EU and US warn Malaysia of ‘national security’ risk in Huawei’s bid for 5G role

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The EU and US have warned Malaysia over risks to national security and foreign investment as the government finalises a review of its 5G rollout that could allow China’s Huawei a role in the country’s telecoms infrastructure.

Envoys to Malaysia from the US and EU wrote to the government in April after it decided to review a decision to award Ericsson a RM11bn ($2.5bn) tender to build a state-owned 5G network. The envoys’ letters have been seen by the Financial Times.

The 5G review, which was due to be completed by the end of March, has become a test of whether Prime Minister Anwar Ibrahim’s new government can deliver stability after years of political chaos, as well as its ability to juggle relations with the west and China.

Huawei, the Chinese equipment maker blacklisted by Washington, has lobbied heavily for another chance at a role in building Malaysia’s network.

Brian McFeeters, the US ambassador to Malaysia, warned of “national security risks” unless Malaysia stuck with its original plan for 5G deployment.

“Senior officials in Washington agree with my view that upending the existing model would undermine the competitiveness of new industries, stall 5G growth in Malaysia, and harm Malaysia’s business-friendly image internationally,” he said in the letter viewed by the FT.

“The US and other countries prioritise a fair and transparent review process and contract sanctity, as does the international business community. Allowing untrusted suppliers in any part of the network also subjects Malaysia’s infrastructure to national security risks.”

Michalis Rokas, ambassador and head of the EU delegation to Malaysia, said any change would “likely impact negatively and significantly the contractual terms agreed upon at the time of the launch of the open tender”. He noted the EU had more than €25bn invested in Malaysia and European companies “place high value on clear policy direction”.

Any change “will not only impact the selected contractor, but is likely to affect more widely Malaysia attractiveness as a business destination for EU investors, in particular on high technology sectors that rely on trusted 5G vendors”, he wrote.

The deal with Ericsson has enabled Kuala Lumpur to launch a single government-owned network that experts say means lower costs and a speedier rollout. In other countries, governments typically auction off spectrum to mobile operators to build their own networks.

Malaysia, which had been one of the slowest countries in the region to roll out 5G, has promised 80 per cent population coverage by the end of 2023. It has already exceeded 50 per cent, the government said.

One possible outcome of the review is that Malaysia will introduce a second 5G network from next year, said two people familiar with the discussions. Huawei, which alongside Finland’s Nokia was beaten by Ericsson in the open tender process, has been lobbying heavily for such a role, the people said.

It is unclear exactly how the creation of a second 5G network would affect the existing agreement, but experts have warned it could raise costs and create inefficiencies.

“This diplomatic message is pretty unusual. It wasn’t just a shot across the bow — both envoys said they want to discuss it further,” said one person familiar with telecoms law and involved in the discussions. “There is growing consternation both domestically and internationally about the review.”

Ericsson and the US embassy declined to comment. Huawei, representatives for the EU and Malaysia’s communications ministry did not respond to a request for comment.