China · 7 July 2020

The Huawei connection: how Deutsche Telekom became dependent on China

Security agencies warned early about the dependency on Huawei. Telekom CEO Timotheus Höttges deepened the partnership with the Chinese company regardless.

What is at stake

While security agencies were publicly warning about Huawei, Deutsche Telekom was quietly building the closest partnership any major German company had ever formed with a Chinese technology supplier. Handelsblatt obtained confidential internal documents, minutes and briefings spanning four years. They show that CEO Timotheus Höttges drove cooperation with Huawei forward even as Germany’s foreign intelligence service was already flagging risks. The case raises questions that go far beyond Telekom’s balance sheet.

The CEO meeting during the pandemic

In February 2020, Adel Al-Saleh, head of Telekom subsidiary T-Systems, met by video with Eric Xu, Huawei’s chairman. Wuhan was sealed off because of the coronavirus, Europe’s first fatality had just been reported. The meeting focused on the Open Telekom Cloud – a service marketed to German medium-sized businesses with the promise of the highest data-protection standards. Its technological backbone: Huawei. The agenda: deepen cooperation, secure growth. The concerns of the security agencies played no visible role.

Where Telekom relies on Huawei

Four areas show the scale of the entanglement: the OTC cloud platform, 5G network rollout, broadband infrastructure and television products. Huawei is present as a supplier across all of them, and in some areas as a technology partner with its own stake in development. Telekom disputes the picture of deep dependency. “The share of Chinese suppliers amounts to just 25 per cent,” the company says – but the internal arithmetic looks different from what is communicated externally.

The political conflict

The German government was divided on the Huawei question. The economics ministry, the chancellery and the interior ministry opposed an outright ban. The foreign office and the BND warned against Huawei. That division gave Telekom room to manoeuvre – and it used it. Today the question is whether Germany’s infrastructure in key areas depends on a supplier that sits squarely in the geopolitical conflict between the US and China. The answer will have to be given by the next federal government.

I wrote this piece together with Moritz Koch and Sönke Iwersen for Handelsblatt.

Published in Handelsblatt

July 7, 2020 ·Telecommunications

The Huawei connection: how Deutsche Telekom became ever more dependent on China

Security agencies warned early about the dependency on Huawei. Telekom CEO Timotheus Höttges deepened the partnership with the Chinese company regardless.

By Moritz Koch, Stephan Scheuer and Sönke Iwersen

Machine translation. The verbatim German original is on handelsblatt.com (link below).

It was a meeting at the highest level. "CEO Meeting" was the heading on the document with which Deutsche Telekom prepared for a special top-level encounter in February. Adel Al-Saleh, head of the corporate division T-Systems, was meeting Eric Xu, the chairman of Chinese technology company Huawei. The circumstances were delicate. Chinese military and police had sealed off the city of Wuhan because of Covid-19; Lufthansa had suspended flights to and from China. Europe's first fatality from the virus had just been reported.

The Telekom meeting with Huawei was therefore held by video link. Al-Saleh wanted to discuss a key project: the Open Telekom Cloud, or OTC. Telekom markets the offering primarily to German medium-sized businesses with the promise of the highest data-protection standards. The technological backbone is provided by Huawei – a company that German and American intelligence services have warned against. Yet Telekom's agenda for the meeting was: deepen cooperation, secure growth.

There were many such meetings. Handelsblatt has seen confidential documents: briefings, minutes and presentations from the past four years that show the Bonn-based company has tied itself far more closely to Huawei than Germany's security agencies would have wished.

Huawei sits at the centre of a geopolitical struggle over the growing power of the People's Republic of China – and is on the United States' sanctions list. Germany's foreign intelligence service BND has long flagged risks in cooperating with Chinese companies on high-technology projects. But the German government has been divided on whether to allow Huawei to participate in Germany's digitalisation. That division gave Telekom room to deepen the relationship.

In cloud services, 5G mobile networks, broadband expansion and television offerings – CEO Timotheus Höttges and his team have chosen Huawei across the board. In regular meetings Telekom did identify problems and discuss risks. But it never fundamentally questioned its technology partnership with Huawei.

"Deutsche Telekom responded to the findings. A company spokesperson confirmed that there are many forms of cooperation with Huawei, but denied significant dependency. "The fact is that our revenues from Huawei have been declining for three years," the spokesperson said. The share of Chinese suppliers in Deutsche Telekom's European business amounts to just 25 per cent, the company says – though that figure includes Telekom's entire technology business.