‘Work to your strength’: Huawei’s CTO weighs in on U.S. efforts to build a Huawei alternative

August 20, 2020, 10:45 AM UTC

China telecom manufacturer Huawei Technologies is facing new sanctions in the United States. On Monday, the U.S. Department of Commerce tightened restrictions on Huawei, limiting the company’s access to commercially available chips.

The new order built on existing restrictions announced in May and blocked global semiconductor manufacturers that use U.S. technology from selling chips to Huawei without obtaining a special license.

What’s more, India is reportedly keeping Huawei out of its 5G network, following the lead of the U.S., U.K., Japan, Taiwan, Australia, and New Zealand, which have all barred Huawei because of security concerns.

Amid the onslaught, Huawei continues to defend itself and champion its technology. It argues that national security worries are unfounded and dismisses the assertion that it’s an arm of the Chinese government.

Paul Scanlan, chief technology officer for the Huawei Carrier Business Group, repeated those refrains in an Eastworld Spotlight conversation with Fortune‘s Clay Chandler last week. (The interview took place before the U.S. announced its latest restrictions on Huawei on Monday.)

“What’s a shame is that Huawei has arguably the most efficient 5G products,” said Scanlan, citing Huawei’s 20% to 30% efficiency in 5G rollout compared to competitors. “It would be a shame if that couldn’t be brought to bear across the whole planet.”

U.S. opposition to Huawei, a leader in 5G technology, has led to American efforts to build alternatives. Instead of starting from square one, Scanlan argues, the U.S. should use its expertise in data collection and analysis to improve existing 5G technology. Building a U.S. alternative to Huawei that’s “mature, stable, and reliable” could take years, he said.

In the interview, Scanlan also touched on the importance of worldwide collaboration in rolling out 5G, metrics in evaluating the development of the network, and China’s position in the global 5G race. The conversation below has been edited for length and clarity.

Fortune: The Trump administration has imposed restrictions on American companies from selling their technology to companies that are on the entity list including Huawei. Are we creating a digital iron curtain between these two countries, and how does that restrict Huawei’s ability to do business?

Paul Scanlan: For 32 years, we have demonstrated that our customers can trust us. They trust us to improve their business through technological innovation. That’s what Huawei has done through and through. And it’s unfortunate that [with] this geopolitical war that’s going around the world, and nationalism in many countries, [people] fail to understand that. We’ve got a virus at the moment, and the only way you fix those things is through collaboration, not through isolation. So, personally, the way I feel and the way Huawei feels is that collaboration is far better than isolation or division, to share information…share use cases and experiences of what can be done with this technology called 5G in collaboration with cloud and A.I.-based solutions. And that’s not something that Huawei does alone. These things need to be done within a broader ecosystem, not just within a country but across the globe. That’s how you fix problems.

What’s a shame is that Huawei has arguably the most efficient 5G products. If you want to look at the very first low-hanging use case for 5G, it’s really really around the efficiencies that come from an operator deploying a technology like 5G. And if Huawei is running somewhere around 20% to 30% more efficient than our competitors’ rollout of 5G, then it would be a shame that couldn’t be brought to bear across the whole planet.

Where are we right now in terms of rolling out 5G, and what are the metrics to evaluate it?

As of earlier this year, Huawei had shipped about 600,000 of these 5G base stations. If you were to compare 4G back in 2014…at the end of the first year, China had 720,000 4G base stations; the combined total of Europe was about 60,000. You’re seeing something of the same order now. One city here in Guangdong province has more 5G base stations than Europe.

But does that matter? You could measure it [using] traditional standards of 2G, 3G, and 4G, where governments were always measuring [the development based on] population coverage. And that was a typical measurement for over three years, because the objective then was to provide a mobile service, that was the target at the time. But if you look at what’s the real use cases for 5G, then deployment per coverage area or per coverage of population density may not necessarily be the target you’re looking for. Telecom operators are rolling it out in what we call macro sites outdoors, the big cell towers, and that’s to get coverage of the population. The frequencies we’re using in 5G initially don’t penetrate buildings very well, if at all. So you can see that if I wanted to measure 5G industrially, in other words its ability to transform industries, then those metrics are not really suitable.

So I would rather measure 5G really by what’s the contribution, how many telcos have achieved zero carbon emissions, or being 100% green for example. Another measure might be how many industries have we successfully started to transform. How many hospitals are using the benefits of, getting the benefits of, demonstrating the benefits of 5G. How many manufacturing facilities have demonstrated the ability to be transformed. I think that would be very good metrics.

Are Chinese companies ahead of the game compared to global competitors?

I’ve been working in Huawei for 12 years, and just my experience in certain countries—it’s not just China—but I really do believe that China is, personally I do, China’s ahead of the game.

Just use the COVID-19 experience over the last five months, and look at a couple of facilities that have been constructed. Over here in Wuhan, it’s been well documented that 1,000-bed hospitals have been built within 10 days. We built proper 5G networks in these hospitals within two or three days; we built advanced cloud-based A.I. solutions within a couple of weeks. [Rotating chairman] Mr. Guo Ping mentioned since 2018, some of the hospital collaboration that China has been doing allows up to about 40,000 remote diagnosis of patients in Morocco, in other parts of Africa and in Asia. So that embryonic learning back in 2018, together with the pointy end of the stick that came with COVID-19 in February, led to or accelerated the thinking. Not just in China, but we demonstrated it here in China.

In China, you can see in universities you teach, anywhere relating to education, you can see that in manufacturing industries, and Huawei is one of the ones that are doing this in manufacturing. But largely led by health, understanding that if we can connect and get sensor devices, collect information, analyze this. We can fix problems, we can improve life, we can improve society. And I really believe that that’s what China’s done. 

Is China far ahead of the U.S. in moving toward a 5G world?

The U.S. is releasing another 100 megahertz of spectrum, more spectrum in this thing called C-band. But countries like China have had 100 megahertz and more for operators for some time. And if countries like the U.S. are only starting to allocate more spectrum, then that’s one of the challenges that operators will have in trying to deploy broadly. And deployment is the key to making all this work.

In China, it’s quite normal for us to deploy 5G, not in big cell towers but on lampposts…So every second or third or fifth lamppost has 5G solutions built on them, and that’s because the government understands that you need to share infrastructure. That’s their deployment considerations. And some countries understand this better than other countries. Coming back to those use cases…I’m not sure how many hospitals are [5G-enabled] in the U.S. or how many [5G-enabled] manufacturing plants are in the U.S., but there are many, there are a number of them here in China that are heading in that direction if they’ve not already been connected.

There’s been a lot of talk in the U.S. lately about strengthening the government’s involvement in rolling out 5G. Could the U.S. government create an American alternative to Huawei?

What I would advise, [and] what the U.S. does really well, is analytics. Personal opinion, work to your strengths. The floor price of a 5G radio is probably going to head toward a commodity-based price in the near future. By the time you try to build up any alternative technology, it doesn’t matter how good your software and hardware engineering capabilities are, you still have to go through proof of concept, you still have to do interoperability testing, you still have to comply with standards. If you want to write a new standard, it’s going to take years to get that agreed. You still have to have a product that is mature and stable and reliable with the right go-to-market price here. So those things don’t happen in a year or two or three years. By then, a lot of the infrastructure globally will have been built out, a lot of the opportunities will be well underway. 

I would have thought the U.S. [would have] said, “This equipment from Huawei is terrific. Let’s deploy it faster because we know how to do that in the U.S. Let’s connect everything; let’s get all the information, the data. Let’s analyze and let’s improve industry and develop our economy and grow.” That’s where its strengths really are, and that’s where the business opportunity really lies, rather than trying to build up an alternative 5G technology supplier.

You mentioned the possibility that 5G hardware would be relatively quickly commodified. What does that imply for Huawei?

We took a decision many years ago to start diversifying. We rolled all the R&Ds into one, and we started having different go-to markets in the energy sector and manufacturing sector, in the financial sector, in education, etc. We could also see networks becoming terribly complicated. The information within a network just to run it as we went from 2, 3, 4, now to 5G, the amount of data just to run it and optimize it [and] make it better for users was enormous. So we understood that some A.I. capability would be better. And that’s…one of the reasons why we headed toward the A.I. chips that we were developing.

Huawei isn’t just focusing on 5G…on building and optimizing the best networks in the world. But just look beyond that. Huawei has capability [in] A.I., Huawei has capability in cloud. We are diversifying to a lot of these areas where we can understand, we can see what’s happening in different industry sectors and then we try to provide cost-effective, reliable, and innovative solutions to customers in those sectors.

This story is part of Eastworld Spotlight, a series of conversations on matters of business, tech, and finance with executives, experts, entrepreneurs, and investors in Asia. Subscribe to Fortune’s Eastworld newsletter to get them in your inbox.