In our new Emerging Voices series by students, this is the third of five articles by students at the Max Bell School of Public Policy at McGill University.

Sugandha Gupta

June 18, 2022

Do we need a public review of the Huawei decision? Hailed as a victory, the recent announcement by Innovation Minister Francois-Philippe Champagne makes Canada the last country in the Five Eyes intelligence alliance (with Australia, New Zealand, United Kingdom and the US) to either ban or restrict Huawei from partaking in the implementation of their 5G networks. Delayed by three years in part because of the Two Michaels/Meng Wanzhou standoff resolved last fall, this move puts Canada in line with key allies who expressed concerns about the national security implications of giving the Chinese tech giant access to key infrastructure. However, massive economic implications await the domestic economy as well as several Canadian industries. While other countries acted fast, Canada missed an opportunity to demonstrate a convincing leadership role on the international stage.

Huawei has established itself as an important provider of technology essential to Canada’s telecommunications infrastructure in 3G and 4G networks. While the government’s decision was pending, Canada’s large telecom companies including Bell, TELUS and SaskTel struck deals with premium suppliers such as Nokia and Ericsson in order to prevent 5G development from falling behind other markets such as the US and South Korea. However, the federal government’s onus on carriers to strip their existing infrastructure of anything Huawei-made by December 31, 2027 is going to hurt small companies providing vital service to Canadians in the far north, who continued their reliance on the Chinese tech giant given its ability to operate in frigid Arctic winters. An earlier decision would have enabled these small telecoms to figure out, on a timely basis, an alternative route and saved them enormous replacement costs.

Canada’s delay is projected to have cascading effects on a number of Canadian industries and their competitiveness both domestically and globally. For example, Price Waterhouse and Coopers estimate that the industries most impacted by lagging effective 5G coverage such as manufacturing, natural resource extraction, and public services would constitute around 30 percent of the $17 billion of opportunity cost Canada would experience in 2030. Projections indicate a $10B reduction in Canada’s GDP, a $2.5 billion reduction in government tax revenue, and a loss of 94,000 jobs throughout the telecom supply chain. Contrarily, Canada’s allies have taken decisive steps to curb Huawei gear from their respective 5G networks. Given the importance of 5G to the digital economy, they acted quickly and ensured that network operators are incentivized to deploy networks at pace, despite the higher costs and challenging business cases.

The delayed decision also has implications for Canada’s global effectiveness and weak disposition around innovation. America has already expanded 5G coverage to less densely populated areas, including 92 percent of interstate highway miles. In the UK, the government has allocated £500 million to match investments made by network operators to encourage rural network build-out. However, 5G coverage in Canada has yet to fully extend to regional and rural areas, which constrains its potential impact. Low spectrum allocation is one of the reasons Canada is lagging behind its peers in 5G performance; and it is the last country among the G7, Australia and South Korea to issue mid-band spectrum and one of only three countries that have yet to issue high-band spectrum.

Countries like China have rolling long-term industrial plans that are regularly updated with targeted state investments at key strategic industries. Canada, on the other hand, has lacked a robust national long-term strategy and industrial policy that supports economic security, especially in telecommunications sectors. It has been relatively weak at commercializing innovation and intellectual property (IP) investments. There were recent instances of “IP leakage” where leading universities in Canada were giving valuable 5G research and IP to Huawei on industry partnerships, fuelling Huawei’s global leadership in 5G. All these factors have contributed to Canada not having a lead telecom company to roll-out 5G today.

There’s no question that banning Huawei was the right choice, and an important step to securing Canada’s freedom from authoritarian influence. But more than fixing a single issue, it is about fixing an ecosystem, requiring a greater degree of state intervention and long-term planning. While a shift in regulatory approach is needed to ensure that Canada keeps pace with peer countries, the federal government must initiate an open review of the decision process to not only ensure sufficient flexibility to adapt with the changing needs of the digital economy, but also to restore the confidence of businesses and citizens.

Sugandha Gupta is a Master’s student at the Max Bell School of Public Policy at McGill University and a policy professional with a decade of experience in development, and implementation of the federal government of India’s policies and programs at the national level.  She is currently working with the Department of Energy, Government of Alberta.