Examination of Witnesses

Telecommunications (Security) Bill – in a Public Bill Committee at on 14 January 2021.

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Hamish MacLeod and Matthew Evans gave evidence.

Photo of Steve McCabe Steve McCabe Labour, Birmingham, Selly Oak 2:01, 14 January 2021

Order. We will now hear from Hamish MacLeod, the director of Mobile UK, and Matthew Evans, the director of market programmes at techUK. We have until 2.45 pm for this session, and I will try to alternate as best I can. May I ask the witnesses in turn to introduce themselves for the record?

Hamish MacLeod:

I am Hamish MacLeod, and I am the director of Mobile UK, which is the trade body for the UK’s four mobile network operators.

Matthew Evans:

My name is Matthew Evans, and I am director of markets at techUK, the trade association for the wider technology sector, which has several telecom-related members.

Photo of Steve McCabe Steve McCabe Labour, Birmingham, Selly Oak

Who would like to have the first question?

Photo of James Sunderland James Sunderland Conservative, Bracknell

Gentlemen, good afternoon to you and thank you for coming in. A very quick and easy question: how do the challenges of maintaining security in a mobile network differ perhaps from those of a fixed network?Q26

Matthew Evans:

I am happy to take that question. From the principle point of view, the principles of cyber-security are the same regardless of the network: having security built in by design, but also having a zero-trust principle and good assurance that your defences are looking inwards as well as outwards. On a principle basis, they are very similar.

Hamish MacLeod:

I have nothing to add to what Matt said.

Photo of Dean Russell Dean Russell Chair, Speaker's Advisory Committee on Works of Art

I would be interested to know whether you agree that strengthening the UK’s telecom security through this Bill is important as we continue to roll out the gigabit connectivityQ .

Matthew Evans:

I am happy to take that as well. We completely agree with the overall objective of the Bill, which we think provides clarity to the sector and helps us to further enhance the security and resilience of the UK’s telecommunication networks. Obviously, as more and more services and applications are used over our fixed and mobile networks, ensuring their security and resilience is incredibly important. That is why we are pleased to welcome the Bill and the associated diversification strategy alongside it, which is obviously separate to the Bill but intrinsic to matters of resilience as we seek to broaden the supply chain.

Hamish MacLeod:

I should perhaps reiterate what my colleague said this morning—that the mobile sector very much welcomes the Bill. Security has always been a top priority for mobile operators. We have always worked closed closely with the National Cyber Security Centre, but this is a great opportunity to formalise the arrangements and to make them more structured and transparent.

Photo of Steve McCabe Steve McCabe Labour, Birmingham, Selly Oak

Chi Onwurah, did I detect that you were going to ask questions on behalf of Catherine West?

Photo of Chi Onwurah Chi Onwurah Shadow Minister (Business, Energy and Industrial Strategy), Shadow Minister (Digital, Culture, Media and Sport), Shadow Minister (Science, Research and Innovation)

Thank you, Mr McCabe. I was going to ask on behalf of my colleague, Catherine West, who cannot be here because we have chosen to sit physically rather than remotely. Q [Interruption.] It has been decided that we will sit physically. Her question is about international comparisons. Are you aware of what is happening with other countries’ security frameworks in addressing Huawei and high-risk vendors? Are you aware of any international comparisons?

Matthew Evans:

From techUK’s point of view, obviously our members—you heard from some of them this morning, and you have more this afternoon—operate across a number of different territories. We seem to be the furthest, or the most advanced, in bringing into place quite a holistic security regime. That is in the first half of the Bill. Obviously, the conversation about high-risk vendors is prevalent in other areas, but I would say that in terms of bringing in a regime that covers the entire telecoms sector, this seems to be a world-leading initiative.

Hamish MacLeod:

Chi, I am certainly aware of what other countries are doing as regards high-risk vendors. The operators absolutely accept the Government’s policy and the 2027 timeline. The important thing now is to stick to that timeline, because it allows not only for an orderly removal of the HRV equipment, but for alternatives to develop and emerge as viable competitors to the remaining companies.

Hamish MacLeod:

The States, New Zealand and Australia have all excluded Huawei, among others. We could supply you with a full list if that is needed.

Photo of Miriam Cates Miriam Cates Conservative, Penistone and Stocksbridge

The Government’s diversification strategy goes alongside the Bill. Obviously, the principle driver of the diversification is security reasons, but it will also open up the networks to smaller operators—I imagine, Matthew, many of your members are much smaller companies. Do you think that it will have a positive effect on the sector, in that sense, and are there any other barriers to entry for the smaller tech companies that you can identify and that could be addressed in the BillQ ?

Matthew Evans:

Thank you for that question. As I said at the start, we welcome the Government’s diversification strategy. It looks to tackle four issues, really, which are supporting incumbent suppliers to the UK market; attracting other global-scale suppliers; accelerating open interfaces and interoperability; and then the fourth area, which we could probably do with more detail on, which is really building on that domestic capability. I know that the taskforce that helped Government to frame the strategy is working on that aspect of it. As I say, I think we could do with some more detail.

However, we welcome the funding that has come alongside that strategy, and I think that we have a real opportunity in the UK in some of the areas where we have traditional strengths, in the software side in particular, to build some world-leading capability. As for the Bill itself, I do not think that it necessarily presents a barrier to that domestic capability; it is more in how we develop the strategy that sits alongside the Bill.

Hamish MacLeod:

Just to add to what Matt said, yes, we very much welcome the diversification strategy. It is an absolutely necessary step to mitigate the risks of having to rely on two incumbents. It gives the UK an opportunity to have a leadership role in the development of exciting new technologies, such as open RAN, and, as Matt said, to grow the supplier base in the UK in the mobile sector.

Photo of Kevan Jones Kevan Jones Labour, North Durham

I think we have heard from the witnesses here now and from other operators that the 2027 deadline is important, in terms of not changing. We hear a lot about diversification, but let us be honest: we are going to have to have two vendors up until 2027 and possibly for a long time after. That is because, regarding the investment decisions taken by mobile phone operators, they are clearly not going to put kit in and then suddenly take it out post-2027. So, being realistic about the diversification strategy, which I support in terms of its ambitions, in practical terms—in terms of influencing what is in our telecoms—it is going to be a long way off yet, is it notQ ?

Hamish MacLeod:

Yes. As I just said, the 2027 deadline is very important, because that will give time for realistic competitive alternatives to develop. The open RAN is being deployed in the UK in sort of rural areas and in the less high-performance environments, and that will change over time. The investments that this diversification strategy talks about in research and development will help to develop open RAN, and also in the test bed programmes. All these things will help to build the capability of alternative vendors.

Matthew Evans:

Just to add to Hamish’s answer, there is a reason that we have a relatively constricted number of scale providers for telecoms, and it is the level of R&D required—that is the risk associated with each generation of technology if it is not taken up on a global scale by operators. To be realistic, we are likely to be focused around two incumbent vendors in the short term.

I think that what the diversification strategy sets out, though, and in fairness it is a strategy and not a complete plan, is a path to open up the UK market to those scale providers who at the moment do not participate in it. That is through trying to reduce the commercial and regulatory barriers that we face, such as on spectrum defragmentation and on providing a single RAN solution —at the moment in the UK, there are obviously 2G, 3G, 4G and 5G. But it also then opens up the possibility of greater use of technologies such as open RAN, which really breaks away from that proprietary architecture, whereby we have both the hardware and the software from the same provider.

That will be a challenge in the short term, but in the medium to long term there are actions that can be taken both to attract the scale providers not in the UK market and to make the UK market attractive to people who work in the open RAN area as well. So I think a dual-track approach helps to bring diversification to the UK market.

Photo of Kevan Jones Kevan Jones Labour, North Durham

Q I do not disagree with you in terms of the ambition to invest in open RAN technology, but, realistically, we will have to rip out Huawei hardware and replace it with Nokia or Ericsson equipment. Operators ripping that out just to test something on open RAN is not going to happen, is it? So we are stuck with these two suppliers for a long time yet. There will have to be a business case for open RAN because, if we look back at the history of where we are at with the limited market that we have in hardware—we will not go back to the ancient history of Margaret Thatcher’s silly decision to privatise BT—and if we look at the profitability in terms of hardware, it is not there because we as consumers always want cheaper telecommunications and the companies want to get their costs down. Unless there is a very strong business case for open RAN in terms of deploying that technology, it is not going to happen, is it?

Photo of Steve McCabe Steve McCabe Labour, Birmingham, Selly Oak

Mr Evans, let us go to you first.

Matthew Evans:

Is it going to be easy? No is the short answer. Is it possible to increase that diversification? Yes. We would like to see more commercial incentives for operators, who will have to change and adapt. This will be a change for operators as they diversify their vendor base. Part of the strategy has to be around the scales and the commercial incentives for operators to do so. We have certainly seen, as we heard from the witnesses this morning, UK operators really pushing the boundaries in terms of what open RAN trials can deliver. As I said, I suspect it will not be a short-term solution, but it is promising to see the trials that are already under way in the UK.

Hamish MacLeod:

I would also like to highlight the Government’s commitment to taking a greater part in the process of international standard setting and driving scale across the global market. Although we expect the operators to do the technical heavy lifting, the Government can leverage our international relationships, and the actual resource makes the whole standardisation process move along more quickly.

Photo of Kevan Jones Kevan Jones Labour, North Durham

Q I do not disagree on that, but let us be honest. Telecommunications is a competitive market. If we want to move to open RAN or make real generational change, the Government will have to intervene quite heavily in the market to change minds. Operators will not do it unless they see a competitive advantage. That is possibly why we have had the situation with the hardware side of it, with China buying into the market by undercutting other people and providing state subsidies, for example. Without support for R&D and actual market intervention, that radical change will not happen quickly.

Matthew Evans:

I think the £250 million is clearly initially focused on the R&D ecosystem. That is a big commercial barrier when you look at the testing environment and the time it often takes for operators, understandably, to feel confident in deploying equipment into their networks, because they are ultimately responsible for the integrity of them. If we can supercharge the testing environment in the UK, we should be able to shorten the time to market, but open RAN in particular is going to require a boost in funding to accelerate the maturity of that technology.

The other part of the diversification strategy is the scale vendors that may be operating in other parts of the world but are not present in the UK today. That is why it is also important to tackle some of the regulatory or commercial barriers that exist and prevent them from entering the market today.

Hamish MacLeod:

I do not think I really have anything to add to what Matt just said.

Photo of David Johnston David Johnston Conservative, Wantage

I think we all support diversification in principle, but what does success look like for the two of you? How many companies would it be? We have only two vendors that we can choose from at the moment, so how many do you think is acceptable? Is there an analogous comparison for you, whether in tech or elsewhere, of the much broader choice that we should be aiming for, and how long do you think it will take to get there?Q

Hamish MacLeod:

One of the things about open RAN and more open architecture generally is that you generate competition in the hardware and in the software—it is not one package—so I think it is realistic to expect more competition, particularly in the software side of things.

Photo of Steve McCabe Steve McCabe Labour, Birmingham, Selly Oak

Do you have anything to add, Mr Evans?

Matthew Evans:

Not too much. It is hard to put a number on it, but success would be where we clearly have a greater number of vendors than today, and that is a mix of open and proprietary technology. As Hamish says, the reason it is hard to put a number on it is that in that open stack, you could have competition within the stack, rather than between vendors that sell the consolidated package.

Photo of David Johnston David Johnston Conservative, Wantage

Q So you do not want to put a number on it, but is there another sector that you would draw a comparison with that does not have this problem and is, in principle, the sort of thing we should be aiming for here?

Hamish MacLeod:

The analogy that has sometimes been used with me is looking back 40 years to the computer market. We all used to buy IBM computers and you got the computer and all the software integrated, and then the two separated out. There was interoperability and you create a lot more competition and innovation. That is a potential analogy—a rough analogy, I would say.

Matthew Evans:

No, that is a good analogy.

Photo of Chris Matheson Chris Matheson Shadow Minister (Digital, Culture, Media and Sport)

I want to follow up the point that Mr Jones and Mr Johnston made. The Government are requiring the industry to make these changes for all the reasons that we understand. We are hoping for diversification across the sector to provide innovation. What would the industry be looking for from the Government to assist that and drive it forward? Mr Jones talked about the role of the Government in assisting that. How could they best assist that?Q

Matthew Evans:

The strategy sets out the outline of what the industry would like to see. There are commercial and regulatory barriers that need to be removed or analysed. That includes things like how the lifespan of 2G, 3G and 4G in the UK is going to exist, and setting out a road map. That will allow people to develop technologies in 5G and future generation without having to invest in what are still very good technologies—those that have already been deployed.

What we would like to see in the strategy—this is where the funding is really important—is the R&D and testing ecosystem. We would like to see something like the Future Networks Initiative, which is a proposal for a series of test centres around the UK specialising in different areas of telecoms, particularly open RAN. As I said before, that should help accelerate the adoption of new products and services when utilised in conjunction with the National Telecoms Lab. That is key. As Hamish has said, standards are also really important. Again, we need closer collaboration between the Government and industry, because the technical side is naturally going to be driven by industry.

Photo of Steve McCabe Steve McCabe Labour, Birmingham, Selly Oak

Mr MacLeod, do you have anything to add?

Hamish MacLeod:

Very little to add. Personally, I can say that the recent 5G testbed programme that the Government have been initiating to generate interest, applications and scale is a good model. We expect to see that being replicated; indeed, the two might work hand in hand going forward.

Photo of Steve McCabe Steve McCabe Labour, Birmingham, Selly Oak

Thank you. I am going to switch to the Minister and shadow Minister. If there is time left, I will come back to other Members, but I want to be sure that we do this fairly. I call Chi Onwurah.

Photo of Chi Onwurah Chi Onwurah Shadow Minister (Business, Energy and Industrial Strategy), Shadow Minister (Digital, Culture, Media and Sport), Shadow Minister (Science, Research and Innovation)

Q Thank you, Mr McCabe, and I thank our witnesses for joining us. I started out in telecoms in 1987, as a hardware engineer. Since then, as you have indicated, our hardware sector in telecoms has disappeared. Hamish, you have talked about the equivalence with the computer sector, which has experienced a similar demise over the past 40 years. I am interested in whether it is possible to have a secure telecoms supply chain without having secure hardware. What are your views on that? The draft vendor designation talks a lot about the geopolitical influence of China rather than about the technical requirements, and that would be as true for hardware as it is for software. Do you think it is possible to have secure supply chains without having sovereign or friendly hardware capability?

I am also really interested in what you said, Mr Evans, with regard to research and development. I absolutely agree with you that we clearly need investment in research and development if we are to lead in hardware and in open RAN and software. You said that the £250 million was focused on R&D, but it is actually focused on testing. It does not really do much for research at all, as far as I can see. You also referred to the diversification strategy as a strategy and not a plan, so do we need investment in research and development? Is the £250 million, which I think—I am looking at the Minister now—is over five years, a significant amount of investment in research and development for the mobile sector and tech sector generally?

Finally, the Bill gives the Secretary the State a huge amount of powers to set out requirements to remove vendors and for Ofcom to inspect what operators are doing. Do you think that might have an impact on international foreign investment in the UK telecoms sector, and are you confident that the right sort of technical, security and democratic scrutiny is in place? That is three things: hardware, research and development, and scrutiny.

Photo of Steve McCabe Steve McCabe Labour, Birmingham, Selly Oak

Shall we start with you, Mr MacLeod?

Hamish MacLeod:

I think the question that was directed at me was whether it is possible to have a secure supply chain. I will not try to gainsay Chi’s knowledge on this, but my understanding is that that is the role that the proposed National Telecoms Lab will perform, to validate that security aspect.

Matthew Evans:

I agree with Hamish on that first point, to answer Chi’s questions on R&D. We do not yet know how the £250 million is going to be spent. We believe that we will need to accelerate the maturity of technologies such as open RAN, to make them deployable and commercially viable. Yes, we do need to see more, but as I said, that has to be alongside testing, because accelerating the maturity of it does not really matter if the operators do not get that confidence in either the hardware or the software.

In terms of the Secretary of State’s powers, we are broadly comfortable. We would like to see some thresholds on what amounts to a security compromise, particularly in terms of Ofcom’s powers of oversight. From our point of view, and this is also relevant to the foreign direct investment question, if it is evidence-based, as transparent as possible—we know that we will not see all that evidence, particularly that element in the security services—and the actions are proportionate, that is also important. We believe that that builds into the best practice that we see in other areas of national security.

In terms of the technical expertise, we know that NCSC is going to work closely with Ofcom, in terms of providing that oversight. We are comfortable with the experience that we have had over the past couple of years, as the telecoms supply chain has gone through, in terms of the expertise and the overall regime that this Bill seeks to put in place.

Photo of Chi Onwurah Chi Onwurah Shadow Minister (Business, Energy and Industrial Strategy), Shadow Minister (Digital, Culture, Media and Sport), Shadow Minister (Science, Research and Innovation)

Q To clarify that point, you are happy with the existing level of scrutiny and involvement of the security services in the development of the framework and the review of the telecoms supply chain, and so on, and you would like to see that continued. When it comes to investment, could you say a little bit about the £250 million over five years, which is, say, £50 million a year? Is that a significant amount of research and development investment in the tech sector in this country?

Matthew Evans:

I think it sends quite a strong signal to the market of the Government’s intent. If we published the strategy without the funding, it would not have sent the same signal. We have seen NEC, for instance, commit to opening an open RAN test centre in the UK. I think that is a signal of how the market is starting to react. This needs to work with the grain of industry, so it is important that industry is able to participate in this funding. I think it sent a strong signal.

Photo of Steve McCabe Steve McCabe Labour, Birmingham, Selly Oak

Do you have anything you want to add, Mr MacLeod?

Hamish MacLeod:

No.

Photo of Steve McCabe Steve McCabe Labour, Birmingham, Selly Oak

I will switch to the Minister at this point.

Photo of Matt Warman Matt Warman The Parliamentary Under-Secretary of State for Digital, Culture, Media and Sport

Thank you, Mr McCabe, and thank you both for your engagement and for welcoming what we are doing. I am interested to know what you feel will be the best way to work with the sectors that you represent, particularly in taking forward the diversification strategy. It is an increasingly diverse sector. The Government want to get the best they possibly can out of that £250 million initial tranche of diversification money. What are your thoughts on how we have worked with the sector thus far and what more should be going on in the futureQ ?

Hamish MacLeod:

My meeting following this hearing is with the operators addressing that very point. This is something that we want to work extremely closely with the Government on. We are meeting officials next week to continue the conversation on doing things such as setting out the road map for what needs to be done R&D-wise to develop open RAN, what needs to be done from the point of view of the test programme, and what needs to be done on the standardisation road map. We will be taking a very close interest, both as individual operators and jointly.

Matthew Evans:

To add to that, I echo that we have had excellent engagement with the Minister’s officials. It is about keeping the momentum up while working with the grain of industry and making sure that we are getting the incentives on the supply side, in the R&D and in the testing, and also in the demand side. That is all about making sure that we have the right commercial incentives for operators, but also that we have the right skills and, if necessary, reinforcing the operators on some of those points as well.

Photo of Chi Onwurah Chi Onwurah Shadow Minister (Business, Energy and Industrial Strategy), Shadow Minister (Digital, Culture, Media and Sport), Shadow Minister (Science, Research and Innovation)

Q I did not think I would get a chance to ask further questions.

I respect your reluctance, if you like, to voice criticisms at this stage, but can I just get a further idea on the level of R&D spend in the sector? We heard from British Telecom this morning that it spends £500 million a year. I imagine it is not the only company to spend. Do you have a view of the level of R&D spend? You talk about the £250 million being a signal. Am I right in thinking that a lot more investment needs to be attracted into the UK telecoms sector in order to really move the dial? That is what we are talking about, is it not—really moving the dial on UK telecoms capability?

Hamish MacLeod:

Absolutely. The £250 million was very much described as an initial £250 million, because you are right that moving the dial will take significant investment. With R&D, there is pure R&D—what you do in labs—but there is also the testbed activity, which is a very important aspect, and trials at scale and all those things. Working with the operators, bringing in international partners and leveraging what is going on elsewhere in the world will all be important.

Matthew Evans:

The important word there is “leveraging”. Telecom spend on R&D, both traditional and in open RAN, runs into billions and billions of pounds each year, but we can use that £250 million to leverage greater investment. It has to be with the grain of what the industry is delivering, so we can attract more of that investment. If we can be world leaders in the adoption of open RAN, that is key, and we will attract that investment. That is why I think the supply has to match up with the demand side fully.

Photo of Steve McCabe Steve McCabe Labour, Birmingham, Selly Oak

Does anyone else have any other questions? No. In that case, I thank both our witnesses for their evidence. We are extremely grateful to you. We will end this session and move on to the next panel.