Forthcoming legislation is likely to have a profound effect on the UK’s telecoms market and, by extension, the electronics companies in the supply chain. This legislation includes the National Security and Investment Bill and the Telecom Security Bill.
As a non-profit research and technology organisation helping UK companies develop advanced electronics, the Compound Semiconductor Applications (CSA) Catapult has followed these developments closely, consulting widely with our industrial and academic partners.
National Security and Investment Bill
The National Security and Investment bill aims to bring the UK in line with other major economies by protecting intellectual property and assets of strategic national importance. The bill had its first reading in Parliament in July 2020, and its second reading in November 2020.
The bill identifies 17 ‘key sectors’ of strategic national importance. Many of these sectors are relevant to telecoms including: advanced materials; artificial intelligence; communications; computing hardware; cryptographic authentication; data infrastructure; quantum technologies and satellite and space technologies.
Companies operating in these sectors must notify the Secretary of State for the Department of Business Energy and industrial Strategy (BEIS) when they intend to transfer a sizeable proportion of their assets, exceeding 25%, to an overseas entity. The bill gives the Secretary of State power to intervene and block the acquisition.
The UK punches well above its weight in terms of research and innovation, and has a vibrant start-up culture. With less than 1% of the world’s population, the UK authors 15% of the world’s highly cited publications, and is consistently ranked second only to the US for start-ups. However, there have been cases where critical UK innovations have been transferred to foreign ownership and offshored, with the consequential loss of value to the UK economy and the loss of sovereign access to the technology.
The author was invited to give evidence to the Foreign Affairs Select Committee as one of the expert witnesses during the consultation phase.
Most questions focussed on the balance between national security and the UK’s economic interests.
There was some concern that the National Security and Investment Bill will impede inward investment for early-stage UK companies. There was also concern that the bill might be used for economic protectionism as part of an industrial strategy rather than simply for security.
Mitigating these concerns requires a transparent and non-bureaucratic process. The bill will ensure that critical UK innovations remain in UK ownership, and it has the potential to encourage a longer-term investment culture, so that UK start-ups benefit from patient capital and scale-up in the UK.
Telecom Security Bill
The Telecom Security Bill was introduced following a lengthy analysis of the UK’s telecoms market. The bill was announced in July 2020, with its second reading in Parliament in November 2020. The author was invited to give evidence on the bill at the committee stage as one of the expert witnesses.
Amending the Communications Bill of 2003, the new legislation aims to improve the security of UK telecom infrastructure by removing ‘high risk’ vendors, while improving the resilience of supply chains by diversifying the vendor base. The bill will award new powers to the Secretary of State for Digital, Culture, Media and Sport (DCMS) and OFCOM.
Accompanying the Telecom Security Bill, the government announced a telecom diversification strategy informed by a Diversification Taskforce.
The diversification strategy has 3 aims:
- Supporting incumbent suppliers to ensure their resilience and ability to supply the market in the near term, while supporting their transition into the emerging market structure;
- Attracting new suppliers into the UK market to build resilience and competition, prioritising deployments that are in line with our longer term vision;
- Accelerating open-interface solutions and deployment so that we are not reliant on any single vendor and begin to realise our long term vision for a more open and innovative market.
In the spending review of 2020, the Secretary of State for DCMS announced a £250m investment to support vendor diversification. This investment includes a commitment to fund a National Telecom Laboratory and an Open-RAN test facility called SONIC (SmartRAN Open Network Interoperability Centre), to be jointly run the with Digital Catapult, a partner organisation to the CSA Catapult.
Telecom diversification
The Telecom Security Bill, and the diversification strategy, have the potential to reverse recent trends in the telecoms market. Since the 1990s, the industry has undergone considerable consolidation that has affected not only UK vendors but also US and European vendors, leaving just 3 global vendors in the market: Ericsson, Huawei and Nokia.
As the number of vendors has decreased, they have naturally taken steps to protect their market share through practices that raise the bar to new entrants. For example, the rollout of 5G infrastructure is largely expected to be ‘non-standalone’, which means that it is built on the underlying 4G and 3G infrastructure. This clearly favours incumbents, making it difficult for new entrants to enter the market. The decision to remove Huawei from the UK network exacerbates the problem in the short term, as it reduces the number of vendors from 3 to 2.
The diversification strategy consists of 2 key elements: disaggregation and open standards. Disaggregation involves separating the telecom stack into interoperable sub-systems. Disaggregation can take place at a functional level, for example at the radio access network (RAN) or broadband network gateway (BNG), or the separation of hardware and software. Open standards, such as open APIs (Application Program Interfaces) and Open RAN, enable the interoperability between sub-systems provided by different vendors, creating resilience in the supply chain.
Disaggregating the network, and adopting open standards, is expected to open the market to new entrants, increase innovation and drive down costs.
Opportunities for UK electronics
Telecom diversification has the potential to create a level playing field for innovative new entrants, including many UK companies, enabling them to provide a larger proportion of UK infrastructure. While the UK no longer has a recognised OEM, we have many companies developing world-leading technologies for the global telecoms market. These technologies include small cell base-stations, complementing the more established macro sell base stations; backhaul; satellite communications; optical transceivers for fibre communication; quantum encryption; compound semiconductors; digital chip design and software development.
The UK also has world-leading companies providing test and validation. Many companies design and manufacture these technologies in the UK.
The market opportunity is substantial; the rollout of fibre to the premise (FTTP) and 5G deployment, including small cell and macro cell, is estimated to be around £50-100bn in the UK alone. As other countries adopt open standards, this will create export opportunities for technologies developed the UK.
Developing next generation telecoms will inevitably stimulate novel innovations, and intellectual property, with some innovations falling within the scope of the National Security and Investment Bill.
New forms of intervention will be required to realise the aims of the Telecom Security Bill, changing the current monolithic market structure to a diversified vendor base with increased levels of security. For example, these interventions could take the form of innovation funding, matched by industry contributions; a continuation of the successful test beds and trials; direct procurement of critical parts of the infrastructure, following the successful ventilator challenge, or some form of cyber-certification scheme.
These interventions will ultimately determine the future structure of the UK telecoms market, with the potential to influence global standards as data security becomes increasingly important to national governments around the world.
Author details: Dr Andy G Sellars is Strategic Development Director, Compound Semiconductor Applications Catapult
