UK telecommunications infrastructure and the UK’s domestic capability

The Government’s ‘5G Supply Chain Diversification Strategy’ provides an overview of the Government’s intentions for addressing the current lack of vendors in the UK’s 5G infrastructure equipment market. The Government itself acknowledges that this will take time. Although the decision to forbid the use of 5G equipment procured from Huawei after 2020 was made following US sanctions announced in May 2020, the potential threat from telecommunications infrastructure supplied by foreign vendors and the concentration in the UK’s vendor market have been known for many years. It is therefore disappointing that the Government and its predecessors have not already developed and started implementing a strategy for diversifying the UK’s telecommunications infrastructure supply chain. Given the scale of the challenge and the urgency of the threat, the Government should publish, within three months, a more detailed action plan for implementing its diversification strategy. This should include a breakdown of how the initial budget will be spent and a series of milestones with target dates for completion.

The Government is seeking to attract existing vendors to the UK market in order to diversify the telecommunications vendor market in the short-term. One of the major barriers faced by such companies is the requirement of British network operators for continued provision of older generations of network technology. The main proposal in the Government’s diversification strategy to address this—to consider a transition away from these older technologies—is not a short-term solution.

In addition to considering the case for transitioning away from 2G and 3G technologies, the Government should propose measures within the next six months that could facilitate market entry by existing vendors in the near-term. It should consider options for addressing the barrier of operators’ preference for vendors to offer older generation technologies with their 5G equipment, such as incentivising or mandating standalone 5G deployments and/or the use of protocols such as the Open X2 interface.

The Government is right to support the development and adoption of open standards and increased interoperability as a potential means of diversifying the telecommunications equipment vendor market. It is also right to identify Open RAN as a prominent approach to achieving this, but not the only one. However, neither the success of Open RAN or any related efforts, nor the positive impact on overall telecommunications security if these efforts are successful, is guaranteed.

The Government should support Open RAN and other efforts to drive the adoption of open standards and greater interoperability. While the success of Open RAN is not guaranteed, the Government should encourage the deployment of Open RAN to ensure that the UK is not behind others in deploying this technology. However, it must continually ensure that support for these efforts is consistent not only with increasing vendor diversity but also with improving the overall security of the UK’s telecommunications networks. Further, the Government must not assume that open 5G market diversification and wider lessons for critical and emerging technologies 49 standards and interoperability will inevitably be adopted nor that they will have the desired effect, and should pursue a range of measures designed to support market diversification and increase security.

The first live networks using Open RAN are being deployed, with one having launched in Japan last year. The Government should evaluate these initiatives and report regularly on what lessons can be learned from foreign experiences to inform the UK’s strategy for diversifying the vendor market and improving telecommunications security, with an initial report within the next six months.

We heard evidence during our inquiry supporting the Government’s assessment that network operators’ preference for vendors with proven track records acts as a barrier to potential market entrants. The Government’s proposals to establish testing and validation facilities, and to reduce regulatory disincentives for network operators to integrate new vendors into their networks, align with the recommendations for addressing this barrier made by many of the contributors to our inquiry. Following consultation with industrial and other stakeholders, the Government should report on the required scale and specification of the National Telecoms Lab, to ensure that network operators trust the equipment that it validates for integration into their networks.

Measures to support research and development form a major part of the Government’s ‘5G Supply Chain Diversification Strategy’. Nevertheless, the total funding of £250 million for initial implementation of the strategy is significantly smaller than the tens of billions of pounds invested annually in research and development by the main incumbent vendors. Co-ordination with existing academic and commercial research and development, with clear long-term objectives, will therefore be critical. The Government’s reference to establishing a research and development “ecosystem” instead implies, however, a less strategic approach.

The collaborative research and development networks that the Government seeks to develop to support diversification of the telecommunications market should encompass relevant groups at universities and research institutes as well as small- and medium- sized enterprises and large companies. The Government should aim to actively co- ordinate the research and development that it supports so that participants work towards clearly-defined long-term objectives. Existing and newly-established public research facilities should be set up to support this goal.

There is strong support for the establishment of common testing facilities for new 5G infrastructure equipment, to provide a variety of services that could help to drive diversification. The National Telecoms Lab—which appears to be the main facility proposed by the diversification strategy—seems, however, to be focused heavily on security testing and validation alone.

In addition to conducting security testing and validation, the Government should ensure that the research and testing facilities established through the diversification strategy also drive market diversification by stimulating collaboration and supporting the development and commercialisation of new technologies. (Paragraph 49) 50 5G market diversification and wider lessons for critical and emerging technologies

Testing facilities do not need to be situated in one physical location. The Government should ensure that any new testing facilities complement existing facilities, and are designed with potential developments in 5G technology in mind to guard against future redundancy.

New vendors of 5G telecommunications equipment face challenges in scaling up their production rapidly enough to meet network operator demand and compete with incumbent vendors. Although the Government’s diversification strategy identifies this barrier to market entry, it defers details of any significant measures to address it until publication of a refresh to the Industrial Strategy. There appear to be good opportunities for the Government to support new market entry at the same time as driving deployment of 5G in the UK, but the diversification strategy fails to set out measures to achieve this.

The Government should align its strategy for diversifying the 5G vendor market with its support for rolling out 5G network coverage. Wherever the Government provides funds for expanding 5G coverage, it should look for opportunities to simultaneously support vendor diversification, for example by requiring the use of open standards. The Government should identify opportunities to support new market entrants scale their production by supporting the deployment of novel small-scale 5G deployments. It should provide details of planned measures to support diversification and expand 5G coverage in its Industrial Strategy.

The Government identified the concentration of intellectual property rights in the hands of established vendors as a barrier to market entry. It commits in its diversification strategy to working with industry bodies to address this, although the proposed work is not described in great detail. In its response to this Report, the Government should provide more details on how it intends to address the barriers brought about by intellectual property rights, and update us on early progress made against this goal.

Long-standing factors have driven consolidation in the telecommunications vendor market over many years, so it is critical that the Government adopts measures to maintain market diversity as well as to drive the initial diversification. Network operators will be integral to achieving both aims. Although operators stand to benefit from a more diverse vendor market, it may not be in their interest to purchase and use equipment from a wider range of vendors. The Government’s diversification strategy does not sufficiently acknowledge this fact, and provides little detail of proposed measures to ensure that it will be in network operators’ interest to drive and maintain a diverse vendor market.

The Government cannot rely solely on removing barriers to market entry to diversify the telecommunications vendor market, but must also ensure that network operators actively pursue diversification and act to maintain the diversity achieved. This will require a combination of incentives, measures to reduce operator costs, and regulatory requirements. For example, the Government could introduce business rate relief on mobile mast deployments. In order to provide certainty to the sector, the Government should publish within three months of this Report the measures it is considering to incentivise and require network operators to diversify their suppliers, with an indicative timetable for implementation. (Paragraph 71) 5G market diversification and wider lessons for critical and emerging technologies 51

Of Ofcom’s two principal duties, it has appeared to have given less prominence to “further[ing] the interests of citizens in relation to communications matters” than it has to “further[ing] the interests of consumers”. Ofcom must ensure that it pursues both of its principal duties and guarantees the security of the UK’s telecommunications infrastructure as well as furthering the interests of consumers. The Government should consider the case for updating its statement of strategic priorities for telecommunications, to emphasise the importance of Ofcom’s duties relating to telecommunications security.

The UK’s telecommunications market accounts for a small proportion of the global market. International co-ordination will therefore be critical to the success of the UK’s diversification strategy. The Government’s 5G Supply Chain Diversification Strategy acknowledges this fact, and states the Government’s ambition for international co-operation. However, the strategy provides little detail of plans for sustained co-ordination on industrial policy with a diverse range of countries.

The Government should seek to establish a dedicated, standing forum for international co-operation on diversifying the telecommunications market, encompassing as many like-minded countries as possible and covering aspects including: research and development; adoption and deployment; standards; and overall strategy. This should not be based on existing intelligence-sharing coalitions. The Government should set out in its response to this Report, how it intends to achieve this, a timetable for establishing such a forum and what progress it has made to date. (Paragraph 80) A critical technologies strategy

There is a strong risk that the urgent security challenges faced by the UK’s telecommunications sector are indicative of a wider, and growing, geopolitical development. Throughout our inquiry, we have heard of the prospect of a growing technological and regulatory divergence between China, and countries aligned with China, and other countries. This is not restricted to telecommunications or even cyber security—artificial intelligence, quantum technologies and synthetic biology are just some examples of other emerging technology sectors that will be prominent in our future economy and security, and in which there is the potential for different technical and regulatory standards to apply. The Government should not regard the problems posed by 5G addressed in this Report as a one-off, but more likely illustrative of a wider challenge.

The Government must treat the current issues in the UK’s 5G vendor market as an indication of a much wider geopolitical, technological challenge. The character of the UK’s response, and that of other like-minded nations, will have profound implications for future decades and beyond. We urge the Government to address this seriously, comprehensively and without delay. We recommend that within twelve months, the Government should develop and publish a White Paper setting out its assessment of the current extent of and future potential for global technological divergence, the anticipated consequences of such divergence and how it intends to address the challenges this poses. (Paragraph 86) 52 5G market diversification and wider lessons for critical and emerging technologies

As part of its White Paper on global technological divergence, the Government should develop a critical technologies strategy that identifies technologies that are likely to be of critical importance to the UK’s prosperity and security over the next ten to twenty years. This strategy should assess the potential opportunities and risks of these technologies, and propose measures to seize those opportunities and mitigate those risks. It should align with other relevant strategies, such as the Integrated Review of Security, Defence, Foreign Policy and Development and the new Industrial Strategy.

The Government has only recently considered the consolidation of vendors in the UK’s telecommunications market as a potential risk to national security, although it is a process that has taken place over ten to twenty years. One problem appears to have been the focus on the security of the network operators and not their supply chains, including when setting the role and powers of the regulator. Although the diversification strategy now addresses vendor diversity, it still does not consider the full supply chain. Whereas other nations and regions, including the USA, Australia and the European Union, have produced strategies addressing supply chain risk across all critical technology areas, the Government’s diversification strategy addresses only 5G.

In producing a national strategy for critical and emerging technologies, the Government should consider potential risks that could develop across their full supply chains.

The setting of international standards is important for national economic competitivity and technical capability. The influence of British companies and officials in global standards-setting processes is diminishing. Although the ‘5G Supply Chain Diversification Strategy’ sets out the Government’s intention to redress this in the telecommunications sector, it is not clear that there are similar plans for other important technological sectors.

In producing a national strategy for critical and emerging technologies, the Government should review the relevant global standards bodies, the objectivity of their processes and the relative influence of different countries. Similar to those measures outlined in its 5G supply chain diversification strategy, the Government should develop measures to build British capability and influence at standards-setting bodies for all critical technologies.

Domestic capability in the research, development and adoption of critical technologies is key not only to economic growth and technological progress, but also to national security. It reduces dependency on foreign suppliers and governments, and allows the UK greater scrutiny of technologies for potential vulnerabilities and greater influence over the technological capabilities developed. Managing potential risks from critical and emerging technologies by supporting domestic capability will require early identification of those technologies and assessment of the UK’s existing capabilities, as well as the capability of the UK’s allies.

In producing a national strategy for critical and emerging technologies, the Government should assess the UK’s domestic research and development capability for each technology area as well as the capability of its allies. As the Government looks 5G market diversification and wider lessons for critical and emerging technologies 53 to strengthen research and development in the UK, this assessment should be used to identify particular critical and emerging technology areas of strategic importance in which the UK’s capability should be developed and strengthened. This support should not focus on academic research alone, but should also encompass research and innovation capability in businesses and other research institutions.

In producing a national strategy for critical and emerging technologies, the Government should consider the security of the universities, businesses and other institutions conducting research into these technologies. Although guidance for the sector has recently been developed, the Government should monitor its implementation and stand ready to work with institutions to address any remaining challenges as appropriate. (Paragraph 109) 54 5G market diversification and wider lessons for critical and emerging technologies