U.S. Tariffs and Telco Cybersecurity: Accelerating Independence

The recent slew of tariffs from the United States have thrown global markets into disarray, with the dollar weakening and geopolitical tensions increasing as a trade war develops. This period of uncertainty comes against a standing backdrop of an increased drive toward sovereignty and supply chain visibility in the telco security market, particularly in the European Union (EU), where sentiment already went against the processing of customer data on U.S. servers, as the 2018 CLOUD Act allows the U.S. Government to subpoena data from any U.S.-based provider. These latest moves from the United States will only strengthen the cautious attitude toward its vendors, creating a challenging position for them in the global market.

The tariffs themselves only apply to the import of physical goods, with the resulting complexity intensifying the existing move toward service-based delivery of telco security. The standing pressure for providers to enable multi-cloud, vendor-agnostic tools will be intensified by an environment that is likely to fragment the cloud market, with data centers likely to feature more heterogenous hardware as a result of the disruptions and long-term changes to supply chains.

Currency fluctuations will also contribute to complex supply relationships, with international confidence in the dollar falling following the introduction of the tariffs and the resulting crashes in the U.S. stock market. This is particularly impactful for key enterprise network end markets such as oil, because the U.S. dollar is the currency of international oil trade and most Gulf Arab currencies are pegged to the dollar. Solutions for de-dollarization of the international economy are likely to involve accelerated rollout of Central Bank Digital Currencies (CBDCs) to enable sufficiently digitized trade, requiring infrastructure support and changing requirements for billing.

This is a period marked by uncertainty, with large-scale changes possible at a moment’s notice and conflicting information, with rumors of pauses on the tariffs being cited as “fake news” by the U.S. administration before being actioned. Focus should not be on the exact details of the tariff plan at this stage, given the capacity for wholesale change at the drop of a dime, but on the macroeconomic trends; most importantly for Mobile Network Operators (MNOs):

• Sovereignty, and a preference for domestic suppliers, with the likelihood of an increasing drive toward autonomy throughout the supply chain
• Market fragmentation, with more complex regional dynamics and pragmatics such as currency fluctuations
• Increased challenges to hardware, likely driving increased softwarization in order to deploy networks on domestic clouds without the need to import network equipment

In terms of strategy, there are opportunities in hand for non-U.S. MNOs and vendors, as well as challenges. These vendors should:

• Reshape hardware supply relationships with the new market. Certain regions such as the Middle East & Africa already have strong relationships with Chinese Network Equipment Providers (NEPs), bolstered by the tear-out demands of Huawei and ZTE equipment in high security governmental cellular networks in the United States and Europe in recent years, which forced China to target alternative markets. Once again, Chinese NEPs will be losing a portion of their customers, and may offer an attractive prospect to new and growing markets in order to replace them. The risk will have to be considered, and security requirements rigorous—tear-out schemes have been disastrous, with numerous delays and extreme expense, and growing markets cannot afford to be in the same position of needing to remove Chinese network equipment should they later identify a risk. European vendors such as Nokia and Ericsson pose an alternative, and offer numerous manufacturing options, though each has U.S. manufacturing locations that must be avoided to avoid the impact of reciprocal tariffs.
• Accommodate and capitalize on sovereignty sentiment, offering flexibility in deployment models and prioritizing interoperability.
• Focus on software and service models, building trust with the holdout customers that maintain mistrust in software security. Detailed educational materials targeting Chief Information Security Officers (CISOs) and risk compliance officers will help limit the need to provide hardware solutions.

U.S. vendors should take the following steps:

• Ericsson and Nokia each has U.S. manufacturing plants, and will benefit from the transfer of low-risk network customers who were still using Chinese NEPs before the tariffs. This will further drive intense competition between the two, and U.S. customers and dependent vendors will need to negotiate the changed landscape. Creative strategies will be needed to avoid excessive dependency, with multi-vendor supply models being important to mitigate unchallenged commercial leverage.
• Security vendors will need to tackle a challenged international perception, deploying in a productized and modular model approach in order to allow global customers to use the elements of their solution that comply with their sovereignty posture.
• U.S. network security vendors such as Cisco will need to adjust their targets for private networks—they will still be able to target end markets like oil in the Gulf States, as trade relations are expected to remain largely unchanged in the region. Mining hotspots like South Africa are also not expected to implement retaliatory tariffs. For other addressable markets like seaports and manufacturing hubs, the situation will be more complex, and vendors will need to assess their role in the supply chain.

Gain Clarity In Uncertain Times 

Explore more ABI Research Analyst Insights on how the U.S. tariffs will potentially impact technology markets and the next steps for stakeholders by downloading the free whitepaper, Navigating Tariff Turbulence in the Technology Sector.