How the US-Huawei cold war is playing out in Latin America

China's Huawei has grown in the last years into a global tech powerhouse, providing critical telecom equipment to carriers all over the world.

According to research firm IHS Markit, Huawei has become the largest telecom equipment maker in 2017, with a 28% market share. The group's revenues grew 21% in 2018 to US$101bn.

But this success is under threat by a US-led campaign to ban the company's products in the West over security concerns, pointing to the company's historic ties with the Chinese state.

The US government has argued that Huawei products have built-in backdoors that could facilitate Chinese spying. Australia has followed suit and banned Huawei, along with ZTE, from providing equipment for its 5G network. The European Commission is also considering a de facto ban on Huawei 5G network equipment.

"I don't see this 'cold war' having a major significant impact on the telecom market in Latin America in the foreseeable future," IDC analyst André Loureiro told BNamericas.

To date, the suspicions around Huawei's equipment have not had an impact in Latin America's main markets, but that could change. BNamericas analyzes where Huawei stands in Mexico, Brazil and Chile.

BRAZIL

Brazil is Huawei's largest and most traditional market in Latin America. In 2018, Huawei celebrated 20 years of operations in the country with an event in capital Brasília packed with senior politicians. But its standing with the nation's political elite changed abruptly under the new government of Jair Bolsonaro, an avowed fan of his US counterpart Donald Trump.

The sudden Brazil-US alignment came into focus when close Bolsonaro aides, including his sons, criticized lawmakers who visited China in late January to learn more about facial recognition technology produced by Huawei.

For years, Huawei has provided critical wireless equipment to all national carriers: Telefónica's Vivo, América Móvil's Claro, Telecom Italia's TIM and Oi.

In 2012, regulator Anatel tendered 2.5GHz bands in its first 4G auction. TIM selected Huawei and Nokia; Vivo and Claro selected Ericsson and Huawei; and Oi hired  Alcatel Lucent, later acquired by Nokia, as well as Ericsson and Nokia.

Huawei also supplied core 3G equipment to Algar and Sercomtel and network access equipment to Vivo, TIM, Claro, Oi, Algar and Sercomtel.

Of all major carriers, Rio de Janeiro-based Oi is among Huawei's most crucial partners - even if it did not opt for the company's 4G products at first.

Last September, for example, the Brazilian telco signed a long-term deal at the Chinese supplier's Shenzhen headquarters to expand and modernize its network, particularly fiber, and increase mobile coverage.

That deal also facilitates 4G and 4.5G expansion with the gradual migration and disconnection of 2G and 3G, and prepares the Oi mobile network for 5G. A similar deal had been signed in 2015.

On the political arena, Bolsonaro administration and Huawei representatives met in early February in Brasília, a source close to the talks told BNamericas. The meeting was a meet and greet, and no sensitive subjects such as security were addressed, the source added.

Meanwhile, a senior official from the ministry of science, technology, innovation and communications (MCTIC), who asked to remain anonymous, told BNamericas the Huawei security issue has not even been discussed internally.

MEXICO

Huawei also has a long record in Latin America's second largest economy, where it arrived in 2002.

The company has been a key equipment and network supplier of telecom giant América Móvil and even rented offices at the Plaza Carso building, which Carlos Slim built as America Móvil's global headquarters.

The company is also supporting Telefónica's efforts to grow in Mexico, leveraging on a global partnership with the Spanish group.

By 2014, around 40% of mobile calls in Mexico went through Huawei's technology.

Both AT&T (lusacell) and América Móvil carry Huawei's smartphones and sell the company's wearables via Bestbuy.

Unlike Brazil, Huawei sells cell phones in Mexico, where its devices had 6.6% of the market in 3Q18, just behind Motorola, according to the Competitive Intelligence Unit.

Red Compartida

Huawei's crucial Mexico project is Red Compartida, the country's shared wholesale network, an ambitious public-private project between the government and operator Altán Redes, whose goal is to take broadband to over 90% of the population by 2020.

Concession holder Altán Redes chose Huawei and Nokia as technology providers. The project was originally meant for 4G and 4.5G networks but is expected to evolve to 5G as well.

"The provider agreement includes Huawei technology for central and southern Mexico (telecommunications regions 6 to 9) as well as providing the backbone; while Nokia's technology will be rolled out in the northern part of the country (regions 1 to 5)," the consortium said in a release at the time.

"It is difficult to think that the Huawei conflict in the US could affect Red, given that in Mexico there is a legal mandate to reach a coverage of 92.2% of the population in five years. And it would be very problematic to take out a supplier that is developing Red Compartida," Telconomia analyst Jesús Romo told local paper Expansión.

Sandra Rodriguez, director of law firm Jurídica en Telecomunicaciones, recalled that a good part of Mexico's mobile traffic circulates through the US and vice versa.

Rodriguez told the same newspaper that Huawei's participation in Red Compartida should raise some alarm, not because communications are insecure, but because the neighboring country could have problems with leaving communications to a company from a country it does not trust.

CHILE

The Chinese company supplies equipment to the country's major telecom operators Entel, Movistar and Claro.

In the smartphone market, Samsung was Chile's market leader in the first half of 2018, shipping nearly 1.80mn units compared to Huawei's around 1.13mn, according to the local customs authority.

Red Austral

As in Mexico, Huawei is also involved in a massive telecom infrastructure project called Red Austral, a 3,000km submarine fiber optic cable connecting Chile's extreme south.

 "One of the main projects today is the cable that we are building in Punta Arenas, it is the biggest mega infrastructure work carried out in Chile with public funds. And it is the southernmost fiber in the world," Marcelo Pino, Huawei Chile's corporate affairs manager, told BNamericas.

The goal is for the US$100mn infrastructure project, dubbed FOA, to be ready for its ribbon-cutting by November, when Chile hosts the 2019 APEC summit.

THE STAKES

Huawei claims to be well positioned for the 5G world despite some boycotts, and the company has signed close to 30 supply contracts for 5G.

Rotating Huawei chairman Eric Xu recently said that the warnings by US secretary of state Mike Pompeo to eastern European countries against using the company's equipment were an example of how Washington was "using the government machine [against] a small, weak sesame-seed company."

Huawei has denied all spying and equipment vulnerability claims.

Andy Purdy, Huawei's US cybersecurity officer, said the company is ready to work with governments on any security measures, including testing source codes for products.

At the same time, the company is trying to get out of the corner by pushing back with marketing initiatives and legal and economic responses.

In one of these moves, it has threatened legal action against the Czech cybersecurity agency, which labeled Huawei a "national security threat," as well as pulling its investments from the country.

The US global campaign to limit Huawei's reach has slowed the Chinese giant's growth, as its executives have publicly admitted. And that's why the company is starting to push back in a way it didn't at first, in order to avoid a domino effect that could see more chips fall in other regions.

With additional reporting from Patrick Nixon and Tomás Sarmiento in Santiago and Mexico City.