06/04/2020_The discussions and troubles around the new C2000 system, the recently launched and updated closed communication network used by the Dutch emergency and security services, demonstrate how geopolitical developments are impacting Dutch politics and national security..They also shed some light onto how China has succeeded in gaining influence in high-tech markets and products linked with Western countries’ emergency & public security organizations…
In 2015, the Dutch government decided to renew the original and outdated C2000 system. One of the chosen suppliers became Hytera Communications, a Chinese company which possessed the professional network communication technology of the three mainstream standards – TETRA (Trans European Trunked Radio), DMR (Digital Mobile Radio), and PDT (Police Digital Trunking/China). Hytera is capable of providing a comprehensive product line – from terminal devices to systems and total solutions, including all required soft-and hardware. The enterprise was founded in 1993 and is a major supplier to China’s Ministry of Public Security. In 2017 it won its first major European project by landing the C2000 contract with the Netherlands, a deal worth 100 million EUR. The other selected C2000 suppliers are 2Way & Eurofunk, from the UK and Germany, respectively.
Hytera Communications
Starting around that same time the Chinese company got increasingly scrutinized by the American government, just like Huawei. This special attention for Hytera was triggered by the fact that Motorola, the worldwide leader in the professional mobile radio (PMR) market, filed a court case against the Chinese enterprise for IP and know-how theft in March 2017. The American company then updated its complaint on 30 July 2018 to include allegations that Hytera also unlawfully copied Motorola Solutions’ software source code into the source code used in Hytera products, violating US copyright laws.
In that same year the Chinese company was put on Trump’s black list, meaning American companies could no longer supply chips or parts to Hytera. In October 2019 the Trump government completely banned Hytera: since that day American companies, federal and local governments or organizations have been forbidden to buy any equipment from the Chinese company.
The Dutch Minister of Justice and Security, Mr. Grapperhaus, announced on February 12 2019 in response to questions by alarmed MPs that an additional assessment would be conducted regarding the security risks of involving Hytera in C2000, after a first assessment in the summer of 2018 saw no major obstacles. The introduction of the C2000 system was consequentially deferred indefinitely. In April 2019, 6 months before the American ban, the Dutch government concluded Hytera would pose a low security risk and the new C2000 launch could go ahead at the begin of 2020.
Hytera Mobilfunk
The reasons for the low risk assessment of Hytera were probably three-fold:
- the supplies would come from Hytera Mobilfunk, a subsidiary of Hytera Communications, operating under German law, management and brand name. The Dutch intelligence service and IT system experts judged participation of Germany-based Hytera Mobilfunk would provide low danger of abuse by the Chinese State. Hytera Mobilfunk is the former Rohde & Schwarz (R&S) Professional Mobile Radio GmbH (RSPMR), a German leader in Tetra technology and no. 2 behind Motorola, which was put up for sale by R&S around 2010. The international electronics group specializing in electronic test equipment deemed RSPMR no longer part of its core activity. A consulting company reportedly did the pre-selection for R&S and Hytera popped up as an ideal candidate: it did not have the key Tetra (system) know-how which RSPMR possessed, but did have the capability to manufacture terminals, which the German company lacked. Moreover, via Hytera RSPMR could get access to the vast China professional mobile radio market, for which the Chinese communist government had created its own standard called PDT, to which Hytera adapted as the first Chinese company and subsequently gained a ~70% share of the domestic market. Vice versa through RSMPR, a trusted German leader in the Tetra market, Hytera could finally penetrate the European market. In short, at the time it seemed a match made in heaven… Put together, the combined companies would be able to become a total solution provider, offering software and system know-how, voice application equipment as well as base stations/terminals, around the world. In March 2012 Hytera acquired the German company for reportedly a mere 2 million euro (!!), with a guarantee to keep the local management and workforce intact. The Chinese headquarter would just define the overall technology roadmap… In May, 2017, Hytera completed another acquisition, this time of the Sepura Group PLC, the UK-based company and #3 in the Tetra market…As a consequence Hytera had turned into the major competitor of Motorola with a strong presence in Europe….
- The original C2000 system needed urgent replacement. It probably was very prone to attacks from state hackers and its functionality no longer up to modern standards. Further delay of the new C2000 launch would create even higher security risks and seriously hamper Dutch police and emergency services in the future. The new C2000 system has perhaps been considered a temporarily, intermediate solution: a future version could possibly exclude any Chinese technology, though this has never been clearly stated.
- The Dutch government’s risk assessment further concluded Hytera Mobilfunk’s expertise and German management would be able to implement, monitor and control professionally and independently eventually required quality and security improvements by the Dutch government, having been made aware of some of the sensitivities in the Netherlands and elsewhere in the world about its Chinese ownership. The “made in Germany” branding represented quality, trust & reliability. It’s unlikely Hytera would have won the Dutch government tender without this German branding of its subsidiary.
Hytera Mobilfunk vulnerability
The Dutch report pointed to two potential vulnerabilities in the
“voice network applications” developed by Hytera China and recommended appropriate action. In-depth technical research conducted by a Dutch IT audit company said all the applications’ functions were transparent. There were no indications any “backdoors” were built into Hytera Mobilfunk’s products by Hytera China, yet “the security maturity” of Mobilfunk should be improved, according to the Dutch minister.
Agreements were made about strict compartmentalisation between the Chinese owner and the German development, production and management team and process, and a reporting obligation in the event of any changes thereof. Grapperhaus assured concerned MPs there would be periodically audits of the management processes of Hytera Mobilfunk GmbH, testing the actual execution of these agreements. It was also stipulated the development of above mentioned two critical applications, originally made by Hytera China, would need to be transferred to Hytera Mobilfunk GmbH in Germany.
Last but not least, the Dutch would be entitled to carry out inspections regarding the source code of the applications at any time. No source code violations had been found during the first audit. It was agreed with Hytera Mobilfunk GmbH that the source code of the two applications developed by Hytera China would be published as an open source code.
Risks of international tension
The report also referred to the risk of increasing international tensions, which could pose an intensified threat against the Security Operations Center and the Police Reporting Service Center, stating additional safety measures could be taken in consultation with the NCTV (the Dutch counter-terrorism organization), including the isolation of C2000 if absolutely required….
Well, this blog has extensively described the deteriorating relationship between the US and China and the prominent role of high tech in this context. The Chilly War has meanwhile descended upon the world. https://www.mijngroeve.nl/history/usa-china-the-chilly-war/ It’s no longer business as usual with China. The EU, with leaders such as Merkel and Rutte at the forefront, has for years been avoiding a grand debate as to whether there are/should be limits in trading with a communist country led by an autocratic regime, which has systematically engaged in hacking and espionage and showing no inclination for political reform. High-tech companies such as Huawei and Hytera received a warm welcome, offering sophisticated gear for extremely low prices. But aren’t the EU and the Netherlands now paying the real price, having created strategic dependencies which are difficult to reverse in a rapidly changing international environment?
The problems with the new C2000
The transfer to the new C2000 system was finally made in the course of January 2020. The Dutch media have made mention of serious problems with the new system. The issues mainly occur when users switch between network masts, it is said. Certain voice applications don’t work well either, it is rumoured. The Ministry has therefore extended “the aftercare period” for the renewed system. Latest by July 1 2020 the problems should be resolved and the system be completely functional and operate flawlessly…
Due to national security reasons, the public won’t be informed of the exact nature of the problems with the system. Are they related to any gear supplied by Hytera, to the two potential vulnerabilities stated before in the 2019 report? Or to any extra safety procedures which had to be implemented to make Hytera equipment acceptable? Or are the problems completely unrelated to Hytera (Mobilfunk)?
Hytera’s court case
Irrespective of the above questions, the Dutch government has reason to be extremely concerned about the global situation regarding Hytera Communications. The company with worldwide ~9000 employees and $1.2billion in annual sales, is facing a frontal American storm. Motorola’s American court case against the Chinese enterprise has recently resulted in an unanimous jury verdict that included an award of $345.8 million in compensatory damages to Motorola and $418.8 million in punitive damages for Hytera. The jury determined that Hytera should pay Motorola Solutions for stealing trade secrets and its copyrighted software code in developing most of its DMR (digital mobile radio) portable radios. Hytera has promised to fight the verdict. Meanwhile Motorola Solutions is seeking a permanent injunction prohibiting Hytera from selling worldwide much of its portfolio of DMR portable radios, according to filings in the lengthy trial between the companies.
During the trial, Hytera attorneys acknowledged that three former Motorola employees accessed more than 7,000 Motorola documents prior to each of them leaving and joining Hytera in 2008. However, Hytera attorneys described the three engineers as “bad apples” who did not share with anyone else at Hytera the DMR trade secrets and software taken from Motorola. Hytera has claimed that the injunction request by Motorola Solutions is excessive. “In effect, Motorola seeks a broad-ranging injunction that would cut Hytera off at its knees—an injunction that is far in excess of what any equitable principles could support,” according to the Hytera filing.
Hytera: retreating to China?
The case sounds somewhat similar to the one Micron launched against the Taiwanese foundry UMC and its memory JV Fujian Jinhua. https://www.mijngroeve.nl/history/america-first-vs-china-first/ The latter ceased operations and UMC -unlike Hytera- is still awaiting the verdict. In a related development, last week Hytera America and Hytera Communications America (West) filed for Chapter 11 bankruptcy in a move the company described as a “routine financial restructuring to address financial issues associated with ongoing litigation and the impact of the COVID-19 pandemic on its U.S. business”.
In response Motorola Solutions issued a statement indicating the company’s belief that these bankruptcy filings by Hytera Communications’ subsidiaries based in the United States would not halt pending legal efforts seeking an injunction that would prohibit Hytera Communications from selling much of its DMR product portfolio. In April 2020 a UK High Court judge granted an injunction request from Motorola Solutions to freeze as much as $345.7 million in Hytera Communications and its subsidiary Sepura’s assets located in England and Wales, but Hytera stated that the ruling does not prevent it from conducting normal business within the UK…
The big question for the Netherlands will be if these developments will have/are having an impact on the operations and future of Hytera Mobilfunk, a fully owned subsidiary of Hytera Communications, and the newly launched C2000 system. Does Mobilfunk run the risk of falling victim to an eventual Motorola injunction? Can it still function as an independent unit and deliver and maintain its products? Will Hytera Communications be forced to retreat its business to China under American pressure? The Dutch government could find itself again in an awkward situation, similar to the discussion on Huawei 5G participation or ASML’s EUV export license : it is being pushed to make (strategic) choices under American pressure…
UK U-turn on Huawei
The UK government seems to have accepted the Chilly War reality. Readers of this blog won’t be surprized by the recent announcement of Prime Minister Boris Johnson, who in his capacity as mayor of London enthusiastically promoted Huawei as the ideal candidate to make the capital the smartest city in the world by 2020, yet is now asking his government officials to develop a plan that would reduce Huawei’s contribution to the UK’s 5G market to zero by 2023 at the latest. see also https://www.mijngroeve.nl/history/netherlands-huawei-waiting-for-rutte/
It’s a reversal of the UK’s earlier position in which it still allowed a (limited) role of Huawei in the periphery of the 5G network. Dropping Huawei is a hard American condition for any trade deal with the USA and the continuation of the info exchange between the countries’ intelligence services. Johnson is now even pushing for a D10, a group of 10 democratic countries (G7 & Australia, South Korea and India), to develop alternatives to Huawei, an idea to which this blog alluded earlier, though in a slightly different fashion…. see https://www.mijngroeve.nl/history/uks-huawei-decision-merkel-to-follow/ and https://www.mijngroeve.nl/history/5g-usa-uk-europe-go-dutch/
Mijngroeve.nl predicted last year the opportunistic Johnson would not shy away from sacrificing Huawei if needed to save the relationship with the US. The EU has been less willing to do so for various reasons, in particular because Germany’s room for manoeuvring has been limited. Germany’s economy/export has become overreliant on China while Huawei has been allowed to play a prominent role in 3G & 4G on German soil, and is still expected to be used at least in the “non-critical parts” of Germany’s 5G network just like in the Netherlands….But will Germany and the EU be able to maintain a middle position between the US and China or eventually follow in the steps of the UK in the on-going Chilly War..?
EU misjudgement
EU officials and media have been too fixated on Trump and his aberrations to explain the bigger context of this Chilly War to the public. China is viewed as a system rival by the complete American Congress and the campaign against companies like Huawei and Hytera does have bi-partisan support. As a matter of fact, Congress in many ways has already bypassed the American President in its China policies: Trump personal goal was to achieve a trade agreement focused on agriculture, giving him a chance to present it as a grandiose win to his “base.” But government officials around Trump and Congress members have had the much wider geopolitical battle in mind from the beginning. Even officials of the Obama administration and then Congress members alerted European governments to the dangers of working with companies like Huawei and Hytera…No American politician understands or appreciates Europe’s love for Huawei…
Europe and the Netherlands chose to ignore the early warnings. The NSA eavesdropping scandal under Obama must have played a big part in the European opinions and stance. In an ideal world the EU would for its critical ( digital ) infrastructure neither depend on the US nor China. This presumes European leaders would have pro-actively worked out alternatives or prevent companies deemed critical for its national security from falling into Chinese or American hands. Rutte nor Merkel nor the rest of the EU made any effort in this direction, the sale of Rhode and Schwarz’s Professional Mobile Radio GmbH to Hytera (2 million euro!) just serving as another example…The EU is not living in an ideal world partly due to its own leaders doing, not just Trump’s or Xi Jinping’s.
China’s overall strategy
While I have no doubts about the integrity and intentions of Hytera’s Mobilfunk German management, Hytera’s acquisitions can not be seen seperately from communist China’s strategic ambitions such as formulated in its “made in China 2025” plan and the “Belt and Road Initiatives” etc. Hytera moves have been aligned with these governmental initiatives, which aim to build commercial, digital and maritime links with Europe and Asia around dominant Chinese companies and entities. The Chinese administration has provided incentives to greatly increase China’s competitiveness abroad. Hytera has exploited these favorable circumstances by taking over promising businesses, similar to what Huawei did. To believe it’s all driven by free market ideas based on reciprocity or by fully autonomous business decisions without the CCP’s blessing or involvement has proven to be an extremely naive approach.
Questions for Holland & Europe
There is another aspect of doing business with Chinese high-tech companies which has not received much public attention in Europe. Huawei, Hytera, HiKvision are all key suppliers to the security apparatus in China, facilitating the CCP’s continuous grip on power. In the wake of the George Floyd tragedy in America EU officials and European citizens have -understandably- expressed grave concerns about the rampant racism and threats to democratic institutions in the US. But shouldn’t we have equivalent or even bigger concerns about the developments in China and Hong Kong?
Today it’s June 4 2020, we all (??) remember what the CCP was capable of on June 4 1989. The EU representatives have been far less courageous in clearly expressing and defending Europe’s values and principles in the relationship with China: what is the EU willing to stand up for in the exchange with the PRC? The CCP is constantly testing how far it can go in its domestic and foreign policies without endangering China’s ties with Europe. Even today the EU’s Foreign Affairs High Representative major pre-occupation seems to be the projected investment deal with China scheduled for later this year, while Hong Kong’s freedoms are meanwhile going down the drain. Isn’t it rather ironical that as a lot of Europeans and EU officials are publicly proclaiming and displaying their fears for the end of democracy in the US, a lot of EU member states at the same time are still accepting to be supplied for their major infrastructural projects by Chinese high-tech companies whose products and technologies are playing a very prominent role in the suppression of democracy in the PRC and Hong Kong?
In other words, aren’t we reaching the limits of the integration and interdependency of two different (rival) systems and sets of values, those build on Western ideals and those promoted by the Chinese government? Or are there no such limits in the view of our European leaders? Shouldn’t there be a bigger public debate and awareness about these eventual limits? Don’t we want to avoid more Huawei and Hytera soaps? Europe doesn’t have to blindly follow the US in all its China policies, but how are we going to deal with an ever Chillier War?
Mr. Rutte, Mrs. Merkel and the EU: make your positions clear please.
PS: the latest news is that the scheduled EU-China summit for September 2020 in Leipzig has been postponed, officially due to the Corona-virus. It gives the EU another chance to work out a robust China strategy…. https://www.mijngroeve.nl/history/holland-europe-china-strategic-questions/