Huawei’s woes in U.S. give pause to Korea, too

The arrest of Huawei’s Chief Financial Officer Meng Wanzhou in Canada has triggered alarms in the Korean telecommunications industry, especially after LG U+ moved onto a fifth-generation (5G) network this month that uses Huawei network devices.

The Chinese telecommunications giant has maintained a sizeable influence since it first entered the Korean market in 2002. While it was originally focused on the cable infrastructure business, Huawei moved on to offering wireless telecommunications devices in 2007 as local telecommunications companies introduced third-generation wide-band code-division multiple access services.

In 2013, Huawei received orders for fourth-generation 4G long-term evolution (LTE) wireless base stations from LG U+ for services in Seoul, Incheon, and areas in Gyeonggi and Gangwon.

The 5G equipment market in Korea is estimated to be worth 10 trillion won ($8.89 billion).

While Huawei is a leading supplier to the telecommunication industry, concerns about the security of its devices has held the company back. Only LG U+ decided to use Huawei equipment for 5G. Huawei has claimed that it had no such security problems in the 170 countries that it operates in and would follow inspection requests by the Korean government.

LG U+ signed a deal with Huawei to introduce around 30,000 base stations in the Seoul, Incheon, and the Gyeonggi and Gangwon regions by next March. The deal is reportedly worth around 300 billion won, not including maintenance fees.

The decision by Korea’s smallest telecommunications company made business sense as it used Huawei equipment for its 4G network.

Huawei’s equipment, however, will not be installed in areas occupied by United States Forces Korea (USFK) such as in Pyeongtaek, Dongducheon, Yongin in Gyeonggi. The U.S. government has requested that Huawei equipment not be used out of concerns about a Chinese cyberattack. USFK has been suspicious about Huawei equipment. When LG U+ chose Huawei equipment for its 4G network, around 10,000 USFK soldiers switched carriers.

The current situation has left LG U+ in a difficult position. Its deal with Huawei is already inked, and the 5G service works in sync with the existing 4G system, so it is impossible for the company to simply not use Huawei equipment.

The recent banning of Huawei equipment by Britain, Australia, Canada, New Zealand and Japan, along with growing worries in Korea, places more pressure on the telecommunications unit.

A senior LG U+ official expressed frustration at the current situation and the Korean government’s inaction.

“Our government is just trying to not upset either China or the United States,” said the official. “Shouldn’t the government come forward and clear things up?”

Meanwhile, the government maintains its stance that the selection of telecommunications equipment is an issue for companies to decide.

“Inspecting security is the responsibility of the business operator. It is not appropriate for the government to take part in an area that a company should make a decision on,” said Park Jun-guk, an official at the Cyber Security Industry Bureau in the Ministry of Science and ICT.

“[We] will, however, strengthen security inspections in the form of a technology advisory conference.”

While 5G has stirred controversy, Huawei has an even stronger presence in the country with its cable and optical transmission equipment businesses. In the cable business, all three telecommunications companies, SK Telecom, KT and LG U+, are customers of Huawei.

Huawei has also won orders from Koscom, a state-run financial IT solution company, and from electric utility Kepco.

Last month, the Chinese company won an order with KT to connect the sales network of the National Agricultural Cooperative Federation and the National Livestock Cooperatives Federation worth around 120 billion won.

According to market researcher IHS Markit, Huawei is the biggest global telecommunications equipment maker, with a market share of 22 percent. While Samsung Electronics holds a strong position in the Korean market, a 45 percent market share, it commands a paltry 4 percent share of the global market.

BY LEE SANG-JAI [chae.yunhwan@joongang.co.kr]