JOHN LORD AM
CHAIRMAN HUAWEI AUSTRALIA
27 June 2018
Thank you Sabra for the introduction and the opportunity for me to speak today.
I last stood here in October 2012 and had the honour of delivering the first NPC address in this updated venue. I ask myself, what has changed? We have had 4 Prime Ministers, 3 Trade Ministers and 3 Communications Ministers. But little else.
Nothing has changed for me or my other Independent Directors, John Brumby & Lance Hockridge have no doubt our faith and trust in the company. Many accusations are made about Huawei but none of these are proven, and in fact as I will raise later, global testing regimes we have in place with other countries prove the opposite.
Huawei has become part of our community. We sponsor the Canberra Raiders rugby league team, the Gold Coast Suns AFL side, and are really proud of our associations with the Clontarf Foundation and Tour de Cure. We support many other smaller organisations across Australia, and so we should, as we are here to stay.
But one significant change has occurred in Australia that is easily measured. In late 2012 I was paying $60 per month for a mobile service where I had only 200 dollars of calls and 1.5 Gigabytes of data per month. Today, with that same telco, I pay $44 for 600 dollars of calls and 10 gigabytes of data. I also have wider coverage, and with at least 10x faster speeds because of 4G.
Why? It’s competition. Huawei’s presence drives competition in the market and the telcos, and their Australian customers benefit. We bring competition in pricing and also in technology.
Now, just as I am proud of my career in the Australian military, I am also very proud to stand here today as the Chairman of the Australian operation of Huawei and correct the record where it is in error, and answer any questions posed. Much has been written over the past few weeks, months and years about Huawei and unfortunately much of it has been uninformed or just plain wrong.
Today I will outline for you why I and our over 700 employees are proud of being part of this company Huawei and highlight the benefits we have already brought to Australia and how important it is that Huawei continues to be part of the Australian telecommunications landscape. Of course I will also talk about the challenges of cyber security and how we can deliver 5G in a safe and secure way.
But let’s be clear this is not just about Huawei and 5G.
As part of the debate there needs to be an open discussion in Australia and understanding about the emergence of “Smart China” and “Smart Asia”. It is a discussion that will have huge implications for Australia as part of the rapidly evolving global landscape. It challenges set ways of thinking and upsets the old order. But one thing is clear, Smart China & Smart Asia is here, it’s happening and with 2/3 of the world’s middle class coming from Asia by 2030, we can’t stop it and I would argue we can’t afford to ignore it. And this is not just a discussion that should be limited to technologists, but take into account the economic benefits and the aspirations of Australians and how telecommunications can lay a foundation to achieve those goals.
A NEW GLOBAL REALITY
No longer are Chinese companies merely cheap copycat producers. More and more they are leading in their field of business. A new global reality has emerged in the world of innovation and technology. The US and Europe no longer are the only source of technical and business leadership. Companies from Asia, particularly China, are now driving the innovation agenda, alongside the giants of Silicon Valley. This has implications across all industries, not just telecommunications. Increasingly Chinese businesses are supplying world-leading equipment for Australian miners, farmers and service sectors. China now spends $200 billion a year on innovation. The OECD expects China to be the world’s largest spender on R&D by 2019. There are a host of companies that most Australians have never heard of but are leading in their fields. Alibaba, is the largest ecommerce company in the world. It has revolutionised the way small businesses sell and has created one of the most sophisticated and lucrative retail online ecosystems. Their one-day ‘Singles’ sale on November 11 grosses more revenue than the US Black Friday and Cyber Monday combined. In fact Australia was the number 3 selling country on singles day last year. TenCent, whose WeChat application may be the world’s most dominant with almost a billion users, has taken mobile payment systems and business access to areas the West are just starting to dream of. Anyone who regularly travels to China understands there isn’t much in China you can’t pay for or do via WeChat. In Australia, we celebrate that we can pay for our coffees via our phones. WeChat users in China pay employee wage, utility bills, book and pay for taxis, get their laundry picked up, manage their wealth funds, split restaurant bills and make in-store payments. You can even configure your new car all from this one App.
Some will argue this is all built off Chinese Government financing and copycat ideas from the West. But those who have engaged in this Smart China understand there is a new breed of “can-do” entrepreneurs, who are young, highly educated, motivated and most importantly able to adapt quickly and nimbly to rapidly changing business models. 15 years ago, the then young, motivated Chinese individuals sought out Silicon Valley or Europe to expand their opportunities. That is no longer the case. Now cities like Shenzhen, Hangzhou, Chengdu and Shanghai are the drawcard of opportunity for the next generation of highly motivated entrepreneurs.
For some Western political and business leaders, the rise and influence of China is not easy to accept. In the innovation sectors, traditionally, we have relied on European and US-sourced technology to connect us. This orthodoxy is being challenged by the rise of Asia and the rebalancing of the global ICT industry.
It’s impossible to turn back this trend. Instead what is needed is an acceptance that innovation and technological advances do not always come from traditional companies and countries. As the world’s largest telecommunications equipment supplier, Huawei is a leading example of one of these new innovative companies. Huawei will be in the top five global companies in R&D expenditures this year.
HUAWEI – THE FACTS
Now I want to highlight the environment and background of how this company was born.
One of the first areas of the Chinese economy to open up to foreign competition, under Deng Xiaoping’s economic reforms, was the telecom infrastructure sector. Huawei was established by a man by the name of Ren Zhengfei. Yes, Ren was a Major in the PLA and in 1983, along with a million others, he was sacked. I do point out to him that in military terms I outrank him. During his time with the PLA, Ren was in fact a civil engineer building bridges and factories. In 1987, he was a 44-year-old businessman who had suffered a number of failures, but wanted to try again in the telecommunications field. With funds invested by five colleagues to provide working capital of about $5,000, he started Huawei. At the time, he had little support and many things were stacked against him. I often say that if he was an Australian he would be celebrated as an “Aussie battler done well”. In China, he was called someone who dared to eat crab – that means someone who tries something new despite its menacing appearance.
When Huawei first started, the Swedish multinational Ericsson had already been in China for three years. In fact, there were nine international communications equipment manufacturers doing business in China at the time. Also during this period over 400 Chinese telecom manufacturers sprang up. Competition was based around the big cities of Shanghai, Beijing and Guangzhou. Huawei didn’t stand a chance. So establishing their headquarters in the new city of Shenzhen, the sales force went west to the remote and regional areas of China.
We often joke in Huawei, that outside of China we are seen as the “untrustworthy communists” and inside China we are viewed as the “greedy capitalists”. Thankfully that is no longer the view, well in China anyway certainly in the early years we were thought of that way. We may laugh now but life was tough for Huawei in those years. I have spoken to many employees who were around in those early times and they tell of their parents’ disappointment that they were not working for the State, some even felt great shame because their son or daughter had turned their back on an ‘honest career’ with a state- owned enterprise.
At the time, money was tight. The rules around private companies meant that bank loans were virtually impossible to secure. Out of necessity the Huawei staff share ownership structure was developed to raise the capital necessary for growth. It’s been the backbone of the company’s success. Shares were offered to retain staff. Today 80,000 employees own Huawei with our largest single shareholding being our founder Ren Zhengfei with 1.4 per cent of the company.
Mr Ren has always admired US business models. He noted they focused heavily on R&D, and he looked at their business structures during a visit to the US. He then hired expert companies to help him grow his business – IBM, PWC, KPMG, Hay Group etc. And they are still with him today guiding the business and driving his vision.
In the year 2000, Huawei went global. It was a slow start with only one per cent of our revenue coming from outside of China. However, what it did do was change the course of our company’s history and more importantly upended the entire telecom sector. Just as we did in China, we went to the markets that the global giants of the time ignored. Africa, the Middle East, and South-East Asia. We were fortunate in that we timed it perfectly. We totally missed the 2G era, so we started to focus on 3G R&D. Because the dot com bubble had burst, our competitors spent less on R&D, giving us an opportunity to catch up. We did, and our technology gap turned into a level playing field. Huawei knew that the only way we could succeed is to have better technology, so the company mandated that a minimum of 10 per cent of our revenue needed to be spent on R&D. By the time 4G arrived, Huawei was a global leader to the point we are now the world’s number one telecom infrastructure builder, welcomed as much in Europe as we are in China.
Huawei was the head of the global patent list last year, across all sectors, and has been one of the top innovation companies every year since I have been involved with the company. We spent around 14 billion US dollars on R&D last year.
Our privately owned business operates in 170 countries and our global revenue is approaching 100 billion US dollars a year. We now provide more than one-third of the world’s population with their daily communications needs. With such reach, it is no surprise Huawei receives plenty of attention from global regulators and security agencies. As our Global Head of Cyber Security, John Suffolk, often says we are the most poked, prodded and audited company on the planet.
We understand that we are a pioneer, breaking new territory for a Chinese company. We are truly global in operation - today we do more business outside of China than we do in China. We are a clear leader in our field and we are privately owned. These are attributes never normally associated with a Chinese company. There is no doubt more Huaweis are coming. We can’t pretend the rise of smart China isn’t happening.
A big part of Huawei company culture is self-reflection and self-criticism. Not just focus on what we do right but to always seek to see how we can improve. There are a lot of myths that have developed around Huawei and we as a company have probably failed to properly address or to combat them. There has been a reluctance to be loud and boastful in public, and a reluctance to debate our detractors. We have come a long way in opening up and talking publicly since I first joined the company but we haven’t come far enough.
But we have learnt one clear message. That if you let misinformation and unproven statements stand, they will be regurgitated by your detractors - and in the end mud sticks. So it is time to speak out.
Let me address some of the myths presently doing the round and being repeated.
Myth 1: We get cheap loans or lines of credit from Chinese Banks. Wrong, in fact 80% of every dollar of our financing comes from non-Chinese global banks, two of these are Australian banks.
Myth 2: We have a communist party cell that runs Huawei. Yes, there is a communist party branch in Huawei, as there is one in Walmart, Nokia, Samsung and I assume the BHPs and Rio Tintos and any other large company operating in China, it’s the law. In fact three out of four foreign joint ventures in China have a branch. But that branch has no say in our operations. It meets in non-working hours and looks after staff social issues and activities. It has nothing to do with the management of company and is run by a retired employee of the company.
Myth 3: Under Chinese National Intelligence Law, Huawei has to cooperate and collaborate in intelligence work. The law actually contains safeguards that discharge individuals and organisations from providing support that would contradict their legitimate rights and interests. And that law has no legitimacy outside China. We obey the laws of every country in which we operate in. In Australia we follow Australian laws. To do otherwise would be corporate suicide.
Myth 4: The UK Government regrets having Huawei in the UK. I think George Osbourne, the then UK Chancellor best summed it up when said “There are some western Governments that blocked Huawei from making investments, not Britain, quite the opposite” and more recently The UK Governments National Cyber Security Centre’s “on the record” support for Huawei lead to the headline “UK cyber security agency sticks with China’s Huawei..” in the UK’s Daily Telegraph.
Myth 5: Huawei is asking to do something here that China won’t allow foreign companies to do in China. False, Nokia and Ericisson are both undertaking 5G work in China. In fact in April this year Nokia won a big contract with China Mobile for 13 city metro & 2 provincial backbone networks which will form part of China Mobile’s 5G build.
BETTER OUTCOME FOR AUSTRALIAN CONSUMERS
But what does this whole Huawei issue mean for the average Australian? Why should they care about the fate of a company they most likely can’t pronounce the name of or let alone know what it does.
Put simply we have made your broadband and telecom bills cheaper. We enable increased competition in the telecom market and we have brought affordable innovation to Australia which makes it better for individuals and businesses across the country.
Today Huawei is the largest supplier of mobile broadband in Australia, we provide the equipment for Optus, Vodafone and TPG. We have also built Australia’s largest private 4G network across the Cooper Basin for Santos. With our partner UGL, we have built Australia’s largest mobile communications system for railways on the Sydney metro rail system.
Huawei has invested in Australian Innovation development, we invested $20 million in an Australian National Training & Innovation Centre in Sydney. We take 30 university students to our headquarters and R&D facilities each year to learn about next generation technology. This program is actually partly funded by the Australian Government through the New Colombo Plan. We opened Australia’s first NB-IoT Lab with James Cook University, a world- first for Huawei and this lab is now leading global development in IoT (Internet of Things) implementation.
The importance of a competitive and innovative telecom sector is vital to Australia’s economic future. While much of the media coverage and policy focus over the past few years has been around the NBN, mobile services continued to grow and become the major backbone of our digital engagement. According to ACMA, almost seven million Australian adults have a mobile phone and no fixed-line telephone at home. The mobile phone was the device most often used to access the internet, with eight in 10 Australians using a mobile phone multiple times a day to go online.
Let me now turn to the issue at hand. Can Huawei be trusted to deliver 5G in Australia?
At Huawei we are proud of our transparency and our track record of demonstrating and making available to customers and Governments everything we do. We are proud that we are the most audited, inspected, reviewed and critiqued global ICT player in the world.
We are proud that after every kind of inspection, audit, review, nothing sinister has been found. No wrong doing, no criminal action or intent, no “back door”, no planted vulnerability and no “magical kill switch”. In fact, in our three decades as a company no evidence of any sort has been provided to justify these concerns by anyone – ever. This is not to say we are perfect, this is not to say that we do not make mistakes but what it does say is that we stand by the quality of everything we do.
As Huawei’s other independent directors John Brumby and Lance Hockridge and I stated in our letter to MPs last week, Huawei is the world’s number one telecom infrastructure provider, working with 45 of the top 50 international telecom operators, including Vodafone and BT in the UK, Telus in Canada, Spark in New Zealand, and Telefonica and Deutsche Telecom across Europe. These global giants rely on our technology and employees for their business survival. If you don’t have a safe and secure network you don’t have a business, they can’t afford to get it wrong. These companies know us and these companies continue to work with Huawei year after year. They continue to buy our products and services, if they didn’t trust us, they would never allow us to be the backbone of their business and we would not be the global leader we are today.
Carriers in Australia have been using Huawei equipment for nearly 15 years, and there has never been any issue that could affect national security.
5G is a natural evolution from 4G, just like 4G was for 3G. Of course there will be great improvement and changes but the network fundamentals do not change at all. So the question is, if Huawei can deliver 4G to Australia already why can’t it do 5G?
We know the bar is higher for us because of our Chinese heritage. So in both the UK and Canada Huawei has set up and run, at its own cost, Government-endorsed evaluation facilities using security-cleared testing personnel. We are progressing a similar solution for New Zealand. We are also creating a briefing centre and evaluation centre in Brussels for anyone to use.
The UK government, like authorities in practically all the 170 countries where Huawei operates, are worried about cybersecurity threats. Huawei shares these concerns. With traditional British pragmatism, however, the UK government, along with Canada and New Zealand have chosen to check, rather than speculate. I think it was best put recently by the UK Government’s National Cyber Security Centre:
“Huawei is a globally important company whose presence in the UK reflects our reputation as a global hub for technology, innovation and design. This Government and British telecoms operators work with Huawei at home and abroad to ensure the UK can continue to benefit from new technology while managing cyber security risks.”
No other vendor of telecoms equipment in the world has offered, nor is required, to offer such transparency. But we are happy to go to these lengths as we know we have a contribution to make.
Whatever evaluation scheme is right for our customers and their governments is right for Huawei. We back our products and our people. These facilities allow government to have testing carried out at the classified level, visible only to cleared people. Testers in these facilities have access to all our source code and hardware schematics, and can verify that no malicious code or other deliberate vulnerability is present in Huawei products.
I would argue that by the time our products are deployed they are demonstrably the most secure components in our customers’ networks.
GLOBAL SUPPLY CHAIN
The other reality that forms part of this important debate is what is Chinese? It is easy to say that Huawei is Chinese because we are headquartered in China. But our products are made up of components from all around the world, as are all our competitors’ products. Those of you who have an Apple iPhone, will see it clearly says on the back that it is designed in California, but did you know it has most likely been assembled in Shenzhen, across the road from Huawei’s global headquarters, with components from China, Japan, USA and Europe? Whether it be Huawei, Nokia, Ericsson or Apple we all share a similar global supply chain footprint and assembling arrangements.
When Huawei was excluded from the NBN, Alcatel Lucent, now Nokia, became the sole supplier of the fibre technology product GPON. That product is manufactured barely a kilometre down the road from Huawei’s facility in Shanghai. The factory is called Shanghai Bell, a joint venture between Nokia and a Chinese State-owned enterprise. I highlight this not to be critical of Nokia, because Huawei obviously manufactures its products in China, but I do it to underline the reality of the world we live in. Our supply chains are global, our production lines are similar. Huawei or no Huawei much of the 5G equipment will continue to be made in China.
Most of the 170 countries around the world where we operate will see the next generation of Huawei equipment rapidly deployed into one or more of their national networks. Adopting 5G will not be difficult. Carriers with a reliable 4G foundation will be able to move easily into 5G.
We are working with the major global operators for their 5G trials. With Vodafone we undertook the world’s first 5G call, with Telefonica we under took the world’s first 5G assisted-driving test and we have released the world’s first 5G device, (a 5G Home Router) which was awarded Australia’s best Mobile Device this year at the annual Edison Awards.
We are the clear leader in 5G development. We lead the global patents for 5G technology and will spend 700 million US dollars this year alone on 5G development. Australia’s shouldn’t miss out on this world-leading technology.
Australia cannot sit back and think it can isolate itself from the technology rise of Asia. To do so would impact on us economically and remove ourselves from world-leading technology, while our trading competitors take full advantage of better technology, cheaper costs for that technology and benefit from the productivity gains that flow.
Decisions taken today will shape the environment of tomorrow. As we enter the 2020s, Australia’s economic and social fabric will be determined by its telecommunications capabilities. In an increasingly digital and connected world every country is turbo charging and reinforcing its telecommunications to meet the insatiable demand for data.
With a vast continent like Australia, we need the best telecommunications to keep us on that digital prosperity.
The suggestions that Huawei, the largest provider of 4G technology in Australia today, should be banned from building 5G networks here should be a concern for everyone and every business in Australia. The implications about limiting access to technology competition will be devastatingly high – and is a short term small mind choice rather than seeking to incorporate all technologies in a solution that also secures our critical structures.
Our allies are finding ways to embrace the new world, the time is now for Australia to do the same. We respect the open debate. As long as that debate is based on facts and is fully informed. We respect the right of any government to consider national risk and security. Huawei is always open to discuss the best options to enable Australia to have access to the best technology that is safe and secure for its citizens.
In saying no to one of the leading 5G suppliers in the world, what are we doing? This is not just a tough political decision. This is a long term technology decision that could impact our growth and productivity for generations to come.
We believe Huawei has the capability, the openness and transparency and proven security track record to be a part of Australia’s exciting future.