Telecommunications (Security) Bill (Fourth sitting)

Lord Beamish Excerpts

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

[Dean Russell]

Thank you. David too?

Dr Cleevely: I would like to echo what Helen said, but in a rather different way. There is an engineering problem, which is what we have been dealing with, but there is also a human behavioural problem. Anybody who has worked in a large corporation or worked on these large projects will know that the way in which people approach the problem, and the way they think about it, the way they want to programme it and the urgency they feel, is driven as much by the psychological issues as it is by the technical. I would urge you to think through how you would encourage the behaviour that you want to see. Now, obviously Government can do that by simply issuing an edict and forcing a deadline, but there may be other ways that you can get more innovation and a more rapid shift than the 2027 deadline, simply by thinking through with the industry—going back to Helen’s point about the engineers on the ground—about what is required. A little bit more detailed thinking on that could yield some very positive result.

[Mr Kevan Jones (North Durham) (Lab)]

Q Could I just follow up on Dean’s point about the actual date? The date that has been set is 2027, and the equivalent that is going to go in is basically going to be two vendors, Ericsson and Nokia. I think it was you, Mike, who said earlier that there are opportunities for UK diversification. What will drive that? If you have operators who have put brand-new equipment in in the lead-up to 2027, what will be the incentive for those companies to look at alternatives to that?

Mike Fake: That is a difficult problem to solve, but I think it is important that innovation is a powerful force, and you can turn around things in this new world very quickly. Although you have old legacy systems, and you replace everything from overseas vendors with old legacy systems, you need to keep moving forward. In terms of optics, we probably have one of the world’s leading telecom fibre optics innovation capabilities in the world, through the universities. We have a whole bunch of small and medium-sized enterprises out there, and they are struggling to make that step to some scale and to get that innovation deployed in the network. But I think innovation—

[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.

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[The Chair]

We have about 11 minutes left. I will go to Kevan Jones, who I think had a question that was prompted by a reply to the Minister. Then I will try to go back to Chi and to the Minister before we finish.

[Mr Jones]

Q It is just a quick one. We are talking a lot about Government, and what Government can do, which is fine. But when it comes to attracting sufficient private sector investment in some of these emerging technologies, how will you kick-start that? I ask because that will be the acid test for growing some of these companies.

Helen Duncan: I think hardware technology has a very poor image with investors and we could probably take an initiative to try to improve that, including trying to attract the right people to take up careers in hardware rather than software, as it is seemingly becoming not so glamorous but it underpins the whole thing.

Dr Cleevely: Helen, I think you are right. It is very interesting that these days, if you want to get investment in a company—I have personal experience of this—you present it as a software company that needs a little bit of hardware to make the software work; you do not say at all that it is a hardware company. That is one thing to note.

More seriously, on the general point about private investment and interest in these things, this is a matter of setting up the rules of the game so that it makes sense for the private investors and the private people to get involved. None of this is achieved by Government; none of it is entirely achieved, indeed, by the private sector. This is one of these areas, these issues, where you need to think about how Government set the rules up and set the incentive structure so that the private sector explores the environment—because Government cannot work out exactly how this is going to turn out. The private sector can then explore it. That is why, for example, procurement is so important. If you can procure from a number of different sources and encourage people to move forward, you will explore the possibilities of innovation much more rapidly than any single company or any single Government can. We need to construct the rules of the game so that the private sector can start to deliver what the private sector is really good at. I talked about oiling the wheels; I am talking about unblocking drains at this point. We really need to make sure that the mechanism is working properly.

Mike Fake: I would support that. I will just add that some of the mechanisms that we could explore are things like the competitions where Government put in a certain amount and private industry puts in a matching amount, but it has to be significant; it has to be a large investment—something that will make a difference, something that will take the thing from the early innovation stage through to full-scale manufacture, in the UK.

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[James Wild (North West Norfolk) (Con)]

Q What is your view on the implications of the Biden Administration for potential American involvement in the diversification strategy in telecoms more broadly?

Doug Brake: That is a good question. A lot of people are asking that question and trying to figure out exactly where this will go. I think that at a high level we have passed through the confrontation with Huawei and China over some of these innovational mercantilist policies that we have seen, which have undermined the global innovation of wireless equipment. I don’t think that will change at a high level. No politician in Washington in the US wants to be seen as soft on China. I think there will continue to be policies that attempt to roll back some of the innovation mercantilism that we have seen in the wireless equipment space. I expect and hope that it will be done with a more measured and co-ordinated effort with like-minded allies such as the UK and with less scattershot policies across the US Government.

What we have seen over the last several years in the United States is a variety of different agencies doing what they can to mitigate the risks. It is less a co-ordinated whole of Government approach in the US and more a disjointed and fragmented policy response across different agencies, so I am hopeful that under a Biden Administration we will see a much more co-ordinated effort and one that is more co-operative with allies.

[Mr Jones]

Q Regarding that co-operation between nations, clearly it has not just been the UK that has responded to the threat from Huawei; we were forced to go down our present track by the American sanctions against China over semiconductors. Going forward, how do you see that co-operation developing and how do we prevent a situation whereby, with its scale and obviously its resources, the United States dominates any future standards and also technology areas? They might talk about co-operation, which they do in a lot of areas, but when it comes down to brass tacks, it is America first in terms of business. And that is not a Trump comment.

Doug Brake: It is a good question. To start with, I will take the first part of your question, with regard to the export controls that the Administration put in place with the aim of trying to kneecap Huawei; I think it is fair to say that.

First, from our perspective, ours was not a very well-thought-through strategy—right? Without co-ordination and without a broad coalition to address those sorts of trade practices, in effect in the US we really only shot ourselves in the foot. It undermined any of the technology companies or equipment providers that were attempting to sell components and chips to Huawei. So to my mind, if you are not going to succeed in killing Huawei, or if there are ineffective strategies that undermine your own industry, I am hopeful and expectant that we will see a change in the policy going forward.

That said, if there was a desire from a broader coalition internationally to make some more extensive efforts—something like a NATO for trade, to address these unfair practices—that could be a very effective strategy, if it was done with a broader coalition.

In answer to your second question, the long-term goal of diversification of the radio access network supply chain is to allow for a much more diverse and modular system, in which any number of companies can compete within different niche areas of the market. Admittedly, there are some areas of that—high-performance, generic server infrastructure, as well as software—that the US does quite well. However, I think that opening up the supply chain would allow for a number of companies internationally to compete quite strongly.

Also I think there is a question about the extent to which different countries are willing to aggressively pursue an industrial strategy to support the sort of change that could give them a potential comparative advantage in pursuing this sort of transformational change to the telecommunications supply chain.

[Mr Jones]

Q Regarding the ban on semiconductors, obviously that is worth a lot to the US in terms of exports, mainly to China. Do you see that changing? Also, do you think there is a danger—not in the short term, obviously, but in the longer term—that China will then create a separate semiconductor market, which could be a threat not only to the US but to others, in that they will buy into markets and try to get standards that are different from those of the US?

Doug Brake: I think it is absolutely right that there is a real risk if we cut off supply to China, particularly in semiconductors. We have already seen an aggressive action on their part to stand up an indigenous semiconductor industry. This is getting a little outside of my area of expertise; semiconductors is not some place that I know super well. However, I think that it is absolutely correct that there is a real risk that the extent to which we try to cut off Chinese companies will see them double down efforts to create their own indigenous supply chain. So—absolutely.

I am hopeful that we see either a change to that or a much broader international coalition to double down on those efforts. I think that it is more likely that we will see a Biden Administration ease some of those restrictions, or work through the current legal means to allow for licences for companies to sell semiconductors to Huawei and others.

[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.