Based on ten interviews with industry insiders and regulators, TechNode tells the story of how Huawei established itself in the Greek market—and how the tables have turned for the Chinese telco giant. This is the first part of a three-part series.
In 2011, the Greek government was just embarking on what would turn out to be a years-long journey of bankruptcy avoidance with a cost of harsh austerity. Social welfare cuts, increased taxes and drastic public sector reforms sent unemployment and inflation soaring—and Greeks took to the streets en masse.
Thousands of people were being laid off. Many businesses didn’t know if they would make it to the end of the year. The Greek government was so cash-strapped that it had to be bailed out by international credit institutions.
During this chaos, a small telco operator decided to upgrade its network (in Greek) to 4G. Wind Hellas wanted to spend three years rebuilding infrastructure that previously took 18 years to complete.
Wind Hellas had a secret weapon: a relatively unknown Chinese company called Huawei. While the country was in deep trouble, Huawei helped Wind Hellas build a brand-new network.
By 2014, the pair had built a 4G network that they claimed was the country’s fastest.
Today, Wind Hellas is Greece’s only surviving network operator that isn’t affiliated with a European telco conglomerate, and its relationship with Huawei runs so deep that its experience of other vendors is virtually non-existent.
“We cannot compare with other suppliers, but from what we know, [Huawei’s] performance is on par with them,” Nikos Panopoulos, chief network and supply chain manager at Wind Hellas told TechNode.
The telco wars
To China, Huawei is a national champion, proof that the Chinese model can birth global tech leaders. To the US, it is a Trojan horse, Chinese interests and state capitalism masquerading as a run-of-the-mill tech firm.
But to Greece’s three telco operators, including Wind Hellas, Huawei—or “Hua,” as Greek telecoms professionals call it—has been a reliable partner for 10 years. It is a trusted supplier with a proven track record.
Huawei equipment is everywhere in Greece. Although it has not been used in Greece’s core network, Huawei equipment makes up more than half of Greece’s 4G radio access network (RAN), the grid of cell towers that speak directly to cellphones. Wind Hellas built its RAN system almost entirely with Huawei equipment.
RAN is the infrastructure that connects the end-user with the core network. If you’re sending an email, the first thing your phone does is to connect to the network using RAN. The EU considers RAN “highly sensitive” but not “critical” to network security.
It’s not just telecoms. The warehouses of IT providers in the country are full of Huawei products, ready to be integrated into server centers around the country. The Shenzhen-based company is so deeply entrenched in the systems of a US ally that it is all but impossible to imagine the country rejecting it.
With its most important military ally on one side and a vital trading partner on the other, Greece faces a dilemma that’s become common in 2020.
We’re going to spend the next few weeks exploring what the fight over Huawei looks like when you’re caught in the middle, using Greece as our case study. Greece’s story is unique (as we’ll see next week, it includes the suspicious death of a Vodafone employee possibly involving a US security agency), but it exemplifies the conflicts US allies face as Washington tries to drop a Silicon Curtain.
For the past two years, US diplomats around the world have implored allies not to use Huawei gear in their 5G networks. The company is “an arm of the Chinese Communist Party’s surveillance state,” said US Secretary of State Mike Pompeo in an official press release. He has called on countries to form a coalition and “push back” against China.
Some of the US’s closest allies have decided to exclude Huawei from 5G buildouts: Australia, New Zealand, Sweden, the UK, and, reportedly, France. The rest of Europe has so far resisted singling out Huawei for a complete ban.
Even three countries that signed 5G security agreements early on with the US—Estonia, Poland, and Romania—are trying to find ways to increase security without singling out Huawei.
Many European countries are still undecided: Austria, Finland, Luxembourg, the Netherlands, Norway, Portugal, and Spain. Some, like Switzerland and Hungary, have committed to buy from Huawei.
Huawei’s journey to the west
In the early 2000s, Ericsson and Nokia were the world’s biggest telecoms vendors, and China was still considered a developing country by the World Trade Organization. From 2000-2005, only about one in five people in China had either a mobile phone or a landline, according to data from the International Telecommunication Union.
Huawei was a budget alternative at best. It started to explore business in Africa in 1998 and set off on its international expansion around 2000, Antonia Petrovits, a spokesperson for Huawei Greece, told TechNode.
Telecoms equipment manufacturer Cisco was the first US entity to take aim at Huawei in 2003, alleging that the then-upstart had infringed on five Cisco patents. But Washington had yet to come up with an aggressive and comprehensive policy centered around a national security argument, which is what we see today.
Huawei’s Athens office doesn’t have a big sign. The company doesn’t even list the address on their website. Unless you are invited, the only way to find out where they are is by accident (as TechNode did).
It’s a far cry from Huawei’s grandiose Shenzhen headquarters. A simple four-floor building houses a women’s health clinic, and the national headquarters of Huawei and Media Markt, a nationwide electronics retailer.
But its strategic location more than makes up for its modest appearance. It is a stone’s throw away from the headquarters of Greece’s telco providers.
The Chinese telco giant approached Europe via the Middle East, Paul Scanlan, head of Huawei’s Carrier Group, told TechNode. They wanted to build a good brand and understand the region better before dealing with more “mature customers,” he said.
When Huawei opened its offices in Athens in 2005, it was a China-focused company with a few branches in developing countries. The same year it inaugurated its offices in Greece, it opened an office in Kenya.
Greece appeals to Chinese companies as a “landing point” for Europe. As a member of the European Union, it follows EU rules and is an entry point into Europe’s southern and eastern blocs, Andreas Polycarpou, who worked in Athens as an executive consultant for strategy and innovation at ZTE for six years, told TechNode.
Good products, great service
At first, Huawei undercut competition with lower prices and aggressive marketing tactics. One person with direct knowledge of the procurement process said Huawei would directly compare technical specifications and pricing with competitors’ at sales meetings.
The company’s ownership structure allowed it to keep prices low while charging into new markets, like Greece. As a privately owned company, it can afford to be patient about turning profits.
“If their prices are lower, it’s not necessarily because they’re being heavily subsidized by the Chinese government. It’s because they don’t have to answer on their margins for shareholders,” Paul Triolo, practice head of geotechnology at advisory firm Eurasia Group, told TechNode.
Greek telcos OTE and Wind Hellas first bought Huawei equipment eight years ago, OTE’s Director of Strategic Planning Pavlos Vihos and Wind Hellas’s Head of Communications George Tsaprounis told TechNode in separate interviews.
Over time, Huawei’s products got better and its prices increased. But their relationships with local telcos had been established, and their equipment earned a reputation as reliable.
Industry insiders in Greece said Huawei’s equipment is excellent. Some even said that it is superior to Nokia and Ericsson equivalents, Huawei’s only real competitors.
But Huawei’s success in the Greek market goes beyond technicalities. It is largely attributable to a knack for localizing to the market and providing technical support. “Localization has always been our strategy,” Petrovits said, adding that the company “combines the best of the Chinese and international approach.”
At first, “communication was very difficult,” but Huawei developed a very good team of Greek employees and, over time, they managed to make the partnership work, Wind Hellas’s Panopoulos said.
Today, out of Huawei’s 120 employees in Greece, 70% are locals, Kostas Vasiliiou, wireless solution sales manager at Huawei Greece, told TechNode. Half of the 120 are technical staff, he said.
Huawei earned its place in Europe by delivering what was most important to the Greek market: world-class equipment at irresistible prices, and support throughout the products’ life cycle.
The Huawei secret sauce
Huawei’s commitment to localization allowed it to distinguish itself from other low-cost suppliers. As fellow Shenzhen equipment maker ZTE learned the hard way, this was key to winning over new markets like Greece.
ZTE entered the market in 2002 with a big sale of ADSL equipment—a type of broadband—to network provider OTE, Polycarpou said.
But ZTE never managed to form relationships with Greek telcos the way Huawei did. Huawei was able to convince Greek telcos that it would provide dedicated support. ZTE wasn’t.
“When you buy telecoms equipment, you don’t buy it for a year. You buy it for decades. You need to convince the buyer that you will be there to support them,” Polycarpou said.
Huawei had a technical service team tailored to the market from the moment it set foot in Greece. While ZTE improved its localization efforts from 2011 to 2017 and gained some market share, Huawei quickly rolled out new products to counter ZTE’s success.
ZTE’s technical staff currently numbers two people. They can’t compete with Huawei’s “army” of 60 technical service specialists.
“When they [Huawei] installed the IMS systems [IP Multimedia Core Network Subsystem], they brought armies of engineers with them,” Andreas Rigas, Senior Manager of strategy and development at OTE, told TechNode.
ZTE also did not navigate the local business landscape well, sometimes trying to sell products by talking to the wrong people, Polycarpou said.
“When the manager changes, he doesn’t listen to the locals’ advice. He wants to go meet a minister. But in Greece, the minister has nothing to do with sales of telco equipment,” he said.
ZTE never gained traction in Greece. Today, Huawei is cozily nestled in the country’s RAN system, while ZTE mainly sells peripheral network products, such as routers.
Seizing the moment
When the financial crisis spiraled into strict capital controls in 2015, the stars aligned for Huawei. Domestic politics, monetary controls, and other vendors’ finances came together for Huawei to embed itself deeper in Greece’s networks.
Since 2010, the Greek government had been agreeing to difficult austerity measures in exchange for bailouts from international creditors, chiefly the European Central Bank and International Monetary Fund. Foreign direct investment, including from US companies, dried up.
Washington itself sat out the Greek crisis, leaving the fate of its close ally to the hands of its creditors—other than the occasional diplomatic assurance.
Frustrated by austerity and “capitulating” governments, in 2015, the Greek people elected a “radical left” government which promised to stand up to its European creditors.
Shortly after the election, a dramatic sequence of events led to the implementation of capital controls to avoid a run on the banks and the catastrophic collapse of the financial system.
Transfers of money overseas were banned, unless with explicit permission from financial authorities. Cash withdrawals were limited to €60 per day. Greeks spent their summer of 2015 waiting in long ATM lines around the country.
Huawei seized the moment.
When capital controls were introduced, European and US companies stopped most shipments to Greece. Many would only sell if they were paid in advance. With public and private debt reaching unprecedented levels in Greece, advance payments were basically impossible.
Chinese companies like Huawei and ZTE had more cash on hand, and a willingness to bet on the Greek economy—or the country’s geopolitical position. They turned a blind eye to the capital controls by offering generous terms.
These companies let Greek buyers have equipment on credit, accepting deferred payments of up to 15 months.
Such agreements were commonplace during the crisis across industries, an unspoken secret in Greek business. In the case of telco equipment, they boosted the Chinese vendors’ position in Greece’s systems.
The Greek government could barely pay its healthcare suppliers. But Huawei and ZTE’s support allowed Greek telcos to continue investing in their networks.
While Greek telcos were basically unable to buy from Western suppliers, their customers enjoyed substantial improvements in service
Between 2015 and 2018, the last year for which the EU Commission has released relevant data, one-third of Greek households gained access to very high-speed digital subscriber lines (VDSL). In the same time period, coverage of Long Term Network Evolution networks (LTE) increased by 20 percentage points. LTE is the technology that supports 4G connectivity.
In the context of the crisis, these facts are astounding. As Huawei equipment was being used to build up capacity during the capital controls era, about 22% of people in Greece were unemployed, 35% of the population was at risk of poverty and annual GDP growth averaged a meager 0.7%.
Huawei was pivotal in achieving these gains in connectivity. It is unlikely that telcos would have updated their networks so drastically in the midst of a financial crisis without an equipment vendor that was willing to make concessions in payment schedules—Huawei.
The Greek sector took note: when Western firms fled, the Chinese stayed. They “stood by the market,” an industry insider said.
As Huawei ties with Greek telcos were growing tighter, Washington damaged its credibility when it was caught red-handed spying on Greek telecoms networks.
By 2018, when the US began lobbying long-standing allies around the world about the security risks of Huawei products, Huawei equipment was thoroughly embedded in Greek networks. Meanwhile, European leaders in Brussels were finally waking up to the importance of telecoms security.
But in more than a decade in the market, Huawei had already made good friends in Greece. When the Huawei debate started, Greek decision makers had years of experience—and trust—with the company.
Part II of this series will explore how the US campaign against Huawei—and its own espionage activities—have affected EU policy.