In early 2013, two salesmen from a Chinese company introduced themselves to Jim Kail at a telecommunications industry trade show. Kail, president and CEO of a small rural carrier in the US state of Pennsylvania, had never heard of their company. Kail met them again over the summer that year and built up a rapport. Less than a year later LHTC Broadband ditched its US equipment vendor and went with the Chinese company, Huawei Technologies , because it was offering equipment that could do the job at two thirds of the price. In fact, the rural carrier market has been one of the few areas of success in the US for Huawei, which has been shut out of the wider network equipment market due to Washington’s concerns about national security issues . “It was worth the risk of rolling the dice because it obviously could help us save a lot of money,” said Kail, who did due diligence on Huawei and found no proof that there was a security issue with its products – questions which have been raised multiple times by Washington. But fast forward to today and LHTC, along with every other US rural carrier, will have to rip out Huawei gear and replace it with European or US suppliers – or lose federal government financial support. Huawei’s first quarter revenue growth hit by coronavirus, US sanctions On March 12, US President Donald Trump signed legislation to bar the country’s telecom carriers from using US subsidies to purchase network equipment from Huawei Technologies, ZTE Corp and other companies deemed a national security threat. The law also requires the Federal Communications Commission (FCC) to establish a US$1 billion programme to assist small telcos with the costs of removing banned equipment and replacing it, although the US Rural Wireless Association has said up to US$2 billion may be needed. The White House and the FCC did not immediately respond to inquiries about the impact of Covid-19 on the US$1 billion programme or plans to increase it. Last month, US lawmakers passed an unprecedented US$2 trillion coronavirus relief bill and on Thursday the House approved a US$484 billion package aimed at helping small businesses. Regardless, it will not be seamless for the companies that have been ordered to remove Huawei gear. Steven Barry, who heads the Competitive Carriers Association, said at a congressional hearing last month that rural carriers were “essentially attempting to rebuild the aeroplane in mid-flight” by having to remove and replace network equipment. The FCC originally requested telcos to submit relevant data by April 22, but that deadline has been pushed back by a month due to the Covid-19 pandemic, according to Kail. Huawei the vanguard of China’s Belt and Road plan? Reality is more benign “We’re not thrilled about replacing the Huawei equipment because it has been very reliable, and it will be a major diversion,” said Kail. “While we haven’t determined a time frame for the swap, we believe it may take up to one year, and, of course, it will depend on how much time we’re given to complete the rip and replace process.” Last year another law was enacted that prohibited US government agencies from buying telecoms equipment from Chinese manufacturers, including Huawei. In both cases, Huawei launched legal action to oppose the moves, not to protect its market share which Dell’Oro Group puts at less than 1 per cent, but over “reputational concerns”, according to analysts. “If the company did not respond, it would acknowledge that there was something behind the US charges. It is acting like any company would do if its reputation was being challenged by say a competitor,” said Paul Triolo, Eurasia’s Practice Head for Geo-technology In February, Huawei lost its lawsuit against the federal agencies ban – which it had argued was unconstitutional – with the judge ruling that the US Congress had the power to restrict federal agencies from doing business with Huawei. In disputing the original FCC ruling on banning federal funds from being used to subsidise Chinese telecoms gear, Karl Song, the former CEO of Huawei’s US operations, said the regulator “should not shut down joint efforts to connect rural communities in the US”. “Carriers across rural America, in small towns in Montana, Kentucky, and farms in Wyoming – they choose to work with Huawei because they respect the quality and integrity of our equipment,” said Song. Huawei mounted a legal challenge against the rural carriers ban in December , saying it was not lawful because the company was not given required due process protections after being labelled a national security threat. That case is still pending. Huawei’s decision to focus on America’s rural carriers was a mirror of its early strategy in China, where foreign telecom equipment providers dominated in the big cities. “In our early days of development, the Chinese market was 100 per cent dominated by Western companies. We could only make some simple products and serve in niche markets. That way we grew little by little,” Huawei founder and CEO Ren Zhengfei told the South China Morning Post in an interview last month. Huawei has also had success in emerging international markets,including Africa, where it serves more than half the continent with 4G and has built a presence in 40 of the 54 countries since it first arrived in Kenya in 1998. Huawei’s willingness to focus on smaller customers was what attracted Joe Franell, CEO of Eastern Oregon Telecom, which was the first US carrier to use Huawei’s fibre-to-the-home platform. “We visited Huawei’s headquarters in Plano, Texas and walked away with a sense that they let us see anything we wanted to see,” he said. “They didn’t seem to be secretive at all. Our tech teams looked at where you might find back doors and we found nothing. Security was never a concern.” After Huawei gained a foothold in Eastern Oregon Telecom, it convinced the US telco to also use its switches and routers, swapping out gear from US supplier Cisco. “I was a former military guy and I love my country and I wouldn’t put in anything dangerous to the US,” he added. While national security has been the focus of Washington’s push back against Huawei, the fact that it has undercut rivals – by as much as 30 to 40 per cent – to win business has also drawn scrutiny. In December a report published by The Wall Street Journal said the Chinese government promoted Huawei’s global rise with as much as US$75 billion in grants, credit facilities, tax breaks and other financial assistance. According to the Journal , Chinese government assistance helped the Shenzhen-based company grow from a little-known vendor of phone switches to the world’s largest telecommunications equipment supplier, allowing it to offer generous financing terms and undercut rivals’ prices by some 30 per cent. In response, Huawei issued a statement saying its relationship with the Chinese government was “no different” from any other private company operating in China, “including those from abroad”. “Huawei receives some policy support from the Chinese government,” Song, who now serves as vice-president of corporate communications, said in the statement. “But we have never received any additional or special treatment.” Republican Senator Marco Rubio, a vocal critic of Huawei on national security grounds, has also called out what he sees as unfair competition because of the alleged subsidies. “In the past, private companies have not always priced in the risks associated with Huawei equipment into their financial decision-making,” he said in a statement. “Huawei’s artificially low prices were a strong factor before the security and supply chain costs were widely known. “Now that companies understand the financial costs and security risks, their cost-benefit analyses of doing business with state-directed Chinese telecoms firms like Huawei are no longer so attractive.” However, not everyone buys into this argument. “I am not convinced that it’s true that their products are cheaper because the company receives government subsidies,” said Franell. “I think that’s mostly because they are a one-stop shop. They design, make and sell directly to customers. Everyone else has a lot of middlemen. For example, I can’t buy from Cisco directly, it has to be from a third-party distributor. That’s where Huawei’s efficiency comes from. They were the total supply chain.” In a December 2019 study commissioned by Huawei, Oxford Economics concluded that restricting a supplier of 5G infrastructure would increase 5G investment costs by between 8 per cent and 29 per cent over the next decade. In the US, this would translate to an average increase in investment costs of almost US$1 billion per year. Meanwhile, Huawei’s attempts to sell its consumer smartphones in the US have also met resistance. In what would have been a landmark deal, in January 2018 the Chinese company had lined up US telco AT&T to distribute its smartphones in a deal that potentially would have given more than 100 million American subscribers the option of using a Huawei phone with their service plan. However, days before the announcement some US lawmakers found out and urged AT&T to cut its ties with Huawei. Under pressure, the US telco pulled out of the deal the day before the giant CES tech fair in Las Vegas opened . Later that month, Verizon also backed away from plans to sell Huawei smartphones , including the new Mate 10 Pro, reportedly under pressure from the US government. Huawei’s ability to sell its phones on the international market has also been stymied by Washington’s decision in May 2019 to add the company to its Entity List, on national security concerns, restricting the Chinese company’s ability to purchase hardware, software and services from American suppliers without approval from the US government. Blocked from the US market, Huawei has relied on Europe as its major international market for both network gear, including future 5G contracts, and its consumer products. It is the company’s most lucrative market outside China today. In January Boris Johnson’s UK government defied pressure from Washington and decided to give Huawei a limited role in the country’s 5G roll out, while capping its market share and restricting it from more sensitive parts of the network. However, China’s handling of the coronavirus pandemic has triggered calls from prominent members of Johnson’s Conservative Party for a rethink of the UK’s push for closer ties to China , including its Huawei 5G decision. The UK’s decision to limit Huawei’s share of broadband infrastructure already led BT Group to predict a £500 million (US$650 million) hit to its finances, Bloomberg reported on February 17. Meanwhile, the US bans and possible push back in Europe are good news for Huawei’s rivals. “European vendors including Ericsson and Nokia, along with Asian vendors Samsung and potentially some Japanese companies offering virtual radio access networks (RAN) will benefit from the US efforts to remove Chinese equipment from rural networks,” said Eurasia’s Triolo. “This is a very small market though compared to the nationwide 5G networks of major US carriers.” “These alternative vendors are certainly competitive in terms of the quality of equipment and also potentially on cost – new equipment is likely to be more expensive than Huawei and ZTE, which are able to offer lower costs in some cases as a result of government support and economies of scale in a large domestic market,” he said. The pressure from the US is starting to take a toll on Huawei. “We have had to spend a lot of our time explaining [the situation] to our customers, partners and also government regulators,” rotating chairman Eric Xu said when he announced Huawei’s 2019 results, who was nevertheless optimistic, adding that “business remains solid”. For some, the aggressive US action has left them resigned to acceptance, but nonetheless frustrated. “At this point, it is a foregone conclusion,” said Franell, who has until May 22 to submit relevant data to the FCC to comply with the new law. “The only question now for me is what kind of reimbursement the government can come up with to help us rip and replace Huawei’s equipment.” Read more from this series on Huawei, China and the US .