Telecommunications (Security) Bill (Fourth sitting)

James Sunderland Excerpts

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

[The Chair]

Thank you. The first question is from James Sunderland.

[James Sunderland (Bracknell) (Con)]

Q Thank you for the opportunity to ask the first question. Welcome and thank you for giving us your time. I note from the biographical notes that all three of you have clear commercial backgrounds with what appear to be British-owned firms. I am very pro-British myself, as you would expect as a British MP, so may I ask your opinion on the extent to which the telecoms Bill will offer opportunities to British firms?

Mike Fake: I think the diversification strategy is important. It is great to see the national telecoms centre proposal and the £250 million for research and development. One concern is whether that will be enough. Listening to earlier parts of the hearing last week, BT said that they it invests £500 million per annum and Huawei has a revenue of probably $120 billion per year. Sorry, did I say, “million”? I meant billion. What do they invest in research and development? Probably $2 billion a year. The opportunity I see is that we have a short-term focus for network equipment manufacturers to replace high-risk vendor equipment, but it will be difficult in that period for other new entrants to get their share.

The opportunity is to foster new entrants in technologies in the UK telecoms supply chain, and to leverage innovative solutions for manufacturing scale in the UK. Another issue is that there is a lot of focus on the radio access part of 5G, but that is only one small part of the network. There is optical fibre connectivity from the masts, and transport to the network’s core: that is critical to the network’s security and performance.

Helen Duncan: When I started my career, the industry was dominated by big names such as STC, Plessey, GEC and Racal. They all received funding from defence organisations such as the Royal Signals and Radar Establishment at Malvern. They used a lot of the spin-offs from that technology to develop their telecoms capability. That all ceased in the 1990s after the Berlin wall came down and cost-plus was abolished and so on. It is significant that independent industry research shrank in those times. We are now, at last, seeing a bit of stimulation going back into British industry thanks to the catapults, like Andy Sellars’, and this could be an opportunity, if not to return to those days, to put some investment in and to develop the talents we have in this country.

Dr Cleevely: The Bill is a great opportunity, as the other speakers have said. In technical jargon, it is a necessary but not sufficient condition. It does provide some great opportunities. I am an investor and have created a number of British companies of which, like you, I am very proud. We do, however, need to think carefully about how the market actually works. A number of speakers before us talked about the way in which the number of suppliers has come down in this business. We need to be careful in thinking about how we intervene to set the rules of the game and to encourage certain kinds of behaviour. I am very familiar with one example that relates not only to Government but also to large corporates: the notion that you go through a procurement department that is forcing you down on price, and it does not have the notion of innovation as one of its key performance indicators. The notion of innovation, on the other hand, is built into a lot of the systems that are employed in other countries, primarily the United States, as a way of evaluating whether a technology should be procured or not. We need to think rather more carefully about how we foster that development and growth of smaller companies into larger companies, particularly with this view about innovation.

For example, Ofcom is an economic regulator—one of 11 or so economic regulators in the UK. It has always, below the radar, treated innovation as one of the things it ought to be fostering. I would suggest, for example, that alongside the consideration of this Bill, we think about how we push innovation rather more firmly and put some money behind it in terms of procurement.

[Dean Russell]

Q I would like to understand what the impact would be of bringing forward the 2027 deadline with regard to many of these measures. If I could ask Mike in the first instance, please?

Mike Fake: Obviously, we have got two things to do here. We need to replace the existing vendors’ equipment, but in parallel, if we can invest in the UK supply chain—we have a very healthy supply chain in the sense that there are a lot of companies which provide optical components and subsystems into the equipment manufacturers. We need to do both things at once. We need to swap out the equipment, and also invest in the new companies coming up, so that in the future we can have a much more future-proof, innovative, secure and leading network.

Pushing the timescales forward, we have to recognise that in the short term we are going to be stuck with two alternative vendors that we need to swap out, but if we can invest in the up-and-coming, innovative, small SMEs and really foster those, as the previous speakers have said, I think we have got a real opportunity to change things and to have a world-leading, British, high-UK content network moving forward.

--- Later in debate ---

[Dean Russell]

Q During my previous career as a physics researcher many years ago, I was fortunate to work at places such as the Advanced Photon Source synchrotron facility in Argonne, Illinois. I worked extensively in the semiconductor space, looking at materials such gallium nitride and other group III nitrides. What I learned back then, working very extensively with American scientists and scientists from around the world, was the importance of that root-and-branch look at semiconductors, innovation and having a decades-long view. From your perspective, how much does that fit in with a joined-up international approach to create diversity, both at the end stage and at the really early research stage?

Doug Brake: That is absolutely right. This is a long-term effort. I worry about some who tout ORAN as something of a silver bullet that we can make a quick transition to, that it is a flash cut for existing equipment providers to an open RAN sort of system—a more modular and diverse ecosystem. It is something that is going to take a number of years. I honestly worry that it is late for ORAN to be incorporated into 5G, at least on a broad scale. For greenfield networks, it is a different story and it might make sense to go with these open and modular systems from the get-go.

I worry that this is much more a conversation about putting in the tools, resources, testing facilities, the labs, R&D, et cetera, to put us on a path for years down the road so that this becomes the industry standard. I do think, absolutely, that this is the time to be looking at those early stage investments to be driving further and, frankly, looking down the road to 6G, to be able to put in place the policies and efforts to transition the industry to this more diverse future, and put those in place now for years to come.

[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.