe that cyber security is a global issue. It's an industrywide issue and we need to address it together.
Moving forward, we will continue investing in technological innovation, in broadband, cloud, artificial intelligence, and smart devices. And we believe that this continuous investment in technological innovation will help us secure solid growth in the telco sector in the coming year with faster deployment of 5G technology. It will help us to be in a stronger position in the enterprise market with digital transformation across different vertical industries. And particularly, it will help us bring more exciting and innovative devices to consumers. We are going to launch our first 5G smartphone, and we can expect a lot from that.
This is just a quick brief on our business growth and business progress. I'm very happy to talk more about that today with all of you, so we have enough time to do the Q&A session.
Now, I would like to open the floor for questions.
Joseph Waring, Mobile World Live: Given the allegations and the fear that's being pushed across many governments, what specific actions does Huawei plan to take in the near term or the medium term to alleviate some of that pressure? I know you have your cyber security center in the UK working with the operators there and a number of other similar facilities. Can you talk about that?
Ken Hu: We realize that the industry we're in is undergoing faster technological transition periods. Technologies are becoming increasingly complicated. Networks are becoming more open. As a result of this, we definitely notice the increasing interest and care from network operators and regulators and also the general public about the industry. We think this is just normal.
When we look at ourselves, as I mentioned just now, Huawei's business has been growing very fast. Our revenue will exceed 100 billion dollars very soon. We're doing business in 170 countries in the world. About half of the Fortune 500 companies are using Huawei products. The majority of the top telecom operators have deployed Huawei's equipment. Our smartphones are being used by hundreds of millions of consumers worldwide.
Given our scale, our size, and our presence, we definitely need to take it very seriously when we look at the concerns or interests expressed by governments, by society, and by the general public.
In that context, we are keenly aware that it is simply something we must be doing to have proactive, transparent and constructive dialogues and conversations with the governments, with local communities and with our customers.
This is exactly what we have been doing. I can briefly introduce our actions and our plans in this area. Take security, for example. Many people have expressed concerns or interests in this area. For Huawei, we take security as our highest priority and our overarching guideline.
In 2011, this positioning of security as our highest priority and overarching guideline was recognized in the form of a board resolution. That was the open letter released by our founder and CEO, Mr. Ren, addressed to the world, showing and demonstrating our serious commitment to security.
Following that positioning and the resolution, we have taken very solid steps and measures internally and externally. For example, internally, cyber security guarantee and protection have been built and implemented across our business operations from corporate governance, organizational structure, technology innovation, staff management, and IT systems as well. I believe Sean Yang in the morning may have introduced some of those to you.
Externally, when we engage with customers, regulators and the general public, we have been following a strategy or approach that we call "make white whiter" over the last ten- plus years.
In other words, we understand the concerns from our customers or regulators. Therefore, we are willing to take additional steps or go the extra mile compared to other peers in our industry.
As part of that effort, we have undergone third-party certification of Huawei's hardware, software and our solutions, which has been done by independent 3rd parties.
If we look at the results of those certifications, we can clearly see over the past 30 years, Huawei and Huawei's equipment has maintained a very solid and correct record in our industry when it comes to cyber security.
We have never had a serious cyber security incident for our equipment.
And also even with the most strict review and screening by regulators or our customers, there has never been any evidence showing our equipment poses a security threat.
According to a most recent report from CFI, a third party, independent auditor, Huawei's equipment from operational stability and operational reliability point of view, has far exceeded industrial average over the past 3 years.
We will be very glad to share this report with you after this interview.
We feel very proud about this recognition from customers and the industry.
But we definitely will not relax requirements we put on ourselves, because we are keenly aware technology will become more and more complex; networks will become more open. Therefore the requirements or demands on security will just be much higher.
Therefore, we will continue to increase our investment on security and security related technologies.
In our most recent board meeting, we decided on a companywide transformation program to improve our software engineering capabilities.
The company will invest an initial special budget of $2 billion US dollars in the next five years to comprehensively improve our software engineering capabilities so our products will be better prepared for the future world.
We believe through these efforts, we will be able to continue to maintain our leading position in our industry when it comes to cyber security. We also hope with such efforts we will continue to maintain our solid cyber security track record.
We will continue to step up our efforts in terms of communicating, engaging, and collaborating with governments around the world. We will help governments to understand the track record we have had on cyber security, and we'll also talk with the governments so they also understand the efforts and the actions we have been taking on cyber security.
For example, the internal cyber security lab you visited in the morning, that's also the lab we make successful and open to governments and customers around the world, so through the visit and the dialogues they can understand our positioning and what we have been doing. Moving forward, we will more, let's say, localize some of these efforts.
For example, ten years ago we set up an independent cyber security evaluation center in the UK. As a result of that, we have put in place a long-term and effective collaboration model with the stakeholders in the UK. We're going to continue to work on that moving forward. We also have a similar arrangement in Canada. Those are the efforts we will continue to work on and strengthen.
At the same time, we are and will continue to expand similar engagement with the governments. Last month, I myself was in Bonn, participating in an opening ceremony of a security innovation lab there. This lab is essentially an open platform allowing the German government and also our customers in Germany to conduct testing of Huawei's products around security. Such efforts have won the recognition of the German government.
The next step is to launch our security transparency center in Brussels in Q1 next year. That is also part of our longer term plan as well. We will also build and put in place similar open and transparent security management mechanisms in other parts of the world as needed.
When it comes to security in short, I would say this is an area where we take it very seriously and we pay a lot of attention to it. We have taken a lot of efforts in this area, and we'll continue to do so having dialogue and engagement with governments around the world.
When we look at the concerns from governments of Huawei, I think there's another part of it that we also need to address as well.
Huawei is a company that originated from China, and we are not a public company. But that does not mean we cannot achieve the same level of transparency. We have taken a lot of efforts and measures in this area as well.
Very early on we announced our ownership structure so that people all know that Huawei is a private company that is owned by its employees.
Every year we go through the most strict processes of audit before we launch our annual report, so all stakeholders will know the authenticity, integrity and independence of our business operations.
At the same time, given certain specific concerns, we have been communicating with the governments around the world around the independence of Huawei's operations. The fact that we have never taken any requests from any governments to damage the business or networks of our customers or other countries. As I mentioned earlier, for any concern, the best way is to let the fact speak for itself. The fact is that over the last thirty years, there's been no major cyber security incident; there's been no cyber security threat; and there's been no evidence showing that Huawei is damaging cyber security. And we'll continue to take proactive communication engagement and also open collaboration so more and more people will be able to realize this.
Yang Yuan, Financial Times: I have a question about the arrest of Ms. Meng in Canada. It's been reported before by Reuters that Skycom, which is a subsidiary of Huawei, was selling technologies from American companies to Iranian customers. And we've also found that Ms. Meng was a director of Skycom, and Skycom employees have described themselves as employees of Huawei. Can you clarify the relationship with Skycom and Skycom's activities in Iran?
Ken Hu: I know you are definitely very interested in what happened recently. But since, as you might be aware, this is right now under a judicial process, I'm not in the position to provide any information at this point in time. Two points I still want to share with you.
First, we are very confident in our trade compliance management system. We started development in 2007, which covers our global businesses across our entire portfolio and the entire Huawei workforce. We believe with such a well-running trade compliance management system, we have the fundamental guarantee of our 100 billion dollars business. We have the guarantee to ensure smooth, efficient, and secure operations of our business and also to reassure our customers around the world.
Second, we have confidence in the fairness and independence of the judiciary systems in countries involved in this specific case. We look forward to a just conclusion to this matter.
Eamon Barrett, Fortune: So one of the issues that various governments have raised concerning Huawei and the potential security threat is the national intelligence law which was passed last year which would compel any industry or company to cooperate with China's national intelligence work. Now, it's fine to say that Huawei has never been asked by our government to infiltrate or otherwise spy on a network but if the Chinese government would come to Huawei and ask it to, what legal grounds would Huawei have to refuse such a request?
Ken Hu: First, on December 10th, the spokesperson of the Ministry of Foreign Affairs of China in a press conference formally clarified that no law in China requires companies to install mandatory backdoors.
Of course, just like the US and Australia, China also has certain legal requirements for counter terrorism or cyber security objectives. China also specially emphasizes that all government institutions or agencies must enforce the law according to the law. There are clear definitions.
For Huawei, our approach is to address these issues in strict accordance to the law. In the past, we haven't received any requests to provide improper information. In the future, we will also follow in strict accordance to the law in dealing with similar situations. When we talk about according to the law, the law has clear stipulations around the terms of reference for related agencies.
Gao Yuan, Bloomberg: We know Huawei has appointed an acting CFO after the Sabrina's case. My question is – with the current case, if Sabrina can continue with her responsibilities as corporate CFO and what are the real implications and impacts of this case on Huawei's operations because we have learned from some of Huawei's international employees that if there is no financial guidance of this nature, it will have an impact on their business like procurement.
Ken Hu: Currently, our business operations are not impacted by the case in Canada. Our business operations as a company and operations in the financial system are still business as usual.
Ryan Mcmorrow, AFP: After Meng was arrested in Canada, the Chinese government arrested two Canadians on national security concerns. The Chinese government has said this is not in retaliation, but most independent experts now say it was. Does Huawei have any comments or thoughts on the arrest of these two people?
Ken Hu: No comment on that.
Eunice Yoon, CNBC: Do you think that Huawei will have any significant business in the United States and does it matter to the company for the future?
Ken Hu: Well, US is one of the biggest communications markets in the world and I would definitely not say it doesn't matter to us. However, the reality today makes this very difficult for Huawei to enjoy business growth for reasons I think you all know.
As a result of that, our current status of US business, I would say, is very limited business. Of course we still have customers in the United States and we continue to follow our business principle of customer-centricity. We try everything we can to provide the best possible services to them and they are very satisfied with our services.
On the other hand, we also noticed that the United States is also in a development period when it comes to the digital infrastructure market.
Because Huawei cannot participate in the US market, we also notice that this is a market that is falling short of competition in a very big way.
According to some economists, from the period of 2017 to 2020, which we believe is a very important period for 5G deployment, if Huawei could participate in market competition, there would be 20 billion US dollars of savings when it comes to capital expenditure for wireless infrastructure.
At the same time, since Huawei cannot participate, HHI – which describes market concentration in certain geographies, in the US – HHI is as high as 2,500, much higher than other markets in the world, which are typically in the range of 1,000.
Since the best suppliers and the best technologies cannot be part of the market, I believe from a deployment cost point of view, this will significantly be higher. At the same time, it will substantially delay time-to-market of new technologies.
At the same time, the digital infrastructure industry dependencies highly dependent on the global supply chain. In other words, the equipment of any company in our industry relies on the global supply chain for development and manufacturing.
At the same time, when it comes to deployment, in most of the cases we can say that digital infrastructure is going to be a multi-vendor environment. It requires collaboration and partnerships with players across the industry.
From that point of view, banning a particular company from market competition cannot fundamentally address concerns about cyber security. We believe that, at the end of the day, US markets will need best technologies and best companies to participate in market competition. When that day will come, we don't know. We have patience.
Raymond Zhong, New York Times: We saw earlier this year that ZTE almost went out of business because the US prevented it from using American technology. Obviously Huawei is not in this position. But could you explain to us what the impact could be if Huawei is someday in this position – and is the company taking steps to protect its supply chain from dependence on the US?
Ken Hu: We don't comment on things that have not happened, but I would be very glad to share with you our thoughts and our actions on supply chain and on business continuity management.
We all know the ICT industry highly depends on a global supply chain. And Huawei is no exception.
Today we have 13,000 suppliers in our supply chain. Companies coming from Japan, US, Europe, China and many other countries in the regions. Take this year for example, our annual procurement spend would be 70 billion dollars.
From this point of view, the technology innovations of Huawei are, on the one hand, the outcome of our own efforts. On the other hand, also the close collaboration with 13,000 partners in our global value chain.
We also realize that the more globalized the nature of your supply chain is, the more vulnerable it might be. So almost 10 years ago, we started to develop a comprehensive and effective business continuity management system.
That management system covers many parts of our business: R&D, procurement, manufacturing, logistics, and also services. Over the past 10 years, with this system in place, we have successfully dealt with quite a number of emergencies.
Natural disasters like the tsunami in Japan, the flood in Thailand, the earthquake in Nepal, and also ransomware attacks as well. In order to ensure supply chain continuity, we also have to put a lot of thought when we put together our supply strategy and also when we think about how to ensure the operations of our equipment.
Our supply chain strategy, for example. We take a diversified supply strategy. That means we have a multi- sourcing strategy. We look at multiple choices in terms of technology solutions, and we also have multi-location supply networks. At the same time, since we're working together with hundreds of telecom operators in the world, and also we are serving a significant number of enterprise customers, so we look at the full lifecycle support that is needed and build up our stock of spare parts and components to ensure support across the product lifecycle.
These are some of the actions and measures we have taken to ensure business continuity. At the same time, we think the continuity of the ICT industry chain is also important. We believe this is a topic, an issue, that the whole industry and international community need to look at.
As I mentioned earlier, we have 13,000 suppliers. Our annual procurement this year is $70 billion US dollars. If we look across the entire industry chain, or the companies or the countries involved, they are interdependent.
If any link in this global industry chain is obstructed in an unusual way, that would have a major impact on the development of the industry chain and even the economic development of countries involved. Therefore, if we take a bigger look, society as a whole, countries involved and the industry must work together to ensure continuity of this global ICT value chain.
Steven Jiang, CNN: I'm going to have two quick follow ups on things people may have mentioned. One is, I know you cannot comment on the case of Ms. Meng, because it is a legal case, but specifically on the impact. For yourself and other senior executives, what's the impact? Are you limiting or changing your travels, or are you avoiding certain countries, for example? What about the impact on Huawei employee morale?
The other is about the US's potential moves. Because we started to see some moves by governments or operators in the US and its allies like France, the UK, or even Japan, to block the use of Huawei equipment in their core 5G networks. Are you worried about this trend? Do you think that's geopolitical issue no matter what you say or do?
Ken Hu: On your first question: There is no impact on our travel plans. Yesterday, I was still on the plane, at this point in time.
Regarding the second question, the latest developments on 5G in different countries. I just came back from Europe yesterday. I want to share with you some of my observations.
Before that I would like to correct you a little bit. There is no official decision from either France or Japan saying they would ban Huawei from 5G. What we are seeing right now, instead, is that more and more governments and operators in more and more countries are engaged in very proactive discussions with Huawei with 5G.
As I mentioned earlier at the very beginning, Huawei has been awarded 25 commercial contracts on 5G. That number is bigger than that of any competitor in the industry. At the same time, we are in a significantly leading position on 5G no matter when we look at the leadership or maturity of our technologies.
You visited some of our labs this morning and I believe you must have seen many cool technologies there.
Those are the cool technologies that only Huawei enjoys in our industry. It is because of those technologies that we have been able to build the strong leadership position on 5G that we enjoy today. We have participated in dozens of pre-commercial tests on 5G. From the testing results, Huawei is at least 12 to 18 months ahead from a technical maturity point of view compared to other peers in our industry.
This leadership of Huawei has been publically acknowledged by our customers. For example, last month at the Mobile Broadband Forum held in London, the chief architect of British Telecom publicly commented that Huawei is the only true 5G supplier right now and others need to catch up.
This significant recognition we have from customers and governments is first attributed to our technological leadership on 5G.
Those governments and those customers believe using the best supplier for 5G network deployment would help substantially shorten the time-to-market of this new technology. For example, LG U+ in Korea. They have already launched their 5G services after deploying 5G networks with Huawei equipment.
This could help them to enjoy a more competitive cost structure and bring compelling services to consumers. At the same time, we also see concerns of various natures of different countries on 5G. For those concerns, we think most of those are very legitimate concerns that are based on technology. Those are the concerns that we believe could be well clarified and mitigated through our collaboration with telecom operators and through joint engagement and communication with governments. Of course, there are also rare cases, where countries take – what we would say – an unnatural approach.
They turn this 5G security concern, which is industry- and technology-related in nature, into groundless speculations targeting specific companies. This is not putting the focus on how to improve and how to protect the technology itself, but ending up with speculations targeting particular companies out of ideological or geopolitical considerations.
In very rare cases, certain countries, when it comes to 5G technology selection, took an irresponsible approach, which is not at all based on facts, banning certain companies from market participation.
We think decisions like this should be very serious and very professional. There must be evidence or proof to support these decisions. If there is no evidence, I think any decision of this nature would not win the test of time. We believe discussions around 5G security should return to technology discussions and should be based on objective assessment of companies.
We think security is first a technology topic. And it is also something that the whole industry needs to come together to address. It should not target specific companies for no substantial ground.
Security concerns can only be addressed through technical discussions. Security discussions need to involve all stakeholders. On 5G technology selection, we think any government decision should be serious and professional and what's very important is that there must be proof and evidence.
If you have proof and evidence, it should be made public, maybe not to the general public, not to Huawei. But at the very least, it should be made known to telecom operators, because it's telecom operators who are going to buy from Huawei.
We think for our industry and for society at large, security challenges will be real for a long time. And these can only be addressed and mitigated through open communication and collaboration. And Huawei is committed to be a part of this process.
Rejecting one particular company, especially leading companies, cannot fundamentally address concerns on cyber security. At the same time, it would increase the cost of network deployment; it would delay the adoption of new technologies. And in the end, it would be the consumers who have to pay the heavier bill.
Take Australia for example, we have some numbers around it. Without Huawei's participation, the cost for deploying wireless base stations in Australia would be higher by 15% to 40%. And the cost of building up an entire network would be higher by several billion Australian dollars. Even worse, the time for people to adopt and use 5G technology would be delayed.
Shunsuke Tabeta, Nikkei: You talked about the Security Transparency Center as an upcoming initiative taken in Europe. Do you have similar measures in Japan, or Asia, or Australia on security?
Ken Hu: On security, we are very willing to take proactive measures to address and mitigate concerns. This is our principle. Under this principle, we stay open to have proactive dialogue with governments around the world, to understand their concerns and to explore all possible solutions.
We have already had many successful cases in countries like the UK, Canada, Germany and France. And definitely the APEC region is not an exception. We’ve also proactively communicated with regulators in those countries. We’ll be looking at their needs and requirements and explore the right solutions to address those recent requirements.
Joe McDonald, AP: Some people suggest that governments such as the US that say Huawei is a security risk really aren’t concerned about security but about trade and are trying to stop Huawei from becoming a competitor with American technology companies. First I want to ask, do you think that’s the case, that governments are creating this as a competitive issue to stop Huawei?
Second how much do you think this might hurt Huawei’s business?
How do you feel about being labelled a security risk?
What do you want to see changes in trade between China and the United States or China and other countries to help you?
Ken Hu: First, labelling Huawei as a security risk. Our opinion is that any conclusion, any speculation should be based on real evidence.
Either you have evidence to show that Huawei’s solution or Huawei’s equipment is not secure.
Over the past 30 years, hundreds of telecom operators have used Huawei’s equipment. There has been no major cybersecurity incidents. And there has been almost zero Huawei equipment being used in the United States, so what is the evidence here to say that Huawei is not secure?
Or either you say there are problems with Huawei’s behavior, yet again, over the past 30 years we have become a $100-billion-dollar company with business in 170 countries. There’s no evidence to show Huawei has problems with our behavior.
So the question I want to ask is for a company with a 100 billion dollars in revenue, with businesses in 170 countries, with the fact that we’ve provided leading products to most telecom operators around the world, we serve hundreds of Fortune 500 companies, we also serve hundreds of millions of consumers around the world – you say Huawei is a cybersecurity risk without any proof. On what grounds?
You also talked about competition.
If you look at advancement in human society from a technology and innovation point of view, a very big driver is the benign competition between different industries and between different companies.
With absence of competition consumers cannot enjoy better technologies in a shorter period of time.
We also believe leadership can only be gained through competition.
Locking competitors out of the field cannot make yourself more excellent.
Therefore we believe any concern, any allegation or suspicion on security about Huawei, should be based on factual evidence. Without factual evidence we don’t accept and we oppose those allegations.
For 5G technology that is about to be deployed, Huawei has the strongest leadership position in this area.
Leading companies need to be respected and encouraged. Because we bring benign competition and drive the healthy development of the industry. And in the end the entire society will benefit.
Dan Strumpf, Wall Street Journal: As you know much of the recent efforts against Huawei over the last year in many western ally countries around the world have been led by the United States and by the United States security establishment and it has been well-reported this is a coordinated effort. It’s been the 6 years since the American government first raised its security concerns about Huawei. And the company finds itself in this position now 6 years later defending itself against the very same allegations. I am just wondering if you believe, if Huawei believes that it could have done anything differently over the last 6 years to communicate its position primarily to the United States but to governments that find it mistrustful, in particular governments that used to welcome Huawei but now find themselves less willing to accept its equipment as 5G rollout begins. Thank you.
Ken Hu: Over the last couple of years, Huawei has taken many measures to engage in proactive communication with governments. On top of communication, we also established cooperation mechanisms on security with many national governments, including the governments of the UK, Canada, Germany, and France. We highly appreciate the open and pragmatic approach those governments have demonstrated in these engagements. And that progress has encouraged Huawei to do even better in those areas. This is the strategy and approach that Huawei will continue to follow.
At the same time, as I mentioned at the very beginning, we realize that as we grow bigger it is also part of our responsibility to proactively communicate and collaborate with the governments around the world. Because naturally, big companies draw more attention and also more concerns. Therefore, as we grow bigger, we will continue to embrace openness and transparency, communicating with all these stakeholders to address and mitigate their concerns.
Tony Chan, Commsday: I have a couple of questions specific to Australia. I just want to know the numbers you've quoted about the cost of rolling out base stations and wireless network regarding the cost of rolling that without Huawei that the numbers you gave before. Was that a Huawei study or a third-party research? And the other thing is obviously Huawei continues to engage the Australian government regarding the recent policy of banning Huawei from bidding for 5G. I just want to know if they actually express any detailed requirements for Huawei. Like, is there something that Huawei can do to actually qualify? Or is it just a blanket ban without particular details, technical details.
Ken Hu: On the first question, the numbers that I shared with you earlier came from a third-party report. The name of the company is Frontier Economics. The title of that report is The Value of Competition on 5G Network Deployment . If you are interested, we can provide this report to all of you.
And then to your second question. It’s a pity that we haven ’t got any clear message from the Australian government, saying what exactly the problem is, and what is the evidence for them to come to their conclusion. And we did not have the opportunity to clarify this doubt with the Australian government.
Clay Chandler, Fortune: Just a follow-up on Dan’s question. You’ve shown us the wonderful testing and evaluation center here and described how the processes are working for countries like UK. I wonder if in the United States and Australia for example, you see any value in making similar investments to create centers that can show people how these technologies can be verified and demonstrate your security record in a concrete way in particular markets that’s been especially problematic.
Ken Hu: I would say, why not? Because if we look at the cyber security center we built in the UK, it’s for the UK. And we have a similar center in Canada to address their concerns. We have this new security center in Germany to serve the German market. As I mentioned earlier, we should have communications with government to fully understand their concerns. And also take agreed actions to address and mitigate those concerns.
Once people raise concerns about security, if they want to address and resolve the concerns. I would say definitely we will be able to find the right solution.
But for security concerns raised as an excuse to block good companies from market participation, without hoping to truly address these concerns, I would say the results would be very different. Take 5G, for example. If security concerns are raised as an excuse to block market competition, the result would be slower adoption of the new technology, much higher cost of network deployment, and consumers not being able to enjoy good technology, good services in a timely way. And yet, they will still have to pay more for those services.
And from a security point of view, this approach would not help to truly address and resolve the concerns around cybersecurity, given the fact that the ICT value chain is global in nature. If there are concerns saying Huawei's equipment is made in China, then if you look at all the companies along the value chain of ICT, you can hardly find even one company where they say none of my products or components are produced in China.
We would urge all players to get rid of these ideological or geopolitical considerations, and return the discussion to security and to technology. I also call for all players to come together to identify the real risks, and to find the right solutions.
Sijia Jiang, Reuters: I want to ask for more details on the two-billion dollar security overhaul. Can you please give some more information on how exactly you arrive at this number? How you will spend the money in which market, and why now? Is it in response to the July report from CSEC that you decided to address some of the UK concerns? But some of the issues had actually been raised as early as 2015. So why does this take so long for you to take any action, and why now?
Ken Hu: The two-billion dollar five-year program on software engineering improvement is part of Huawei's IPD transformation. This year, the company decided to start what we call IPD 2.0 program. IPD refers to "integrated product development." This software engineering improvement program is part of that overall effort.
More than 10 years ago, we started this transformation process by introducing integrated product development for technology and innovation. That's what we call IPD 1.0. And through our efforts over the last 10+ years, and with the support of these restructured processes, we are able to deliver reliable, high quality and innovative products.
Then we started IPD 2.0 with a renewed understanding about future technology evolution, future networking environments, and what customers and society expect from technology at large. From a technical point of view, as we say it, the future technical landscape will become more complicated. From a network point of view, the future network environment will be more open, connecting not just people but also things. From a social point of view, digital technology will become increasingly important and an integral part of people's lives, having implications for everyone in the way they work and live. Naturally, as a result of this, what people expect from technology is not just technical leadership and quality. Security will become a basic demand and requirement.
We foresee in the not long future down the road, the trustworthiness and security of technology will become the most fundamental and basic requirement for any given technology.
That's how we envision the future, then we will start from there and work backwards. The trustworthiness of a technology or a product can not entirely rely on testing efforts at the very end of development processes; rather, it has to start from the early design phase. As people often say, a good product is not made through testing but through design and development.
Similarly, we believe trustworthy and secure products of the future will firstly rely on design. As a part of the IPD 2.0 transformation, the trustworthiness and security of the products is a very important objective that we will be working on. At the same time, we think software will be more and more important in future products. Therefore, software engineering will play a more important role to ensure the trustworthiness and security of future products.
You are right when you talked about the July report from the Oversight Board of the UK. While they acknowledged the track records of Huawei's products from a security point of view, they also reminded us that Huawei needs to improve its software engineering capabilities and practices.
This is help from the UK government and we feel very appreciative about it. Therefore, as part of the overall IPD 2.0 transformation, we include software engineering capabilities as a very important component. In terms of how we arrived at this number [US$2 billion], it is based on our technology mix and also based on our own cost estimations.
In the recent several months, we have been looking at this software engineering improvement as part of our overall IPD 2.0 transformation and we are working on our implementation plans for the future. We are quite confident about this transformation.
Huawei is a big company. It's not that easy for us to make a decision, especially a big decision. But whenever we've made a decision, Huawei has never failed. We are committed to see to it that we deliver the results on the things that we have decided to do. More importantly, we think this transformation and also all these improvement efforts are important for us to remain confident for our longer-term future and also to maintain the confidence of governments, customers, and partners around the world on Huawei.
Sijia Jiang, Reuters: Whether Huawei would recruit new people or open new labs?
Ken Hu: This investment will cover a lot of areas, including organization and people. For example, we will bring on board more people, especially talented people in software security. We will also improve our facilities at the labs. We will also revisit and improve our processes. At the same time, as part of this effort, we also need to change the mindsets of tens of thousands of our R&D engineers, so that they know security and trustworthiness is part of the important commitment we make to our customers.
Edwin Chan, Bloomberg: I think my colleague has asked this already, but I'm gonna ask a lot more specifically. So we know a lot of carriers are considering or have already decided to rip out Huawei equipment or steer clear of Huawei equipment for 5G. So, specifically, is Huawei confident of sustaining its growth? I know you said your revenue is gonna surpass 100 billion US dollars this year. But are you confident in maintaining your growth rate given the actions that I just described? And, then also, just more philosophically, I think you would agree that Huawei is at a very critical juncture in its history. You know, you are just on the cusp of becoming a 5G power. And then this happened. So, I understand that in some ways it's a technical issue. There are also many who would argue that Huawei is already technologically superior in 5G. But I think the greater concern is more a motivational issue or an issue of your independence. How do you address that?
Ken Hu: We are not seeing as pessimistic a picture as was described just now. We didn't see operators saying they want to swap out Huawei equipment or they want to stay clear from Huawei. On the contrary, out of the hundreds of operators we work with in the world, almost all of them are saying they want to work with Huawei, using Huawei equipment for their 5G networks, because they know we are the best. Only by using the best equipment can they build up their 5G networks faster and can they build up their 5G networks in a more cost-competitive way.
It's like a race. There are several runners on the field and now we are in the leading position. And I think leading runners should have every reason to be confident about the future. And we are confident that we will be the first one to hit the line.
And you also talked about independence. And I think the most convincing way is to let the facts speak. And over the last 30 years we have been providing services to telecommunications industry and our track records in all different aspects have proven our independence.
I think it's not necessary to always dwell on fear or speculations without any facts. Having said that, it definitely does not mean we don't value other voices or concerns around Huawei's openness, transparency, and independence.
Therefore in the past and in the future we will continue to adopt a transparent approach in proactively communicating with all stakeholders on all of their legitimate concerns, by providing more information that they need.
Yang Yuan, Financial Times: You mentioned there were geopolitical concerns rather than real technical concerns. Underlying some governments’ concerns of 5G safety in Huawei, you mentioned this in the context of the US. But do you think the same geopolitical concerns are also motivating countries, Japan, or more recently the Czech Republic, or even BT in its vision strip Huawei equipment out of its core network? Would you say these countries are also being politically influenced perhaps by US political concerns? Or do you think those countries concerns are coming from genuine technical concerns? And to ask a more specific question on that point, the UK's oversight board, the FCC we just discussed concluded in July that Huawei's safety standards were below industry standards. Do you think this was a technical finding or do you think it was motivated by politics as well? And it was a technical finding then why were you not prepared for it?
Ken Hu: Let me first respond on the BT issue. We are working with BT for over 10 years. We are very good partners to each other. We have provided a large number of equipment, both fixed line and wireless to BT.
From the very beginning of the Huawei-BT collaboration we had very thorough discussions around the whole strategy before network deployment and specifically where to introduce Huawei equipment into BT's networks.
Regarding 5G technology, BT fully recognized Huawei's leadership as exemplified by the chief architect's remarks, that Huawei is the only one, the only true 5G supplier now in the market. Therefore it is definitely not the case that BT out of technical pressure decides to swap out Huawei's core equipment.
All of our collaboration with BT will follow this pre-agreed network deployment strategy, between Huawei and BT.
This year's OB report included the areas where Huawei needs to improve on the technical capability side. We attached great importance to this, and value the viewpoints and perspectives in this report.
On the one hand we have very active discussions with UK operators and also regulators to study and explore our action plans to improve based on those findings.
At the same time, we have also started our internal actions. And I would say over the last couple of months and less than half a year, the progress across all different dimensions has been quite encouraging.
Eunice Yoon, CNBC: President Trump has shown that he enjoys engaging directly with executives and we have seen that with Jack Ma, for example. Have you considered or any executive at Huawei, visiting the White House? Or if invited would you consider going?
Ken Hu: We have not received such invitation yet and we don't have such plans.
Ken Hu: Ladies and gentlemen, I thank you very much for this long interview and conversation, which is very helpful for me to understand different perspectives from the media community. And now I would like to do a quick summary before we end this session.
So as we discussed today, over the past 30 years, we believe it is the hard work and dedication of every Huawei staff that has made today's Huawei. And we also appreciate the trust and support from our customers, from our partners, and also from many, many governments around the word.
I joined Huawei in 1990, almost 30 years ago, so I have had the honor to witness almost the whole process. From my perspective, over the past 30 years, this journey of transformation for Huawei across many, many aspects – in terms of culture, in terms of the management of our people. This is journey of transformation that has helped us grow up from an unknown vendor to the 5G leader. And actually today, our 5G product solutions are in the leading position ahead of our industry peers.
So we appreciate the recognition from society. We appreciate the dedication from our employees. And we believe that industry leaders should be respected, because we bring healthy competition and we enable the development of technology and our society. As we discussed today, upcoming 5G technology will create huge opportunities and benefits for society. It will tremendously change many people's lives and the future of many industries, and we believe it highly relies on a global supply chain.
Talking about the security, in the past 30 years we have also witnessed the proven track record of Huawei's product security. There isn't any evidence that Huawei poses a threat to national security to any country. We will always welcome any open dialogue with anyone who has legitimate concerns. But for any ungrounded allegations, we will firmly defend ourselves, and we won't allow our reputation to be tarnished.
At last, I'd like to share a saying from Romain Rolland. "There is only one heroism in the world: to see the world as it is, and to love it." At Huawei, we see what we have encountered and we still love the work we are doing. Similarly, in Chinese, we have a saying.
"道阻且长，行且将至." It means that the road ahead is long and hard, but we will keep moving and reach the destination, because we have already embarked on this journey. So once again, thank you very much for your time with us today. I really appreciate the wonderful conversation with all of you guys. And at last I would like to wish all of you an early Merry Christmas and Happy New Year. Thank you.
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