Why commerce companies are the advertising players to watch in a privacy-centric world
Justin Choi is the founder and CEO of Nativo, which empowers brands and publishers through its advanced platform for content.
More posts by this contributor
The unchecked digital land grab for consumers’ personal data that has been going on for more than a decade is coming to an end, and the dominoes have begun to fall when it comes to the regulation of consumer privacy and data security.
We’re witnessing the beginning of a sweeping upheaval in how companies are allowed to obtain, process, manage, use and sell consumer data, and the implications for the digital ad competitive landscape are massive.
On the backdrop of evolving privacy expectations and requirements, we’re seeing the rise of a new class of digital advertising player: consumer-facing apps and commerce platforms. These commerce companies are emerging as the most likely beneficiaries of this new regulatory privacy landscape — and we’re not just talking about e-commerce giants like Amazon.
Traditional commerce companies like eBay, Target and Walmart have publicly spoken about advertising as a major focus area for growth, but even companies like Starbucks and Uber have an edge in consumer data consent and, thus, an edge over incumbent media players in the fight for ad revenues.
Tectonic regulatory shifts
Image via Getty Images / alashi
By now, most executives, investors and entrepreneurs are aware of the growing acronym soup of privacy regulation, the two most prominent ingredients being the GDPR (General Data Protection Regulation) and the CCPA (California Consumer Privacy Act).
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UK-based women’s networking and private club, AllBright, raises $18.8 million as it expands into the US
AllBright, the London-based women’s membership club backed by private real estate investment firm Cain International, has raised $18.8 million to expand into the U.S.
The company’s new round was led by Cain International and was designed to take AllBright into three U.S. locations — Los Angeles, New York and Washington, DC.
The company said that the new facilities would be opening in the coming months.
Coupled with the launch of a new networking application called AllBright Connect and the company’s AllBright Magazine, the women’s networking organization is on a full-on media blitz.
Other investors in the round include Allan Leighton, who serves as the company’s non-executive chairman; Gail Mandel, who acquired Love Home Swap (a company founded by AllBright’s co-founder Debbie Wosskow); Stephanie Daily Smith, a former finance director to Hillary Clinton; and Darren Throop, the founder, president and chief executive of Entertainment One.
A spokesperson for the company said that the new financing would value the company at roughly $100 million.
The club’s current members include actors, members of the House of Lords and other fancy pants, high-falutin folks from the worlds of politics, business and entertainment.
The club’s first American location will be in West Hollywood, and is slated to open in September 2019. The largest club, in Mayfair, has five floors and boasts more than 12,000 square feet and features rooftop terraces, a dedicated space for coaching and mentoring, a small restaurant and a bar.
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Blackstone is acquiring mobile ad company Vungle
Private equity firm Blackstone just announced that it has reached an agreement to acquire mobile advertising company Vungle.
The companies aren’t disclosing the financial terms, but as part of the transaction, Vungle has also reached a settlement with founder Zain Jaffer, who filed a wrongful termination lawsuit against the company earlier this year.
(Update: Multiple sources with knowledge of the deal said that the acquisition price was around — or north of — $750 million. One of those sources also said it was an all-cash transaction.)
“As a best-in-class performance marketing platform, Vungle represents a key growth engine for the mobile app ecosystem,” said Blackstone principal Sachin Bavishi in a statement. “Our investment will help deliver on the company’s tremendous growth potential and we look forward to partnering with management to extend Vungle’s strength across mobile gaming and other performance brands.”
Meanwhile, CEO Rick Tallman said the deal will allow the company to “further accelerate Vungle’s mission to be the trusted guide for growth and engagement, transforming how users discover and experience mobile apps.”
Vungle was founded back in 2011, and, according to the acquisition release, it’s currently working with 60,000 mobile apps worldwide, serving more than 4 billion video views per month and working with publishers like Rovio, Zynga, Pandora, Microsoft and Scopely.
Jaffer led Vungle as CEO until October 2017, when he was arrested on charges including performing a lewd act upon a child and assault with a deadly weapon. The charges were ultimately dropped, with the San Mateo County District Attorney’s office stating that it did “not believe that there was any sexual conduct by Mr. Jaffer that evening,” while “the injuries were the result of Mr. Jaffer being in a state of unconsciousness caused by prescription medication.”
In his lawsuit, Jaffer alleged that after the charges were dropped, “Vungle unfairly and unlawfully sought to destroy my career, blocked my efforts to sell my own shares or transfer shares to family members, and tried to prevent me from purchasing shares in the Company.”
In a statement today, Jaffer said, he is “pleased with the terms of the settlement, which are confidential.” He also commented on the acquisition:
It is extremely gratifying for me to see our early vision, execution and the hard work of so many talented people rewarded like this. From Day 1, Vungle has been at the forefront of the changing advertising landscape. Today, companies of all sizes, and in all industries, are utilizing in-app video ads as an integral part of their customer acquisition strategies.
The acquisition is expected to close later this year. According to Crunchbase, Vungle previously raised more than $25 million from Crosslink Capital, Thomvest Ventures, Seven Peaks Ventures, GV, AOL Ventures, Uncork Capital, 500 Startups and Angelpad, where the startup was incubated. (AOL Ventures was backed by TechCrunch’s parent company AOL, a.k.a. Oath, a.k.a. Verizon Media.)
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The need-to-know takeaways from VidCon 2019
VidCon, the annual summit in Anaheim, CA for social media stars and their fans to meet each other drew over 75,000 attendees over last week and this past weekend. A small subset of those where entertainment and tech executives convening to share best practices and strike deals.
Of the wide range of topics discussed in the industry-only sessions and casual conversation, five trends stuck out to me as takeaways for Extra Crunch members: the prominence of TikTok, the strong presence of Chinese tech companies in general, the contemplation of deep fakes, curiosity around virtual influencers, and the widespread interest in developing consumer product startups around top content creators.
Newer platforms take center stage
Photo by Jerod Harris/Getty Images
TikTok, the Chinese social video app (owned by Bytedance) that exploded onto the US market this past year, was the biggest conversation topic. Executives and talent managers were curious to see where it will go over the next year more than they were convinced that it is changing the industry in any fundamental way.
TikTok influencers were a major presence on the stages and taking selfies with fans on the conference floor. I overheard tweens saying “there are so many TikTokers here” throughout the conference. Meanwhile, TikTok’s US GM Vanessa Pappas held a session where she argued the app’s focus on building community among people who don’t already know each other (rather than being centered on your existing friendships) is a fundamental differentiator.
Kathleen Grace, CEO of production company New Form, noted that Tik Tok’s emphasis on visuals and music instead of spoken or written word makes it distinctly democratic in convening users across countries on equal footing.
Esports was also a big presence across the conference floor with teens lined up to compete at numerous simultaneous competitions. Twitch’s Mike Aragon and Jana Werner outlined Twitch’s expansion in content verticals adjacent to gaming like anime, sports, news, and “creative content’ as the first chapter in expanding the format of interactive live-streams across all verticals. They also emphasized the diversity of revenue streams Twitch enables creators to leverage: ads, tipping, monthly patronage, Twitch Prime, and Bounty Board (which connects brands and live streamers).
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Brave Care, backed by Y Combinator, is an urgent care clinic just for kids
Brave Care is an urgent care facility for pediatric care that costs, on average, about 80% less than a pediatric ER visit. Darius Monsef and his co-founder came up with the idea shortly after a fateful week for the Monsef family, during which their four-year-old dove off a bike ramp and their one-year-old started having breathing problems.
For both visits, he went to a pediatric urgent care facility where his kids were thoughtfully and patiently treated by Dr. Corey A. Fish. Monsef and Fish went to coffee a couple of weeks later, and Fish revealed he wanted to build out more pediatric urgent cares but needed a business partner.
The duo brought on a COO, Maryam Taheri, and a CTO, Asa Miller, and Brave Care was born.
In 2015, there were approximately 30 million pediatric emergency room visits in the United States — 96.7% of them were treat-and-release visits.
It’s no surprise that parents are quick to pull the trigger on an emergency room visit when their kid is hurt or injured. But ER visits are incredibly expensive, leaving caring parents in a punishing situation.
The idea behind Brave Care is to provide a service that fits in between a child’s regular doctor and the emergency room.
“We don’t want the treatment of an injury or illness to be more traumatic than how you got it,” said Monsef.
Brave Care is built specifically for children, meaning that the waiting rooms are kid-friendly and the medical instruments are kid-sized and not intimidating. Plus, Brave Care goes the extra step to make sure little patients aren’t afraid, whether that means numbing gels for injections or offering medicine in liquid form.
For now, Brave only has one location, in the Portland area, but the vision is to expand the brand to many locations across the country. Brave also wants to introduce a triage tool to help parents at home who are making difficult decisions about what to do with a sick or injured kid.
“One thing parents often do is they try to Google for whatever symptom or problem their kid is having,” said Monsef. “And searching for a problem is pretty awful because search engines are trained to return the most interesting result, and I don’t want that. That’s terrifying. What I want is to reasonably narrow down the area of the problem so I can find a better answer.”
He went on to explain that sometimes it can be very difficult to search a symptom without the right terminology. For example, how do you describe a certain type of cough?
In the near future, Brave Care wants to introduce a self-guided triage tool for parents looking to understand the basics of the issue so they can make informed decisions on where they need to go, what they need to do and how urgently they need to do it.
The triage product is currently in development and will launch soon.
Eventually, Monsef sees the opportunity to introduce an asynchronous telemedicine product, which would combine in a HIPAA-compliant messaging system the data collected from the self-serve triage tool with pictures and videos provided by the parent.
That said, Monsef believes that fully remote telemedicine leads to overprescription of antibiotics and says Brave Care will stay away from remote-only care in the short term.
“Without the right device in a consumer’s hand, there isn’t much we can do remotely,” said Monsef. “We can’t look in the ear or throat, or listen to the heart. But as consumers get more of these devices, we can improve remote care for kids.”
For now, however, Brave Care is simply focused on providing the best possible care to patients in its Portland facility.
Brave Care is in the current Y Combinator class and has raised a total of $1.45 million in funding.
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‘The Operators’: Understanding your user – The art and science of UI/UX behind Facebook, Google, Mint, and Edmodo
Tim Hsia is the CEO of Media Mobilize and a Venture Partner at Digital Garage. Neil Devani is an angel investor and venture capitalist focused on companies solving hard problems.
Welcome to this transcribed edition of The Operators. TechCrunch is beginning to publish podcasts from industry experts, with transcriptions available for Extra Crunch members so you can read the conversation wherever you are.
The Operators highlights the experts building the products and companies that drive the tech industry. Speaking from experience at companies like Airbnb, Brex, Docsend, Edmodo, Facebook, Google, Lyft, Mint, Slack, Uber, WeWork, etc., these experts share insider tips on how to break into fields like design and enterprise sales. They also share best practices for entrepreneurs to hire and manage experts in fields outside their own.
This week’s edition features Gülay Birand, UX Lead and Product Design Manager at Facebook, and Tim Rechin, Head of Design at Edmodo, the leading education technology company. Gülay and Tim share their experiences and explain design, UI/UX, how to build a career in these fields, and how entrepreneurs should think about them.
Gülay and Tim bring experience from other great companies including Google, Amazon, Mint, and SAP. Having seen and grown in their disciplines from a variety of companies and customer types, they share deep insight from across tech.
Neil Devani and Tim Hsia created The Operators after seeing and hearing too many heady, philosophical podcasts about the future of the world and the tech industry, and not enough attention on the practical day-to-day work that makes it all happen.
Tim is the CEO & Founder of Media Mobilize, a media company and ad network, and a Venture Partner at Digital Garage. Tim is an early-stage investor in Workflow (acquired by Apple), Lime, FabFitFun, Oh My Green, Morning Brew, Girls Night In, The Hustle, Bright Cellars, and others.
Neil is an early-stage investor based in San Francisco with a focus on companies solving serious problems, including Andela, Clearbit, Recursion Pharmaceuticals, Vicarious Surgical, and Kudi.
If you’re interested in becoming a designer, doing UI/UX research, furthering your career in that field, or starting a company and don’t know when to hire or how to manage this discipline, you can’t miss this episode!
The show:
The Operators highlights the experts building the products and companies that drive the tech industry. Speaking from experience at companies like Airbnb, Brex, Docsend, Edmodo, Facebook, Google, Lyft, Mint, Slack, Uber, WeWork, etc., these experts share insider tips on how to break into fields like design and enterprise sales. They also share best practices for entrepreneurs to hire and manage experts in fields outside their own.
In this episode:
In Episode 3, we’re talking about design and UI/UX. Neil interviews Gülay Birand, UX Lead and Product Design Manager at Facebook, and Tim Rechin, Head of Design at Edmodo.
Neil Devani: Hello and welcome to The Operators, where we talk to the people building the companies of today and tomorrow. We publish every other Monday and you can find us online at Operators.co.
Today’s episode is very special, we are talking to two UI/UX experts who have designed and researched products that have been touched by billions of people. I’m your host, Neil Devani and we’re coming to you today from the Vault of Joi here at Digital Garage in downtown San Francisco.
Joining me is Tim Rechin, Head of Design at Edmodo, the leading classroom and education community with 100 million users globally. Also joining us is Gülay Birand, a UX lead and product design manager at Facebook.
Gülay works on the newsfeed product used by billions of people every day. Thank you for joining us, if you could tell us more about yourselves and your work it would be great to hear more.
Gülay Birand: Thank you, my name is Gülay Birand. I’m a product design manager at Facebook . I’ve been at Facebook for about three months. Prior to that I was at Google for about 8 years, and I led a horizontal team on Google Cloud Platform for about four years, leading growth and engagement, support, and product excellence initiatives.
Prior to that I did a bit of a tour to Google, so I worked on search, identity, a couple of other areas like mobile ads, and before that I was at T-Mobile where I was building mass market and franchise home experiences, mainly on Android. And prior to that I was at Amazon leading experiences for the very first Kindle, so that was a lot of fun.
Devani: And Tim tell us more about yourself and how you got here.
Tim Rechin: Yeah, so I’m currently at Edmodo, leading up design and that’s really across the entire platform that serves our teachers, students and parents in the US and globally. And before Edmodo, I was at Facebook, and I was on the Feed Ads team and responsible for the lead ads product that we launched that year. Before that I was at Mint, so doing personal finance and some of you may be using Mint.
Devani: I’m definitely using Mint, its great, I love it.
Rechin: And then before that SAP, Yahoo, eBay, and then Elance very early on which is now Upwork.
Devani: Very cool, all companies that I’ve used, products that I enjoy, thank you for helping create them.
Birand: Thank you.
Devani: So it’d be great if you could tell folks more about what you do every day. Who are the folks in your company that you are interacting with, what are your responsibilities, what does it mean to do the job that you do?
Rechin: That’s a good question, it’s a bit mixed. Just for some context, Edmodo is a company a little over 100 people and so our product teams are in the 6-7 product managers range. I lead a team of 3 designers. So my day to day is really getting to work and really trying to figure out what’s going on, so this year is a particularly busy year as we get ready for back to school.
And so we have a lot of concurrent projects going, so one of the things I like to do when I get in is level set, kind of see how my day is and I’ll go check in with the different teams. That’s part of the work I do, working with the different product teams and the strategy.
So like I said, we are working on lots of different projects, so it’s really just keeping everyone aligned and making sure that designers are delivering things on time, that any issues or gaps are being filled and we can go answer those questions that are coming from product managers and designers. In some cases too, there is a project that is about to be kicked off, so everything is not clean, phased, there are always these things that kind of pop up.
So I will find myself in meetings in talking about strategy to figure out how to kick off those projects or what our go-to-market is for back to school.
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Facebook’s testimony to Congress: Libra will be regulated by Swiss
The head of Facebook’s blockchain subsidiary Calibra David Marcus has released his prepared testimony before Congress for tomorrow and Wednesday, explaining that the Libra Association will be regulated by the Swiss government because that’s where it’s headquartered. Meanwhile, he says the Libra Association and Facebook’s Calibra wallet intend to comply will all U.S. tax, anti-money laundering and anti-fraud laws.
“The Libra Association expects that it will be licensed, regulated, and subject to supervisory oversight. Because the Association is headquartered in Geneva, it will be supervised by the Swiss Financial Markets Supervisory Authority (FINMA),” Marcus writes. “We have had preliminary discussions with FINMA and expect to engage with them on an appropriate regulatory framework for the Libra Association. The Association also intends to register with FinCEN [The U.S. Treasury Department’s Financial Crimes Enforcement Network] as a money services business.”
Marcus will be defending Libra before the Senate Banking Committee on July 16th and the House Financial Services Committees on July 17th. The House subcomittee’s Rep. Maxine Waters has already issued a letter to Facebook and the Libra Association requesting that it halt development and plans to launch Libra in early 2020 “until regulators and Congress have an opportunity to examine these issues and take action.”
The big question is whether Congress is savvy enough to understand Libra to the extent that it can coherently regulate it. Facebook CEO Mark Zuckerberg’s testimonies before Congress last year were rife with lawmakers dispensing clueless or off-topic questions.
Sen. Orin Hatch infamously demanded to know “how do you sustain a business model in which users don’t pay for your service?,” to which Zuckerberg smirked, “Senator, we run ads.” If that concept trips up Congress, it’s hard to imagine it grasping a semi-decentralized stablecoin cryptocurrency that took us 4,000 words to properly explain, and a six-minute video just to summarize.
Attempting to assuage a core concern that Libra is trying to replace the dollar or meddle in financial policy, Marcus writes that “The Libra Association, which will manage the Reserve, has no intention of competing with any sovereign currencies or entering the monetary policy arena. It will work with the Federal Reserve and other central banks to make sure Libra does not compete with sovereign currencies or interfere with monetary policy. Monetary policy is properly the province of central banks.”
Marcus’ testimony comes days after President Donald Trump tweeted Friday to condemn Libra, claiming that “Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity. Similarly, Facebook Libra’s ‘virtual currency’ will have little standing or dependability. If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks, both National and International.”
TechCrunch asked Facebook for a response Friday, which it declined to provide. However, a Facebook spokesperson noted that the Libra Association won’t interact with consumers or operate as a bank, and that Libra is meant to be a complement to the existing financial system.
Regarding how Libra will comply with U.S. anti-money laundering (AML) and know-your-customer (KYC) laws, Marcus explains that “The Libra Association is similarly committed to supporting efforts by regulators, central banks, and lawmakers to ensure that Libra contributes to the fight against money laundering, terrorism financing, and more,” Marcus explains. “The Libra Association will also maintain policies and procedures with respect to AML and the Bank Secrecy Act, combating the financing of terrorism, and other national security-related laws, with which its members will be required to comply if they choose to provide financial services on the Libra network.”
He argues that “Libra should improve detection and enforcement, not set them back,” because cash transactions are frequently used by criminals to avoid law enforcement. “A network that helps move more paper cash transactions—where many illicit activities happen—to a digital network that features regulated on- and off-ramps with proper know-your-customer (KYC) practices, combined with the ability for law enforcement and regulators to conduct their own analysis of on-chain activity, will present an opportunity to increase the efficacy of financial crimes monitoring and enforcement.”
As for Facebook itself, Marcus writes that “The Calibra wallet will comply with FinCEN’s rules for its AML/CFT program and the rules set by the Office of Foreign Assets Control (OFAC) . . . Similarly, Calibra will comply with the Bank Secrecy Act and will incorporate KYC and AML/CFT methodologies used around the world.”
These answers might help to calm finance legal eagles, but I expect much of the questioning from Congress will deal with the far more subjective matter of whether Facebook can be trusted after a decade of broken privacy promises, data leaks and fake news scandals like Cambridge Analytica.
That’s why I don’t expect the following statement from Marcus about how Facebook has transformed the state of communication will play well with lawmakers that are angry about how those changes impacted society. “We have done a lot to democratize free, unlimited communications for billions of people. We want to help do the same for digital currency and financial services, but with one key difference: We will relinquish control over the network and currency we have helped create.” Congress may interpret “democratize” as “screw up,” and not want to see the same happen to money.
Facebook and Calibra may have positive intentions to assist the unbanked who are indeed swindled by banks and money transfer services that levy huge fees against poorer families. But Facebook isn’t acting out of pure altruism here, as it stands to earn money from Libra in three big ways that aren’t mentioned in Marcus’ testimony:
- It will earn a share of interest earned on the Libra Reserve of traditional currencies it holds as collateral for Libra that could mount into the billions if Libra becomes popular.
- It will see Facebook ad sales grow if merchants seek to do more commerce over the internet because they can easily and cheaply accept online payments through Libra and therefore put marketing spend into those efficiently converting channels like Facebook and Google.
- It will try to sell additional financial services through Calibra, potentially including loans and credit where it could ask users to let it integrate their Facebook data to get a better rate, potentially decreasing defaults and earning Facebook larger margins than other players.
The real-world stakes are much higher here than in photo sharing, and warrant properly regulatory scrutiny. No matter how much Facebook tries to distance itself from ownership of Libra, it started, incubated and continues to lead the project. If Congress is already convinced “big is bad,” and Libra could make Facebook bigger, that may make it difficult to separate their perceptions of Facebook and Libra in order to assess the currency on its merits and risks.
Below you can read Marcus’ full testimony:
For full details on how Libra works, read our feature story on everything you need to know:
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48-hour, buy-one-get-one free — TC Sessions: Enterprise 2019
Every startupper we’ve ever met loves a great deal, and so do we. That’s why we’re celebrating Prime day with a 48-hour flash sale on tickets to TC Sessions: Enterprise 2019, which takes place September 5 at the Yerba Buena Center for the Arts in San Francisco.
We’re talking a classic BOGO — buy-one-get-one — deal that starts today and ends tomorrow, July 16, at 11:59 p.m. (PT). Buy one early-bird ticket ($249) and you get a second ticket for free. But this BOGO goes bye-bye in just 48 hours, so don’t wait. Buy your TC Sessions: Enterprise tickets now and save.
Get ready to join more than 1,000 attendees for a day-long, intensive experience exploring the enterprise colossus — a tech category that generates hundreds of new startups, along with a steady stream of multibillion-dollar acquisitions, every year.
What can you expect at TC Sessions: Enterprise? For starters, you’ll hear TechCrunch editors interview enterprise software leaders, including tech titans, rising founders and boundary-breaking VCs.
One such titan, George Brady — Capital One’s executive VP in charge of tech operations — will join us to discuss how the financial institution left legacy hardware and software behind to embrace the cloud. Quite a journey in such a highly regulated industry.
Our growing speaker roster features other enterprise heavy-hitters, including Aaron Levie, Box co-founder and CEO; Aparna Sinha, Google’s director of product management for Kubernetes and Anthos; Jim Clarke, Intel’s director of quantum hardware; and Scott Farquhar, co-founder and co-CEO of Atlassian.
Looking for in-depth information on technical enterprise topics? You’ll find them in our workshops and breakout sessions. Check out the exhibiting early-stage enterprise startups focused on disrupting, well, everything. Enjoy receptions and world-class networking with other founders, investors and technologists actively building the next generation of enterprise services.
TC Sessions: Enterprise 2019 takes place September 5, and we pack a lot of value into a single day. Double your ROI and take advantage of our 48-hour BOGO sale. Buy your ticket before July 16 at 11:59 p.m. (PT) and get another ticket free. That’s two tickets for one early-bird price. And if that’s not enough value, get this: we’ll register you for a free Expo-only pass to Disrupt SF 2019 for every TC Sessions: Enterprise ticket you purchase (mic drop).
Interested in sponsoring TC Sessions: Enterprise? Fill out this form and a member of our sales team will contact you.
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Waze now shows road toll prices along your driving route
Navigation app Waze is making getting to where you’re going even easier — or at least more transparent. A new feature rolling out today will show you any tolls along your route, including the actual amount you’re going to pay, across both the U.S. and Canada.
This is above and beyond what you’ll get in most navigation apps, where you might get a visual or text indicator that there is a toll on one of the roads in your path (and you can opt to avoid them if possible) but you won’t know what you’re actually paying. With Waze, you’ll get the amount — sourced from its community of user-drivers, rather than direct from the official toll road operators — but Waze’s crowd-sourced navigation data often has a leg up on the official source in other cases.
Waze will show you the toll prices up front, too, before the navigation actually gets under way, which is great, because that’s when you actually have the opportunity to do something about it, whether it’s scrounging seat-cushion change or just choosing to drive a different way.
This will be rolling out beginning today, so keep an eye out if you’re trying to get somewhere in the U.S. or Canada.
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No technical reason to exclude Huawei as 5G supplier, says UK committee
A UK parliamentary committee has concluded there are no technical grounds for excluding Chinese network kit vendor Huawei from the country’s 5G networks.
In a letter from the chair of the Science & Technology Committee to the UK’s digital minister Jeremy Wright, the committee says: “We have found no evidence from our work to suggest that the complete exclusion of Huawei from the UK’s telecommunications networks would, from a technical point of view, constitute a proportionate response to the potential security threat posed by foreign suppliers.”
Though the committee does go on to recommend the government mandate the exclusion of Huawei from the core of 5G networks, noting that UK mobile network operators have “mostly” done so already — but on a voluntary basis.
If it places a formal requirement on operators not to use Huawei for core supply the committee urges the government to provide “clear criteria” for the exclusion so that it could be applied to other suppliers in future.
Reached for a response to the recommendations, a government spokesperson told us: “The security and resilience of the UK’s telecoms networks is of paramount importance. We have robust procedures in place to manage risks to national security and are committed to the highest possible security standards.”
The spokesperson for the Department for Digital, Media, Culture and Sport added: “The Telecoms Supply Chain Review will be announced in due course. We have been clear throughout the process that all network operators will need to comply with the Government’s decision.”
In recent years the US administration has been putting pressure on allies around the world to entirely exclude Huawei from 5G networks — claiming the Chinese company poses a national security risk.
Australia announced it was banning Huawei and another Chinese vendor ZTE from providing kit for its 5G networks last year. Though in Europe there has not been a rush to follow the US lead and slam the door on Chinese tech giants.
In April leaked information from a UK Cabinet meeting suggested the government had settled on a policy of granting Huawei access as a supplier for some non-core parts of domestic 5G networks, while requiring they be excluded from supplying components for use in network cores.
On this somewhat fuzzy issue of delineating core vs non-core elements of 5G networks, the committee writes that it “heard unanimously and clearly” from witnesses that there will still be a distinction between the two in the next-gen networks.
It also cites testimony by the technical director of the UK’s National Cyber Security Centre (NCSC), Dr Ian Levy, who told it “geography matters in 5G”, and pointed out Australia and the UK have very different “laydowns” — meaning “we may have exactly the same technical understanding, but come to very different conclusions”.
In a response statement to the committee’s letter, Huawei SVP Victor Zhang welcomed the committee’s “key conclusion” before going on to take a thinly veiled swiped at the US — writing: “We are reassured that the UK, unlike others, is taking an evidence based approach to network security. Huawei complies with the laws and regulations in all the markets where we operate.”
The committee’s assessment is not all comfortable reading for Huawei, though, with the letter also flagging the damning conclusions of the most recent Huawei Oversight Board report which found “serious and systematic defects” in its software engineering and cyber security competence — and urging the government to monitor Huawei’s response to the raised security concerns, and to “be prepared to act to restrict the use of Huawei equipment if progress is unsatisfactory”.
Huawei has previously pledged to spend $2BN addressing security shortcomings related to its UK business — a figure it was forced to qualify as an “initial budget” after that same Oversight Board report.
“It is clear that Huawei must improve the standard of its cybersecurity,” the committee warns.
It also suggests the government consults on whether telecoms regulator Ofcom needs stronger powers to be able to force network suppliers to clean up their security act, writing that: “While it is reassuring to hear that network operators share this point of view and are ready to use commercial pressure to encourage this, there is currently limited regulatory power to enforce this.”
Another committee recommendation is for the NCSC to be consulted on whether similar security evaluation mechanisms should be established for other 5G vendors — such as Ericsson and Nokia: Two European based kit vendors which, unlike Huawei, are expected to be supplying core 5G.
“It is worth noting that an assurance system comparable to the Huawei Cyber Security Evaluation Centre does not exist for other vendors. The shortcomings in Huawei’s cyber security reported by the Centre cannot therefore be directly compared to the cyber security of other vendors,” it notes.
On the issue of 5G security generally the committee dubs this “critical”, adding that “all steps must be taken to ensure that the risks are as low as reasonably possible”.
Where “essential services” that make use of 5G networks are concerned, the committee says witnesses were clear such services must be able to continue to operate safely even if the network connection is disrupted. Government must ensure measures are put in place to safeguard operation in the event of cyber attacks, floods, power cuts and other comparable events, it adds.
While the committee concludes there is no technical reason to limit Huawei’s access to UK 5G, the letter does make a point of highlighting other considerations, most notably human rights abuses, emphasizing its conclusion does not factor them in at all — and pointing out: “There may well be geopolitical or ethical grounds… to enact a ban on Huawei’s equipment”.
It adds that Huawei’s global cyber security and privacy officer, John Suffolk, confirmed that a third party had supplied Huawei services to Xinjiang’s Public Security Bureau, despite Huawei forbidding its own employees from misusing IT and comms tech to carry out surveillance of users.
The committee suggests Huawei technology may therefore be being used to “permit the appalling treatment of Muslims in Western China”.
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