Uncertainty about whether Huawei will be allowed to participate in building 5G mobile infrastructure in Germany is likely to cause a delay in the spectrum auction which had been planned for late March.
There have already been a number of legal challenges to the format of the auction process proposed by the Federal Network Agency (Bundesnetzagentur) brought before the administrative court in Cologne.
Various bidders have expressed a need for more clarity on the auction conditions, including clauses to attract new players such as 1&1 Drillisch. Another key theme is whether certain equipment and technology providers are going to be excluded - notably Huawei. If Huawei is not allowed to participate, then the cost of rolling out the network would be impacted, as well as the speed with which the German government expects providers to roll out 5G. This would influence the size of bids that providers are willing to make.
Bloomberg recently reported that an internal Deutsche Telekom paper warned that removing Huawei from the list of 5G suppliers would delay its rollout schedule.
Deutsche Telekom, which already works closely with Huawei on existing mobile networks, intimated that external pressures could impact the auction process in a way that complicates investment in 5G, instead of facilitating it.
Any delay to the auction process will give the US government more time to ramp up the pressure on Germany to exclude Huawei.
The Trump administration, including hardliners such as national security advisor John Bolton, has made the threat posed by Huawei to Western security interests a high-profile theme, and pressure is likely to be ratcheted up on Germany in the coming months.
Indeed, the US is also seeking to exclude Huawei from 5G in the UK. In a speech in Singapore on February 25, GCHQ director, Jeremy Fleming, said that the UK must consider the threat posed by Chinese telecoms such as Huawei before deciding whether to allow them to participate in the 5G network. A UK government review is currently underway.
Geopolitics overrides this whole process. The UK and US have exceptionally close security ties and cooperate across the globe, including sharing information obtained by GCHQ, which gathers signals intelligence.
Brexit is also a complicating factor. The UK might feel under pressure to ban Huawei to help secure a possible post-Brexit free trade agreement with the US. However, it is worth bearing in mind that the UK also seeks to nurture and expand its trade ties with the world’s second-largest economy, China.
In contrast, Germany's relations with the US are much more strained at present, as President Donald Trump has made little secret of his disdain for Chancellor Angela Merkel.
Peter Altmaier, who heads up the Federal Ministry for Economic Affairs and Energy, is also pushing hard for a national industrial strategy. This is largely in response to competition from China, but his strategy also contains a clear message about pursuing the national interest, and whether this approach includes defying the Trump administration on Huawei's involvement remains unclear.
Altmaier has publicly stated that he views the decision as being one for Germany, rather than being made at an EU level. This followed a 14 February visit to Berlin by Luxembourg Prime Minister Xavier Bettel, for a meeting with Chancellor Angela Merkel. At a joint press conference Bettel called for an EU response outlining whether Huawei should be involved in 5G mobile, and suggested that the matter might be discussed at the scheduled EU summit in Brussels on March 21 and 22.
Germany is an important market for Huawei. It is the most populous country in the EU with 82 million inhabitants and boasts the largest economy.
Huawei already works closely with Deutsche Telekom. However, the US market has become very important for Telekom, where T-Mobile US is listed on the Nasdaq. The US business generates decent profits, and defying the wishes of the US government to work alongside Huawei on the German 5G network could pose financial risks for the company.
Other major bidders for German 5G spectrum are expected to include Telefonica Deutschland (a unit of the Spanish telecoms group Telefonica, which owns the O2 brand) and the German wing of Britain’s Vodafone.
Vodafone is a major player in the German mobile market, and has also been investing heavily in providing cable TV to consumers.
In late January Telefonica UK and Vodafone entered into non-binding heads of terms intended to strengthen their existing UK network sharing partnership. O2 and Vodafone plan to extend the existing network sharing partnership term and include 5G at joint radio network sites in the UK. This would enable both O2 and Vodafone to deploy 5G faster, to offer 5G services to more customers over a wider geographic area, and to do so at a lower cost.
It remains to be seen whether Germany, in spite of all its talk about taking decisions at a national level, and its stance of standing up to President Trump on issues such as climate change, will eventually resist the pressure to exclude Huawei on its 5G infrastructure.