Telecommunications (Security) Bill (Fourth sitting)

Chi Onwurah Excerpts

Committee Debate: 4th sitting: House of Commons
Tuesday 19th January 2021 Public Bill Committees

[The Chair]

Thank you for clearing that up. Chi Onwurah.

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

Q It is a pleasure to serve under your chairmanship, Mr McCabe.

I will be brief, as we are running out of time, but thank you for your expertise. My question to Andy Sellars and Heba Bevan is about the diversification strategy. In what areas do you think the UK has the capability to exploit the opportunities of this diversification strategy, particularly in hardware versus software? We have been told that hardware is beyond our manufacturing capabilities, yet you seem to be making a success out of it, Heba. What barriers are new entrants and smaller companies likely to experience and what kind of interventions should the Government make that are not fully addressed by the diversification strategy in order to ensure a UK capability in this area?

My question to Dr Johnson: we heard from Mavenir earlier, which said that open RAN could provide 2G, 3G, 4G and 5G networks now. We have also heard of the operational challenges associated with that. What is your view on the maturity of open RAN technology? We will start with Andy.

Dr Sellars: The first question was about UK capabilities to exploit the opportunity. Specifically, the UK has a cluster of small-cell base station manufacturers around the Bath and Bristol area. We have satellite communications clusters around the north-east, central Scotland and Surrey. We have a compound semiconductor cluster around south Wales, employing 1,600 highly skilled engineers generating something like £180 million per annum to the Welsh and UK economy. We have quantum encryption expertise funded through Innovate UK’s programmes, we have world-leading providers of optical transceivers for fibre communications, and we have backhaul capability.

[Chi Onwurah]

Q What interventions would support them?

Dr Sellars: For interventions, I would suggest that the Advanced Propulsion Centre is a really good model to look at. It is in a different sector. It is funded through the Department for Business, Energy and Industrial Strategy, and its remit is to help to transition the automotive industry from petrol and diesel engines to electric drivetrains using batteries. Have a look at that as a model. It is an incredibly good model for transitioning an entire industry from one technology to another. It brings together supply chains and is very effective. That is one of the interventions I would suggest. Other interventions could be cyber-certification and just helping UK companies to access some of the standards bodies. That would be very effective. We have a lot of SMEs.

Heba Bevan: Thank you for your question. On hardware, as a company—and to be honest in the UK as a nation —we do not have the essential foundries. We can design and prototype the silicon, and we can work on, from the beginning, how actually it would work, but the actual manufacturing of the chip—not the hardware: that one chip which is like the CPU or a piece of DSP—those actually require very high-intensity foundries. If we want to build them in the UK it will cost around £10 billion today—probably over that number. Andy can correct me on that.

In the far east, they have unlimited resources with the state aid rule; and Europe, in the last few years, passed something, for the state aid rule, called IPCEI, which is important projects of common European interest. Germany was able to fund €1.2 billion from its money to support these foundries. France put in €0.8 billion, and Holland put in €0.4 billion. In the UK in the last few years, in terms of building these foundries, the UK has not supported that type of manufacturing. In chip manufacturing, we do not. However, on the hardware scale we are able. The way we see it, we build the hardware; we build the software—but the actual components and the chips, today we do not have the capabilities in the UK to manufacture that.

[The Chair]

I am really sorry to do this to you, but I think I had better interrupt and go to the Minister or we will run out of time completely.

--- Later in debate ---

[The Chair]

Chi, I think you had something outstanding, and you have got just about a minute and a bit to do it.

[Chi Onwurah]

Q It was a question to Dr Johnson with regard to open RAN maturity as an IP.

Dr Johnson: So, the 45-second answer: Mavenir is using IP access GSM 3G technology in its open RAN development. Pardeep, I think, said that it would be ready within 12 months, and I agree that that is a true statement.

[The Chair]

Did you have anything else, Minister?

--- Later in debate ---

[Mr Jones]

Q Not to cut across you, but, while I accept all that, if from the operator’s point of view they have just invested a lot of capital in ripping out equipment and putting new equipment in up until 2027, what will the incentive then be for those operators necessarily to look at new technologies?

Helen Duncan: I do not think it is necessarily the case that they will just use Ericsson and Nokia equipment. Vodafone, for instance, has committed to equipping something like 2,500 cell sites with open RAN equipment, so they are taking a forward-looking view and trying to stimulate that themselves.

Dr Cleevely: If I may intervene here as well, it is curious, is it not? The economists will tell you that sunk costs are sunk costs and you should always move forward, and that is something to hold on to. Human nature says, “Well, we’ve invested in this—let’s see if we can sweat that asset to make the most of it.” A constructive dialogue with your finance director or chief financial officer is always an essential part of all this, and, for example, it is important to understand what is driving the risk that a company is running, its weighted average cost of capital and its cost of borrowing on the market.

Essentially the point is this: if you can get more business and improve your service, and get more customers and make more money, as a result of doing investment, then that is what you will do. The key point here is whether we can find a way of making it clear and straightforward to the most truculent of finance directors or chief financial officers that this is a good investment for the future. In there lies the key, because you need to get the incentives right.

[Chi Onwurah]

Q Welcome to all of you, and thank you so much for joining us. May I say, particularly to Helen Duncan—I should also have mentioned this earlier when we had Heba Bevan—that it is great to have two other female electrical engineers giving evidence to the Committee. I hope we have many more such qualified representatives of the technology sector in Committees in the future.

We have talked a little about how we got here; Helen, you worked for Marconi, and I worked for Northern Telecom, which bought STC, one of our last UK companies providing telecoms equipment. Without putting words into your mouth, I think the situation could be characterised by a lack of investment in innovation and in British sovereign capability. Now that we are seeking to reverse that, or to jump ahead of that, what interventions could best guarantee the long-term security and resilience of the UK telecoms network, with UK sovereign capability supporting it? Is the £250 million diversification strategy set to achieve that? Can you give examples—I am looking for quite concrete examples—of what you might add or change? David, you talked about needing to give the right incentives to the mobile operators. The telecoms supply chain review was quite clear that there is not an incentive right now in the supply chain to deliver security in mobile networks. What interventions and what incentives should there be?

Helen Duncan: Starting from how we got into this situation, in the 1990s we had three incumbent base station manufacturing companies in the UK, which were Orbitel in Nottinghamshire, and Motorola and Lucent Technologies, both in Swindon. They survived for different lengths of time: Orbitel closed down in 1996 when Ericsson took over, Motorola ceased base station manufacturing in 2002, but stayed open and was then sold to Nokia, and Lucent became Alcatel-Lucent and was closed down. Mergers and acquisitions have clearly played a huge part, as did the dotcom bubble and, as I mentioned, the removal of funding from the defence sector.

Heba made the point that to support semiconductor manufacture in the UK, the £250 million would not even start to scratch the surface. We need to concentrate a little bit further up the food chain. We have some very good capability in this country in component and subsystem manufacture based around the chips. We have some good design capability for chips that are then manufactured in the larger foundries elsewhere in the world. Supporting those activities, the design and the manufacture of components and subsystems, would give us a good basis and improve resilience.

I also want to mention that we have some capability in this country in the test and measurement sector with Spirent and VIAVI Solutions—although VIAVI is an American-owned company, it manufactures RF and wireless test equipment in the UK. By definition, test is ahead of the curve on development. If you can make equipment to test something, you can actually make that equipment, because it is much more complicated to make the test equipment than it is to make the base station or the handset itself. Those companies deserve our support as well. That was a very long question, Chi; I am not sure I covered every aspect you were asking about.

[Chi Onwurah]

Q That’s great. David?

Dr Cleevely: Thanks, Chi—nice to see you. One of the things that was mentioned in the session a little bit earlier was standards, and I think one of the things that changed telecommunications between the 1970s and the dotcom revolution was the emergence of some of these more open standards, such as TCP/IP for running the internet and so on, and HTML for doing the web browsers. I think we could be putting a lot more money and effort into defining some of those standards, because if you define the interfaces for pieces of equipment correctly, you can allow people to come in and provide bits of equipment that can conform to those interfaces. That is one very concrete thing.

You are right to say that, until relatively recently, the penalties on security and so on—the consequences—have been very small, but in terms of behaviour, you need both carrot and stick on things like this. You need to have something that will give the telecom operators a real reason to do something, which might be as simple as a kitemark that says, “The telecoms network you are using has been certified as secure.” That may or may not be the kind of thing that would engender the behaviour change, but it is noticeable that with a number of things like Telegram and WhatsApp, that is seen to be quite an important thing.

Finally, the networks of people are important in all of this. I noticed that the Government have spent some money on the 5G networking across the UK, which is being run by Cambridge Wireless, which I am very proud to have helped set up. We talked in the previous session about the cluster of people down in Bristol working on semiconductors and so on, and I think the Government should be putting some money into networking people together across the UK, and between regions in particular, to have ways in which we can be exchanging ideas and getting to understand what each other is doing. We complain about silos in Government and siloes in corporate, but we have siloes across every single component of this industry, and it is no good to sit in a part of the west midlands, Cambridge or Belfast and not talk to other people about the issues, the standards and the technology. While we seem to think that that gets delivered by the free market, in reality that is not happening, and I think the Government in particular need to intervene to connect up all these people.

Today, I launched the Northern Ireland Engineering Hub for the Royal Academy of Engineering—I am chair of the enterprise committee—and that was specifically picking Northern Ireland because of its deep engineering history in order to start to connect it with a lot of the other things that are happening in the rest of the United Kingdom. I think we need more of that, and I think that out of it will come the same blossoming of innovation and engineering that we have seen previously when people have been connected up together. I am a great optimist on that.

[Chi Onwurah]

Great. Thank you very much.

--- Later in debate ---

[The Chair]

Thank you for that. Chi Onwurah.

[Chi Onwurah]

Q Helen, you were absolutely right to emphasise, in terms of how we got here, with no UK telecommunications network capability, that as well as being about under-investment, which I mentioned, it was about acquisitions—many acquisitions of UK capability and capacity. We have the National Security and Investment Bill going through the House; in fact, that is coming back for Report tomorrow. It will make national security—although not economic security—a ground for intervening in acquisitions and investments, but it will not make investment in companies any easier. We are talking about concrete measures—what measures could Government take, or could be taken, to make significant additional investment available or easier?

Helen Duncan: That is an interesting question.

[Chi Onwurah]

We could perhaps have a telecoms business bank?

Helen Duncan: You cannot stop mergers and acquisitions happening, but if you can put in some sort of criteria that companies that buy British companies need to give a commitment to continue to invest in this country for a set period of time—whether or not that is practicable—that would help.

The most important thing is to make the companies themselves strong enough so they are not targets for asset stripping, as has happened in the past. All the measures that we are talking about to oil the wheels, as David says, will make our companies stronger and able to compete in what is still a global market. I think making our companies competitive is the key to this.

Dr Cleevely: There was a thing called the Macmillan gap, which led to the emergence of the Industrial and Commercial Finance Corporation in the late 1940s. Translated into modern terms, that gap is investments required of around about half a million to £5 million or £10 million. We are still living with that, and that gap was identified in the 1920s. We have a structural problem in the United Kingdom about the way in which we invest in some of what would in Germany be called Mittelstand—those smaller companies. I think you are quite right, Chi, to draw attention to that as a particular risk profile. People do not want to put money necessarily past the seed stage into what I would call late series A and into series B.

The other point is procurement. As I have mentioned before, if you have a client or two who is prepared to buy kit from you, you not only get money but you get experience and expertise and you develop your company. We need more incentives for procuring from those kind of middle-sized companies, because out of those will come the giants of tomorrow.

My experience in Cambridge and elsewhere is that quite often, many of those companies say they are entirely private sector driven, but actually they have been the subject of lots of Government procurement and interventions along the way. That is particularly true in the United States where the SBIR scheme is very important.

[The Chair]

Do you have anything you want to add to that?

Mike Fake: I do not have anything to add to that. I support what has been said.

--- Later in debate ---

[James Sunderland]

Q Thank you for coming in. A quick question: can you put in layman’s terms what the roll-out of 5G anywhere means in broadband terms? Can you also place that in terms of rural areas?

Doug Brake: I worry that sometimes 5G is conceptualised as a singular technology or a singular thing. It is not a monolith; there are a number of different component technologies and a number of different flavours. Depending on whether you are doing a fully 5G network, a stand-alone network or a non-stand-alone network, it is a very different sort of system. There are also a lot of differences between what spectrum is used to deploy the network—if you are using low-band, mid-band or high-band spectrum or a combination of all three. It is hard to answer that question in generalities.

A number of different component technologies and architectures will be rolled out over time. At a high level, the real advantage of 5G compared with 4G is in its flexibility. It is able to tailor its connectivity to a number of different applications’ needs. It can offer extremely high throughput and much faster speeds. It is very reliable, with very low latency. For example, if you want to stream a football match while travelling on a train, it can do that quite well, or quite a bit better than LTE and 4G today. At the same time, you can also change very obscure technical parameters to make for simple communications that require very little battery on the device side to be able to communicate. If you want to have massive deployments of sensors for smart agriculture, or something like that, that have battery life in the order of decades, it can do that. The hallmark is its flexibility.

Given that flexibility, it is anticipated that 5G is going to be much more deeply integrated within the economy and trade sectors, and will be a key tool to boost productivity. There is an important hope that we see a broad deployment, not just in urban areas but in rural areas. Again, I go back to that note on differences depending on the spectrum that is used to deploy—unless it is of interest, I do not want to get too bogged down in the details, but there are real differences in what we would expect to see deployed in urban versus rural areas. But, again, we would also expect to see very different use cases in those areas. Admittedly, there will likely be a performance difference between urban areas and more rural areas. But at the same time, like I said, the use cases look very different—you are not likely to have massive crowds of people all looking to share video from a stadium or something like that in rural areas. There will be a real difference in the roll-out, but I worry that sometimes the challenges with that have been overstated.

[Chi Onwurah]

Q Thank you very much for joining us, Doug. It is particularly interesting to have your American perspective. As you may have heard, my first job as a hardware engineer was with Nortel, a Canadian-American company that had just bought one of the last UK companies in this area. Nortel ended up seeking chapter 11 and having most of its IP bought by Huawei. What are your views on how we got ourselves into this position of not having a single UK or US supplier that can supply to our UK networks? How do you think we can work together to rebuild our telecoms sectors? You talked about pursuing transformational change and an industrial strategy to do that. What might you say to the Minister about how the UK Government should be working with the US, and about what sorts of vehicles there might be to work together and with other allies to achieve that?

Doug Brake: That is a great question. We talk now about needing diversification and seeking entry of a US-UK equipment supplier, but the question and lessons from history are about why we need this in the first place. In the past, we had quite successful telecommunications supply companies, especially in the US. The president of our organisation, Rob Atkinson, set out to answer that question. You may have seen an article in the American Affairs journal, titled, “Who Lost Lucent?” It is a long and interesting article—I will not go into all the details of history. I would say that it is fair to characterise the failures and decline of Lucent as a complicated story, but it stems from a combination of unique challenges imposed by the Anglo-American economic system, systemic failures of US Government policy—particularly with regards to anti-trust and some of the regulatory policy throughout the 1990s—and very strong and aggressive foreign industrial policies, particularly with regards to China, to acquire market share.

I am happy to go through that in some detail, but feel free to cut me off if I go on too long. You are absolutely right to say that we had Lucent and Nortel. Lucent was absolutely massive—it was three times larger than Nortel—and originally spun off from AT&T’s equipment arm, Western Electric. It had the famous Bell Labs. Throughout the ’90s, it was the largest telecoms equipment company and was still growing dramatically overseas, but due to a number of strategic decisions within the company and decisions within the US Government, it ended up really suffering as a result of the dot.com bubble.

Setting aside all the competitiveness questions, particularly with regards to Chinese companies, a hands-off, free market globalised system reigned in the US and UK throughout the ’90s. It was finance-focused capitalism that saw Lucent and Nortel cut their R&D budgets and staff dramatically, particularly as a result of the 2001 crash—much more so than some of their international competitors. With that financial system, it was harder for those companies, which were designed to be growth companies—much more so than a valued company. They were focused on growing quarter after quarter and meeting their financial targets, which made it very difficult to focus on long-term growth. You can contrast that with Ericsson in Sweden, where the Wallenberg family control a lot of the voting shares. Ericsson was able to focus on much longer-term value creation, and they did not cut staff or R&D by nearly as much as Lucent did.

Before that, I think there are a lot of lessons to be learned from the aggressive anti-trust action that broke up Bell Labs and restructured the entire industry. Up until the restructuring of the US telecom market in 1984, Bell Labs had a fantastic situation in order to generate innovation. It had the commercial drive, focus and flexibility that is often lacking in a Government research lab. It also had a long-term focus and an interest in broad technological change, which many R&D efforts in industry do not see. It had steady revenue from telecom rates. There is a complicated story there. It is hard to tell what concentration is good for innovation and where competition is really the order of the day, but it seems clear that the decline of Bell Labs was a real loss.

[Chi Onwurah]

Q Perhaps you could contribute the article you mentioned and the key points made as written evidence.

Doug Brake: Absolutely. We would be happy to do that.

[Chi Onwurah]

Q The second part of my question was about how we can work together.

Doug Brake: Absolutely. I think the diversification strategy is a very strong document. I would say, when it comes to open RAN generally, there are clear benefits that you have heard a lot about, I am sure, including diversification and faster innovation when software is decoupled from hardware. Generally, lower margins on generic components eliminate the risk of the entire sector tipping to a single vendor or a gradual narrowing of trusted suppliers, but there are real challenges with this process. Again, this is going to be a gradual effort. There is not a need to transition immediately.

First, there is a real risk of bandwagoning, where this is seen as a silver bullet and even companies that might not be interested in pursuing this area, such as Nokia and Ericsson, are willing to join in these efforts, even if it is just for the sake of defence. So, there is a real risk of bandwagoning. There is real complexity with transitioning to this sort of system. It is not immediately clear how well open RAN will scale. Actual implementation at scale in urban areas is adding a tremendous amount of complexity. There is a much larger attack surface. It is worth keeping in mind SolarWinds, a US company trusted by many within the Government, which saw this massive damaging breach.

I think there is a real challenge that remains to be addressed in the manufacturing of stand-alone radios. I think that is a potential opportunity for real co-operation: identifying companies that are interested in focusing purely on radio. There is still hardware that needs to be provided that historically was integrated with the broader system, when you only have relatively small providers that are interested in scaling up manufacturing.

[The Chair]

I am just going to interrupt you there. I am sorry, but I am conscious of time and I want to give the Minister a fair opportunity.