Wholesale Voice Carrier Market: Top Trends Propelling the Industry Demand through 2026

July 9th, 2021 Graphical Research Leave a comment

According to a recent study from market research firm Graphical Research, the global wholesale voice carrier market size is poised to expand at substantial CAGR during the forecast period. Thanks to the growing indispensability of smartphones worldwide, the global wholesale voice carrier industry outlook is expected to benefit from the massive voice over internet protocol (VoIP) demand. The market is expected to make a significant headway between 2020 and 2026 on account of the trending commercialization of 5G technology worldwide.

Due to the augmenting adoption of smartphones, VoIP traffic is growing. The utilization of mobile internet and data-intensive voice calling applications are responsible for the rising VoIP needs. As investments pour in across the global telecom industry, expansion of telecom infrastructure and networks is likely to foster opportunities for the global wholesale voice carrier market forecast.

CenturyLink, IDT Corporation, Vodafone Group Plc., Orange SA, Telefonica SA, Deutsche Telekom AG, BT Group Plc, Bharti Airtel Ltd., Sprint (T-Mobile), BCE Nexxia Corporation, and Alepo are some leading wholesale voice carrier companies in the international landscape. The following seven trends are accelerating the industry forecast:

Leased network demand in North America

The deployment of leased network infrastructure is growing across North America. In the highly competitive telecom industry, tier-2 and tier-3 providers have been leasing network capacities to a considerable extent from tier-1 operators. They have been doing so to benefit from the minimal cost of ownership to maximize profitability.

North America wholesale voice carrier market share from the leased network segment is anticipated to grow at a 10% CAGR up to 2026. The growth can be accredited to the growing need for a leased network in VoIP call termination in the region. Prominent telecom operators are leasing a part of their network for setting up voice termination facilities across emerging markets.

Transmission switching technology in North America

The wholesale voice carrier industry share from the transmission switching segment accounted for more than 50% of the total North American market during 2020 and is slated to expand further. The considerable dependence on traditional voice calls in the lesser developed North American regions is driving demand for the technology.

Rural areas face the challenge of limited wireless network availability. Since a large percentage of the rural population relies on traditional voice calls, the use of transmission switching is likely to expand through 2026. Several wholesale voice providers are offering minimal cost and time of installation, optimal life of switch, and unitized configurations.

Strategic partnerships by Canadian telecom enterprises

Canada’s wholesale voice carrier market size is expanding at a rapid pace, thanks to the growing 5G commercialization across the region. Canadian telecom operators are making the most of the partnership opportunities for delivering 5G services. They are focusing on diversifying their offerings through their strategic moves.

For instance, Telus Corporation announced its plan to partner with Huawei for launching a 5G network in Canada in February 2020. In compliance with the regulatory government standards, the partnership was fruitful in launching new, efficient solutions and devices. Thanks to the access to high-speed internet, enterprises can leverage IP-based telephony services.

Adoption of interconnect billing solutions in Asia Pacific

Interconnect billing solutions are gaining traction throughout Asia Pacific. The key reason these solutions are becoming mainstream is that telecom operators find convergent billing systems useful in accelerating digital transformation. The APAC industry share from the interconnect billing segment is slated to grow at a 10% CAGR through the assessment timeline. By 2026, the total APAC wholesale voice carrier market size is expected to surpass $7 billion.

Increasing telecom frauds in Asia

The alarming rise in fraud frequency across the regional telecom sector is influencing Asia Pacific wholesale voice carrier market. The requirement for fraud management solutions is growing due to this trend. As per the 2019 data published by Trend Micro, a Japan-based cybersecurity firm, the annual cost from telecommunications subscription frauds was estimated at $12 billion, equaling between 3% and 10% of the gross revenues of regional operators.

Asia Pacific wholesale voice carrier industry share from the fraud management segment is expected to rise at a 12% CAGR through 2026, promoted by the surging focus toward fraud prevention. In order to ensure a reduction in losses, the significance of these solutions is gaining popularity.

Growing subscriptions for VoIP services in Europe

The number of VoIP subscriptions are augmenting across European countries. The preference for VoIP-based calling is growing amongst regional subscribers due to the tendency to avoid the higher costs associated with traditional voice calls.

The industry share from the VoIP segment in the region will register around 13% CAGR through the next five years. VoIP-enabled wholesale voice carrier services provide enhanced technologies to telecom companies, simultaneously eliminating the unnecessary charges associated with roaming.

The gradual shift to voice termination in Europe

Europe wholesale voice carrier market size is slated to reach $11 billion by 2026, thanks to the presence of a robust commercial network infrastructure in the region. Since voice termination involves substantial routing costs and international call termination across multiple networks, wholesale voice providers can benefit from significant opportunities provided by this solution.

The region is seeing a shift from conventional voice and data services to more profitable and efficient solutions provided by regional wholesale voice termination service providers. Europe wholesale voice carrier market share from voice termination segment is expected to represent more than 70% of the total industry by 2026.

Archives, Global Trade Daily, News

The Transition to 5G to Boost Demand for Optical Fiber

June 24th, 2021 IndexBox Leave a comment

IndexBox has just published a new report: ‘World – Optical Fiber Cables – Market Analysis, Forecast, Size, Trends and Insights’. Here is a summary of the report’s key findings.

As countries implement 5G networks, the increased demand is predicted to significantly drive the market for optical fiber to reach 1.5M tonnes by 2030. This new generation of mobile broadband will require building dense networks of base stations connected by optical fiber cables. In the near future, the U.S., China, Japan and the EU should become the most lucrative markets for sales and distribution of fiber optics.

Key Trends and Insights

The optical fiber market faces a new era of development as 5G networks are implemented all over. The next-generation network will require a significantly larger amount of fiber optic base stations because it uses a high-frequency signal that cannot cover large distances. There is no alternative to optical fiber, as it is the only effective cable material that provides the necessary high data transfer rates. As a consequence, the demand for optical fiber is expected to sky-rocket and the global optical fiber market could reach 1.5M tonnes by 2030.

The U.S., China and Japan demonstrate the highest potential for consumption of optical fiber due to their emphasis on developing infrastructure for fifth-generation networks. The U.S. in all likelihood may become the largest consumer of optical fiber due to the size of its territory. Saudia Arabia, the EU and Australia are also actively implementing 5G technology.

Currently, China has installed approx. 70% of the world’s base stations, making it the largest consumer of the optical fiber at 135K tonnes in 2020 and leading all other countries with its rate for implementing 5G. According to the 14th Five-Year Plan (2021-2025), the number of 5G base stations in China will double by 2022 and by 2023 the total will surpass 5.1M.

The U.S. comes in second for consumption with 125K tonnes in 2020. The Biden administration has announced that it will allocate $100B to develop the infrastructure for broadband access within its eight-year plan. This should accelerate the expansion of the country’s 5G network coverage.

The Japanese government declared that implementing 5G is one of the government’s highest priorities while Japanese telecom companies plan to invest more than $14B into infrastructure for 5G networks, including base stations, server equipment and optical fiber.

Optical fiber is the ideal material that can achieve the high performance claimed by 5G, as it provides over 1K times as much bandwidth as a copper link. The lack of alternatives and overall demand for optical fiber will make this segment of the cable industry more and more attractive for investment.

Global Optical Fiber Cable Consumption

In 2020, the global optical fiber cables market decreased by -3.9% to $13.7B for the first time since 2017, thus ending a two-year rising trend. In general, consumption, however, continues to indicate a relatively flat trend pattern. The pace of growth was the most pronounced in 2018 with an increase of 9.7% year-to-year. Over the period under review, the global market reached the peak level at $14.4B in 2012; however, from 2013 to 2020, consumption failed to regain momentum.

The countries with the highest volumes of optical fiber cables consumption in 2020 were China (135K tonnes), the U.S. (125K tonnes) and Mexico (61K tonnes), together comprising 31% of global consumption.

In value terms, the U.S. ($2.3B), China ($1.4B) and France ($788M) were the countries with the highest levels of market value in 2020, together accounting for 33% of the global market.

The countries with the highest levels of optical fiber cables per capita consumption in 2020 were France (625 kg per 1000 persons), Turkey (486 kg per 1000 persons) and Mexico (453 kg per 1000 persons).

Global Optical Fiber Exports

For the ninth year in a row, the global market recorded growth in overseas shipments of optical fiber cables, which increased by 6.7% to 596K tonnes in 2020. In value terms, optical fiber cables exports contracted to $6.8B (IndexBox estimates) in 2020.

China dominates optical fiber cable export structure, resulting in 344K tonnes, which was near 58% of total exports in 2020. Mexico (46K tonnes) ranks second in terms of total exports with a 7.7% share, followed by the U.S. (6.7%). The following exporters – Poland (13K tonnes), Spain (12K tonnes), South Korea (12K tonnes), Germany (12K tonnes) and Romania (11K tonnes) – each amounted to a 10% share of total exports.

In value terms, the largest optical fiber cables supplying countries worldwide were China ($2B), the U.S. ($1B) and Mexico ($702M), with a combined 55% share of global exports. These countries were followed by Poland, Germany, South Korea, Romania and Spain, which together accounted for a further 14%.

In 2020, the average optical fiber cables export price amounted to $11,350 per tonne, which is down by -16.8% against the previous year. From 2012 to 2020, the most notable rate of growth in terms of prices was attained by the UK, while the other global leaders experienced mixed trends in the import price figures.

Source: IndexBox Platform

Archives, Global Trade Daily, Software

Software Development Trends in 2021

February 4th, 2021 Frank Holman Leave a comment

As you might have already known, 2020 has been a year like no other. COVID 19 has in a way forced a lot of companies and organizations to review their digital strategies, and at the same time manage new technical challenges. This happened beyond the implications of the health crisis.

Because of the situation we’re in, software development services are now more important for a company than they’ve ever been. Now companies more than ever rely on the expertise of software developers to help them improve their customer experiences and performances.

This being said, as 2020 comes to an end (thank god), the year 2021, promises new innovations and trends, making it more competitive and starting a new era. In this article, I will try to walk you through some of those trends which I believe will influence the software development

Native Apps will dominate the market

As it is now, Native Application development is unparalleled, but going forward, people can expect this trend to dominate the software development services.

These services are meant to run only on devices that are specific, for example only on smartphones. Native apps usually provide powerful performance and better user experience compared to hybrid apps, given the fact that they are designed only for specific devices.

It doesn’t look like the native app will go down any time soon, definitely not in 2021 or in the near future, given the fact that the popularity of iOS and Android operating systems is growing each day.

Cloud technology is here to stay

The cloud services industry only in 2020 generated more than 40$ billion in revenue.

Did you know that in 2020, the cloud services industry generated almost $40 billion in revenue, Now cloud service’s market value is 266.5 billion, which is a 17% growth from 2019, crazy growth in one year.

In the software development industry, it is a well-established fact that the big money is in cloud services. In 2021, cloud vendors such as Amazon, Google, and Microsoft will continue to invest big money in cloud technology.

The reason behind this is simple. The number of companies using cloud services is quite enormous, and the number of companies that will start using cloud services is even bigger.

It doesn’t matter the size of the organization, big, medium, or small, they all at some point will be moving to cloud services.

The reason behind cloud technology’s success so far is that it offers flexibility, scalability, and security that will prevent the threat of ever-present hackers that could lead to your organization’s security breach.

5G Technology will be unparalleled

At the beginning of 2020, 5G technology made a lot of waves, undeservedly when it was accused as the cause of the coronavirus outbreak. This rumor was disapproved by the world’s biggest scientists and has been left behind in 2020. Software developers can expect that the 5G tech to return as a trend, but now for all the right reasons. 5G technology is roughly 100 times faster than 4G networks. The tech experts predict that in 1.4 billion devices it will lead to data transmissions.

Virtual reality, augmented reality and other 4k video streaming are the reasons why 5G tech was specifically designed. Software developers will find this technology useful, especially if they are interested in creating designs and features that for a business will enhance their performance.

Investment in Artificial Intelligence will increase

We cannot deny the impact of Artificial Intelligence in the software development service, it will offer so many more options. Artificial Intelligence-based analytics are already being used by the tech giants like Google, Facebook, and Apple. Now the AI is progressing at a very fast pace and in 2021 it will be better in decision making, delivering relevant user experience details, etc.

Final thoughts

Software Development will be dominating the tech industry in 2021 and beyond, that is for sure. And businesses that pay attention more to trends will be moving towards this industry or incorporate this industry in their business somehow.

________________________________________________________________

Frank Holman is a Full Stack Developer with 8+ years of well-rounded experience in development, object-oriented, and user-centered design. Adept at studying system flows and data usage to develop and maintain the software according to production and quality standards. He built products for desktop and mobile app users meeting the highest web & mobile design standards, user experience, best practices, and speed.

Archives, Global Logistics, Global Trade Daily

Why Manufacturers Aggressively Pursue New Supply Chain Technology Deployment

December 23rd, 2020 Larocque Luc, Sales Executive, Generix Group Leave a comment

In the wake of the pandemic, many manufacturers are aggressively pursuing new supply chain technology deployment. Decisions and deployments that would have taken years in the past were suddenly rolled out in months as personnel began working from home and consumers moved their shopping online. Many of these technology initiatives are covered by the concept of digital transformation or Industry 4.0.

Supply chain technology deployment themes

Three key themes stand out as we survey the new supply chain technology deployment landscape:

-Connectivity

-Intelligence

-Automation

Let’s explore each of them one at a time.

Connectivity

Technologies that support the ability to get the right information to the right decision-maker in the supply chain at the right time include 5G connectivity, with its promise of ultra-reliable communications and low latency; cloud-based applications that knit together various business systems; and Internet-enabled sensors on production equipment that capture data about the operating state.

5G is set to become a key enabler of smart supply chain initiatives as its features provide manufacturers the opportunity to introduce or enhance a variety of real-time and highly reliable applications. As McKinsey & Co. write, “If 5G consistently meets its performance promises, [programmable logic controllers] could be virtualized in the cloud, enabling machines to be controlled wirelessly in real-time at a fraction of the current cost.” In addition, “5G speeds up the decision-cycle time, allowing massive amounts of data to be ingested, processed, and actioned in near real-time.”

Intelligence

AI-powered analytics, leveraging the wealth of data generated by operations, enable quality control, predictive maintenance, and supply chain optimization. In recent years, all manner of cloud-based applications for enterprise resource planning (ERP), manufacturing execution systems, and warehouse management systems have been imbued with artificial intelligence and analytics capabilities, enabling them to make smart predictions about future needs for raw materials, work-in-progress goods, and demand for final products.

Leveraging the previous thread about 5G connectivity and IoT sensors deployed at scale, the addition of artificial intelligence and analytics enables manufacturers to execute on the vision of the smart factory and the intelligent supply chain.

As an enabling technology, artificial intelligence also provides the foundation for autonomous planning; this is predicated on internal data as well as external data from suppliers, customers, demographics, and broader economic indicators.

Automation

As IndustryWeek notes, in the wake of the pandemic, “automation will be a key component of the effort to revive domestic manufacturing … advances in automation and robotics have drastically increased productivity across a number of manufacturing processes.”

In addition to robotics, automation depends upon access to real-time data to enable process automation, supervision, and remote control. Real-time data collection along the supply chain at scale is made possible by the widespread use of digital sensors (IoT) and low latency 5G connections.

As McKinsey and Co. write, “automated equipment-monitoring and process-control systems can bolster the continuity of operations, even with skeletal crews. These systems can further optimize operating-equipment and process parameters, increasing overall equipment efficiency for reduced cycle times and higher yield, quality, energy, and throughput.”

Ultimately, McKinsey & Co. write that what we see is, “a complete consolidation of devices and process management. ‘Process and device’ will be inseparable; physical things become part of the process. What this means for the plant is that machines and workflows merge to become a single entity. The workflow ceases to exist as an independent logistical layer; it is integrated into the hardware⁴.”

Conclusion

Supply chain experts agree that the new normal, this post-pandemic world, is here to stay. In response, manufacturers and their suppliers have undertaken several initiatives, such as integrating warehouse management systems into their warehouses, to meet the challenges brought about by Covid-19. With many initiatives accomplished in record time, supply chain participants have enabled new supply chain resiliency.

As McKinsey & Co. notes, “players utilizing digital solutions are better positioned to weather the storm, having moved faster and further than their peers during the crisis. As companies think about restoring operations and building the muscle to deal with future crises, using digital technologies will be top of mind for many.”

Generix Group North America provides a series of solutions within our Supply Chain Hub product suite to create efficiencies across an entire supply chain. Our solutions are in use around the world and our experience is second-to-none. We invite you to reach out to us here to learn more.

This article originally appeared on here. Republished with permission.

Archives, Global Trade Daily, Software

Edge Data Center Market is Projected to Reach USD 20 Billion by 2026

November 7th, 2020 Global Market Insights Leave a comment

According to a recent study from market research firm Global Market Insights, the edge data center market will surpass US$20 billion by 2026 with regard to annual valuation. Mentioned below are some factors propelling market growth. Verizon Wireless launched the 5G mobile service in 2019 in more than 30 cities in the U.S.A. The emergence of 5G wireless infrastructure has urged data center operators to opt for edge computing infrastructure to work with networks offering lower latency and higher resiliency. Multi-access Edge Computing (MEC) tool aids network services to closely connect to the users.

Edge data center market are smaller facilities connected to larger data centers or multiple data centers that work to render cached content and cloud computing services to end-users. The demand for efficient data centers will be augmented by many factors including the introduction of 5G technology across the globe and the growing trend of autonomous or self-driving vehicles and smart cities.

Reportedly, nearly 85% of households in the U.S. own a computer, out of which 70% are connected to the internet. As the majority of the population in the U.S. is connected to a data network, the demand for data centers in the region is poised to grow substantially.

Deployment of technologies like Content Distribution Networks (CDN) and IoT has led to reduced telecommunications latency and bandwidth costs by distributing data centers near the points of utilization. Telecom operators are shifting their preferences towards edge computing to improve network latency and coverage. Furthermore, there is an augmenting demand from compute-intensive applications for efficient data centers.

The developing IT and telecom sector in several countries globally will foster substantial growth for the edge data center market. The launch of 5G network services in the U.S. and Europe will positively influence the need of acquiring efficient data storage solutions in the region. The high-speed 5G networks rely heavily on efficient data availability and storage facility. To cater to the rising data processing requirements, major telecommunication companies are incorporating edge data center solutions.

Edge computing ensures faster response time and enhanced experience of the customers by enabling efficient data analysis. A large number of connected devices have created unprecedented network traffic and complexity of data. To cope-up with the current crisis of network bandwidth and the complexity of managing an abundance of data, the edge data center solutions are witnessing considerable demand, especially from the telecom industry.

The edge data center market in the Middle East and Africa will observe lucrative growth on account of the rapid industrialization and digitalization in the region. The governments in the region are emphasizing on establishing a globally integrated market environment and building of modern economies by initiating several programs such as Abu Dhabi Economic Vision 2030 and UAE Vision 2021. The surging number of businesses incorporating advanced digital techniques will boost the demand for edge data center equipment.

Digital Realty and Equinix Inc., major colocation providers, have entered the data center business in the Middle East & Africa. The extensive growth of online businesses and IoT in the region has propelled the adoption rate of edge data centers.

The advancement of information technology and rapid development across all sectors has led to the introduction of various innovative products and services to enhance the lifestyles of the human being. Rapid advancements in the IT sector have encouraged the need for edge data centers that store, compute, and retrieve data as per requirements.

Key Companies covered in the edge data center market are 365 Operating Company LLC, Dell Technologies, Inc., Eaton Corporation, EdgeConneX, Inc., EdgeMicro, EdgePresence, Flexential Corporation, Fujitsu Ltd., Hewlett Packard Enterprise (HPE) Company, Huawei Technologies Co., Ltd., IBM Corporation, Netrality Properties LP, NVIDIA Corporation, Panduit Corporation, Rittal Gmbh & Co. KG, Schneider Electric SE, Servtech Inc., Smart Edge Data Centres Limited, Systel, Inc., Vapor IO, Inc., Vertiv Group Co., vXchnge Holdings LLC, Zella DC.

Source: https://www.gminsights.com/pressrelease/edge-data-center-market

Archives, Global Trade Daily, Imports/Exports, International Trade, Software

UNPACKING US-CHINA SANCTIONS AND EXPORT CONTROL REGULATIONS: HUAWEI

September 10th, 2020 Ginger T. Faulk and Jeffrey P. Bialos Leave a comment

This is the first in a series of articles by Eversheds Sutherland partners Ginger Faulk and Jeff Bialos explaining the legal and regulatory impacts of certain recent US sanctions and export control actions targeting various Chinese entities. Each article focuses on a different aspect of a recent US sanctions or export control regulatory action targeting China and explains in-depth the regulatory context. Recognizing that this is a highly charged political topic, the article does not condone or promote any governmental actions discussed here but is only explanatory in nature.

You undoubtedly will have heard by now that the United States has effectively blocked Huawei’s access to US exports of goods, software and technology, handicapping a giant in the global battle for 5G dominance, upsetting telecom supply chains and setting off a telecom cybersecurity crisis of conscience among many of the world’s developed and developing nations. As a result of Huawei’s designation on the US Department of Commerce’s “Entity List” in May 2019, all companies – no matter where they are – are prohibited under US law from exporting, re-exporting or transferring items that are “subject to the [US] Export Administration Regulations (EAR)” to 152 non-US Huawei affiliates. As a result, hundreds of telecommunication and software companies in third world countries are faced with the binary choice of whether to source technology and software from the United States or to transact business with Huawei.

The US government apparently concluded that this move alone did not work to prevent Huawei from benefiting from US-origin 5G semiconductor technology. Thus, more than a year later, recent rules have expanded the definition of what is “subject to the EAR,” with respect to Huawei specifically, to include offshore semiconductor production based on US technology. The changes to the rule demonstrate how US export controls are evolving to address perceived national security threats in the telecom sector writ large.

All of this is occurring against the backdrop of the US seeking to encourage friends and allies in Europe and beyond to eliminate or at least restrict the role of Huawei in their domestic telecom network infrastructure. This effort is based on concerns over the risk that Huawei theoretically could, at the behest of the Chinese government, either disrupt such infrastructure during periods of exigency or use their access to these platforms to conduct surveillance. In this regard, the new and more restrictive US regulatory approach to Huawei’s access to offshore semiconductor chips appears to have been effective. The UK has reportedly restricted its engagement with Huawei in 5G, apparently as a consequence of supply chain risks resulting from the new US rules, in other words, out of concern that Huawei might not have sufficient access to necessary semiconductor chips to meet the UK’s telecom needs. Whether other US friends and allies will do likewise remains to be seen.

1. The initial Huawei ban

Since May 2019, the Export Administration Regulations have prohibited US and non-US persons and companies from exporting, re-exporting or transferring in the country, or causing, aiding, abetting or soliciting the export, re-export or transfer of, any item that is “subject to the EAR” to the designated Huawei affiliates.

Items that are “subject to the EAR”[1] include all commodities, software and technology, regardless of their sensitivity, that are:

1. a) in the US (even temporarily);

2. b) produced in the US, or

3. c) exported from the US.

The EAR state further that “items subject to the EAR” include all hardware, software and technology that meet the definition of that term, whether or not the items are listed on the Commerce Control List (CCL) in Part 774 of the EAR. Items subject to the EAR that are not listed in the CCL are designated as “EAR99,” which serves as a catchall category.

Non-US-origin items produced and sold from outside the US also may be subject to the EAR in the following ways:

(a) Under the “De minimis Rule,” non-US items subject to the EAR include items anywhere in the world that contain more than a certain percentage (25% in most cases) US-origin content by value based on fair market price.

(b) Under the “Direct Product Rule,” foreign items that:

(i) are the direct product of certain “National Security”-controlled US technology, software, or

(ii) are the direct product of a factory or major component of a factory (such as, chip manufacturing equipment) that is itself the direct product of specified controlled technology or software that may be subject to the EAR.

The Entity List designation created challenges for numerous US companies that are suppliers to Huawei or that afford it access to their technology platforms, such as Google’s Android operating system. Following the BIS designation, some of these US technology companies – including Google, Intel, Qualcomm and Broadcom – announced they would cease doing business with Huawei, effective immediately. Specifically, Google announced it would cut off Huawei’s access to the Google Play Store and to the core components of the Android ecosystem that are built by Google (i.e., not those distributed under the Android Open Source Project (AOSP)). Given that many third-party apps rely on Google Maps, this restricted the offerings of Huawei handsets, especially in the European markets. The chips manufacturers also were forced to shift outside of the US manufacturing and processing of silicon wafers that would ultimately be sold to Huawei.

Shortly after Huawei’s designation, in response to clamoring by industry, a Temporary General License (TGL) was issued to authorize the continued operation of existing networks and equipment, continued support to existing Huawei personal devices and equipment and cybersecurity research and vulnerability disclosures. It also authorized engagement with Huawei companies for the development of 5G standards. The goal of the TGL was to allow time in which to phase in the application of the designation for US firms with pre-existing arrangements with Huawei and allow them time to plan for an appropriate transition.

2. What was the perceived “loophole” in the rule?

Meanwhile, chipmaking factories outside of the United States, including Taiwan-based manufacturers, apparently continued to fabricate cutting-edge chips for Huawei using certain equipment that was designed, in part, based on US-origin technology.

This is because, for the first year of the rule (until May 16, 2020), whether intentionally or not, chips manufactured outside of the United States – even those designed or produced using US technology – appeared to fall outside of the EAR’s jurisdiction. Indeed, for purposes of determining US content value, the value of technology incorporated into a software or hardware component or used to design chip manufacturing equipment is not valued. As such, the “direct product rule” (prior to May 15, 2020) applied only to certain types of controlled technology to certain countries and did not extend to reexports to China of non-US-manufactured semiconductors not containing US-manufactured components.

3. How did US regulators fill in the loophole?

On May 15, 2020, almost exactly a year after the Entity List ban came into place, a new “footnote 1” was added to the Entity List banning the unlicensed export specifically to listed Huawei entities (but not to others on the Entity List) of a broad spectrum of foreign-produced telecom and computer components and equipment that are (i) the “direct product” of US technology or US software, or (ii) are the “direct product of manufacturing equipment that itself is a direct product of US technology or software. This extended the ban to, for example, semiconductor designs – and chipsets produced from those designs – that are developed on the basis of US software or technology. It also extended the ban to chipsets produced using semiconductor manufacturing equipment, even in Taiwan, if that equipment was designed on the basis of US-origin technology. According to industry experts, this seems to cover almost any chip currently in production. “To prevent immediate adverse economic impacts on foreign foundries utilizing US semiconductor manufacturing equipment that have initiated any production step,” the US provided a 120-day grace period for exports to Huawei of items based on (US-derived) Huawei design specifications as of May 15, 2020.

Under this revised rule, foreign-produced chips are prohibited for export or re-export when there is “knowledge [including awareness of a high probability] that they are destined for re-export, export from abroad, or transfer (in-country) to Huawei or any of its affiliates on the Entity List.” This change threatens to impact Huawei’s access to 5G microprocessors and appears to have caused the UK to rethink the role of Huawei in its developing 5G network. The US work to close the loophole was not yet complete, however…

4. The grip tightens…

The most recent rule change on August 20 ended the Temporary General License and also further tightened the screws on Huawei by clarifying that the ban applies (1) not only when a listed Huawei affiliate is the destination for or receives an item but also whenever it is an indirect party to a transaction involving a subject item, e.g., as a “purchaser,” “intermediate consignee,” “ultimate consignee” or “end-user,” and (2) when the foreign-produced item will be incorporated into or used in the production or development of any part, component or equipment produced, purchased or ordered by a listed Huawei entity. These changes were principally designed to address concerns raised by public commenters that Huawei could continue to procure US manufactured items through third-parties who incorporate the subject US-controlled component into a system that is ultimately sold to Huawei.

Critics of the rule have commented that the new rule will encourage China to develop its own computer and telecom system chips and technologies in order to support Huawei and other Chinese companies that rely on such chips for their products. Others have voiced concerns that – without US security patches and software updates permitted under the TGL – overseas consumers and operators will be vulnerable to severe disruptions and cyber-security risks.

Meanwhile, the global telecom sector is carefully watching countries like Germany, which is deciding the role that Huawei will play in domestic telecoms infrastructure. These decisions will signal whether continental Europe and other US friends and allies in Asia and elsewhere will fall in line behind US efforts to exclude Huawei from global networks – thereby decoupling US-China telecom supply chains. Or alternatively, whether these countries will assert their own “digital sovereignty” and allow Huawei a continued role – with attendant repercussions on their security relationships with the United States.

Meanwhile, the Department of Commerce enjoys the latitude to issue specific export licenses to firms that request to keep supplying Huawei with software or components. The stage is set for the battle to continue as China is reportedly considering retaliatory measures of its own, possibly to include its own export controls.

_______________________________________________________________

Ginger T. Faulk, partner at Eversheds Sutherland, represents multinational companies in matters involving US government regulation of foreign trade and investment. She has extensive experience advising and representing global companies, counseling clients in matters arising under US sanctions, export controls, import and other national security and foreign policy trade-related regulations.

Jeffrey P. Bialos, partner at Eversheds Sutherland, assists clients in making multi-faceted business decisions, structuring transactions and complying with complex regulatory requirements. As former Deputy Under Secretary of Defense for Industrial Affairs, he brings deep experience in defense, homeland security and national security matters, including antitrust, procurement, export controls, industrial security and the Foreign Corrupt Practices Act.

[1] See generally 15 CFR Parts 732 and 734.

Archives, Global Trade Daily, Software, Special Reports

Winter 2019 U.S.- China Cybersecurity Update

November 15th, 2019 Joe Whitley, Alan Enslen, Julius Bodie and Frank Xue Leave a comment

It is difficult to accurately speculate on the progress of U.S.-China trade negotiations, as media reports on the status of key policy proposals seemingly differ each day depending on the transparency and messaging agenda of the sources involved. However, what has been certain during the winter of 2019 is that major updates to U.S. and Chinese cybersecurity regulations are in the process of being implemented, and these developments stand to set key precedents for the intersection of applicable foreign investment and cybersecurity regulations in the U.S. and China.

Building on our previous two articles regarding U.S. economic espionage concerns and updated U.S. foreign investment restrictions, this article will provide an overview of notable cybersecurity legislative and investigative developments that will likely dictate the near future of critical facets of U.S.-China relations in the 21st century, including (1) the implementation of China’s revised cybersecurity legislation known as the Multi-Level Protection Scheme (“MLPS 2.0”); (2) the Committee on Foreign Investment in the United States (“CFIUS”) reported investigation into the popular social media app TikTok; and (3) the race to implement 5G infrastructure and ongoing speculation regarding Huawei’s licensing status.

1. Implementation of China’s Multi-Level Protection Scheme (MLPS 2.0)

In 2017, China implemented comprehensive cybersecurity legislation commonly referred to as China’s Cybersecurity Law (“CCL”) in efforts to consolidate authority over and standardize regulation of the internet and cyberspace. The CCL includes strict prohibitions on how companies, particularly U.S. and other foreign companies, can store data and interact online. For example, the CCL requires that network operators in China cooperate with and provide support to government agencies in support of safeguarding national security, and additional provisions have been passed in recent years under the CCL that provide broad authorizations for law enforcement agencies to inspect and monitor internet service providers and computer network data centers. Foreign companies and human rights organizations have criticized the CCL as regressive legislation that fosters state censorship and surveillance and lacks sufficient privacy protections.

Article 21 of the CCL codified China’s requirements for network operators to implement a cybersecurity “multi-level protection system” that includes mandates to implement and adopt certain technical measures and security protocols to monitor and record network activity. Article 37 imposes certain data localization requirements and requires “critical information infrastructure” operators to store personal information and important data gathered or produced within the mainland territory of China.

On December 1, 2019, MLPS 2.0 will take effect, and will impact how U.S. companies and other foreign companies can do business online and store electronic data in China. A draft of the new regulations was first released in June 2018, and the revised MLPS 2.0 incorporates three information security technology standards that in effect will broaden the Chinese government’s authority, particularly that of the Ministry of Public Security, to proactively supervise, manage, and enforce cybersecurity regulations and restrictions on companies operating in China.

The expanded monitoring and enforcement authorities that MLPS 2.0 provides the Chinese government has provoked increasing privacy concerns for foreign firms, particularly those handling sensitive data. The regulations provide stringent mandates on how foreign companies must secure their networks, utilize local sever systems, and cooperate with government authorities. As the new law enters into effect on December 1, 2019, it will be critical for U.S. companies operating in China to understand how the new laws will impact their operations. Companies that store and utilize sensitive personal data, U.S.-regulated technology or technological data, or proprietary intellectual property and trade secrets will have to ensure compliance with both U.S. and Chinese regulations governing privacy, export controls, and cybersecurity regulations.

2. CFIUS Takes on TikTok

We previously provided an overview of the updated CFIUS regulations concerning foreign investment restrictions scheduled to take effect in the U.S. in February 2020. However, that does not mean that CFIUS, the inter-agency committee tasked with the authority to review, modify and reject certain types of foreign investment that could adversely impact U.S. national security, is dormant in terms of its current investigations. In fact, on November 1, 2019, Reuters reported that CFIUS has launched a national security review of the popular social media and video-streaming app TikTok, related to the acquisition of social media app Musical.ly (since rebranded as “TikTok”) by Beijing ByteDance Technology Co. in 2017 for $1 billion. TikTok earlier this year said that approximately 60% of its 26.5 million monthly active users are located in the United States.

U.S. lawmakers first raised national security concerns related to the TikTok platform, particularly its Chinese parent company’s collection of user data and purported censorship of user content. For example, Senators Chuck Schumer and Tom Cotton sent a bi-partisan letter to the Acting Director of National Intelligence in October voicing concerns over TikTok’s data collection practices, highlighting Chinese laws that “compel Chinese companies to support and cooperate with intelligence work controlled by the Chinese Communist Party.” While it is unclear what the outcome of this particular review will be, it puts a spotlight on the types of industries and practices that CFIUS is currently scrutinizing and provides a useful case study for what types of mitigating measures we may see imposed by the Committee down the road.

The updated CFIUS regulations set to take effect in February 2020 expressly expand the jurisdiction of CFIUS to include reviews of non-controlling foreign investments in companies that store and have access to sensitive personal data of U.S. citizens. But the CFIUS review into TikTok is only the latest investigation by the Committee into burgeoning technology apps that store sensitive personal data. CFIUS has previously targeted the proposed acquisition by the Chinese Kunlun Group of the U.S. dating application “Grindr” for data privacy concerns regarding its individual users, and similarly forced the Chinese digital healthcare company iCarbonX to divest from it its investment in the U.S. healthcare startup “PatientsLikeMe.”

These recent cases ultimately show that CFIUS is increasingly focused on the protection of the sensitive personal data of U.S. citizens in emerging technological applications, particularly when Chinese investment is involved. All U.S. companies considering foreign investment will have to take heed of the current and soon-to-be updated CFIUS regulations and increase their due diligence efforts, particularly where Chinese investment is concerned.

3. 5G Supremacy: Timeline on Huawei Restrictions and Licensing Still Unclear

Finally, a critical ongoing area of U.S.-China cybersecurity relations is the debate over the role that China’s telecommunications leader Huawei will have in developing and implementing global 5G technology and data networks. Huawei was placed on the U.S. Department of Commerce “Entity List” over national security concerns in May 2019, which restricts U.S. companies from doing business with it, and a licensing regime was put into place for U.S. companies that seek to engage with Huawei and certain of its subsidiaries. While no such licenses have been issued to date, U.S. Secretary of Commerce Wilbur Ross recently indicated that at least some of the 260 license applications their office has received will be granted and issued shortly.

U.S. critics believe that allowing Huawei to take the lead on 5G and similar data network equipment will potentially give the Chinese government the ability to collect data of the users of Huawei products. However, Huawei is a global leader in 5G technology, and despite pressure from the U.S. government, countries like Germany, Hungary, and Norway have decided against banning Huawei from their 5G networks. The inherent difficulties and concerns in having the global leader in 5G technology also be closely connected to the Chinese government is an issue that every country seeking to develop 5G infrastructure will have to address, and will likely be a focal point in the U.S.-China trade war as well as in global cybersecurity relations for years to come.

If you have any questions about U.S.-China trade relations as it relates to CFIUS, cybersecurity regulatory compliance, or U.S.-imposed licensing restrictions, please contact a member of Baker Donelson’s Global Business Team below.

____________________________________________________________________
Joe D. Whitley is a shareholder at Baker Donelson and chairs the Firm’s Government Enforcement and Investigations Group. He can be reached at jwhitley@bakerdonelson.com.

Alan Enslen is a shareholder with Baker Donelson and leads the International Trade and National Security Practice and is a member of the Global Business Team. He can be reached at aenslen@bakerdonelson.com.

Julius Bodie is an associate with Baker Donelson who assists U.S. and foreign companies across multiple industries with international trade regulatory issues. He can be reached at jbodie@bakerdonelson.com.

Frank Xue is an associate with Baker Donelson who assists Chinese clients with matters in the U.S. related to foreign direct investments, mergers and acquisitions, and private equity/venture capital. He can be reached at fxue@bakerdonelson.com.

_______________________________________________________________________

1. CCL Translation: “Cyber-security Law of the People’s Republic of China,” Dezan Shira and Associates. https://www.dezshira.com/library/legal/cyber-security-law-china-8013.html.

2. CCL Article 9; see also Laney Zhang, China: New Regulation on Police Cybersecurity Supervision and Inspection Powers Issued, Library of Congress (November 13, 2018) (discussing Measures of Internet Security Supervision and Inspection by the Public Security Organs, (Sept. 15, 2018, effective Nov. 1, 2018)) https://www.loc.gov/law/foreign-news/article/china-new-regulation-on-police-cybersecurity-supervision-and-inspection-powers-issued/.

3. See, e.g., China: Abusive Cybersecurity Law Set to be Passed, Human Rights Watch (November 6, 2016) https://www.hrw.org/news/2016/11/06/china-abusive-cybersecurity-law-set-be-passed; China adopts cyber security law in face of overseas opposition, Reuters (November 6, 2016) https://www.reuters.com/article/us-china-parliament-cyber-idUSKBN132049.

4. Draft Cybersecurity Classified Protection Regulations, China Ministry of Public Security (June 27, 2018) http://www.mps.gov.cn/n2254536/n4904355/c6159136/content.html?from=timeline&isappinstalled=0.

5. See, e.g. Simone McCarthy, Will China’s revised cybersecurity rules put foreign firms at risk of losing their secrets?, South China Morning Post (October 13, 2019) https://www.scmp.com/news/china/diplomacy/article/3032649/will-chinas-revised-cybersecurity-law-put-foreign-firms-risk.

6. Greg Roumeliotis, Yingzhi Yang, Echo Wang, Alexandra Alper, Exclusive: U.S. opens national security investigation into TikTok, Reuters (November 1, 2019) https://www.reuters.com/article/us-tiktok-cfius-exclusive/exclusive-u-s-opens-national-security-investigation-into-tiktok-sources-idUSKBN1XB4IL.

7. Reuters, How TikTok, Caught in U.S. Regulatory Crossfire, Rose to Global Video Stardom, The New York Times (November 4, 2019) https://www.nytimes.com/reuters/2019/11/04/business/04reuters-tiktok-cfius-factbox.html.

8. See, e.g. Senator Marco Rubio Letter to Secretary of Treasury Steven Mnuchin https://www.rubio.senate.gov/public/_cache/files/9ba023e4-2f4b-404a-a8c0 e87ea784f440/FCEFFE1F54F3899795B4E5F1F1804630.20191009-letter-to-secretary-mnuchin-re-tiktok.pdf

9. Senators Charles E. Schumer and Tom Cotton Senate Letter (October 23, 2019) https://www.democrats.senate.gov/imo/media/doc/10232019%20TikTok%20Letter%20-%20FINAL%20PDF.pdf.

10. See, e.g., Christiana Farr and Ari Levy, The Trump administration is forcing this health start-up that took Chinese money into a fire sale, CNBC (April 4, 2019) https://www.cnbc.com/2019/04/04/cfius-forces-patientslikeme-into-fire-sale-booting-chinese-investor.html; Echo Wang, China’s Kunlun Tech agrees to U.S. demand to sell Grindr gay dating app, Reuters (May 13, 2019) https://www.reuters.com/article/us-grindr-m-a-beijingkunlun/chinas-kunlun-tech-agrees-to-u-s-demand-to-sell-grindr-gay-dating-app-idUSKCN1SJ28N.

11. Huawei Entity List and Temporary General License Frequently Asked Questions, Department of Commerce (September 18, 2019) https://www.bis.doc.gov/index.php/documents/pdfs/2447-huawei-entity-listing-faqs/file

12. Philip Heijmans and Haslinda Amin, Ross Optimistic on China Deal, Trump Wants It Signed in U.S., Bloomberg (November 3, 2019) https://www.bloomberg.com/news/articles/2019-11-03/ross-optimistic-on-china-trade-deal-says-huawei-licenses-coming?srnd=premium.

13. See, e.g., Associated Press, Hungary Says Huawei to Help Build Its 5G Wireless Network, New York Times (November 5, 2019) https://www.nytimes.com/aponline/2019/11/05/business/bc-eu-hungary-huawei.html; Chloe Taylor, Germany set to allow Huawei into 5G networks, defying pressure from the US, CNBC (October 16, 2019) https://www.cnbc.com/2019/10/16/germany-to-allow-huawei-into-5g-networks-defying-pressure-from-the-us.html.