TheChek News Flow

VIENNA—Telecom firms from around the world dispatched their top engineers to the Austrian capital late last year for a discreet, but strategic round of meetings aimed at defining capabilities and specifications of future wireless networks known as 5G.

As delegates huddled in the gilded conference room of Vienna’s InterContinental Hotel, one company logo prominently dotted several rows of tables: the red flower of Huawei Technologies Co., the Chinese telecom-equipment giant.

“They’re twice as many as anyone else,” said the senior representative of a Western rival as he entered the room, in which a Wall Street Journal reporter was allowed on the condition participants weren’t identified by name. “They’re everywhere.”

The wireless telecom industry is experiencing a tectonic shift.

European and U.S. equipment suppliers such as Ericsson AB, Nokia Corp., which includes the former Lucent and Alcatel, and Qualcomm Inc., long dominated the sector, having fathered most of the technologies behind existing mobile networks. But Asian rivals have gone on offense, using the international process under way to define 5G standards to challenge the established order.

Huawei has already overtaken Sweden’s Ericsson as the world’s largest supplier of wireless equipment by revenue, according to some estimates. The global market for wireless equipment was $48 billion in 2015, data from IHS Markit show, of which Huawei, Ericsson and Nokia control about 80%.

Huawei executives say the Chinese company initially gained traction by replicating Western technology, and offering quality products at lower costs. With an army of 80,000 staffers working on research and development, however, Huawei has now become a formidable lab force.

That could give Huawei a sizable edge at a time when all suppliers have set their sights on 5G—the technology promises to be a wellspring of revenue by allowing for faster speed and smoother interaction between connected objects—but don’t all have deep pockets.

Ericsson and Nokia are both cutting costs and jobs. The two Nordic companies sent smaller delegations to the four-day meeting in Vienna, where telecom firms fought to influence the future design of 5G, which is expected to be rolled out commercially early in the next decade. The meeting, organized by the 3rd Generation Partnership Project, attracted around 300 participants.

“We in Europe took our success early on in the cellphone [business] for granted,” Ericsson Chief Executive Börje Ekholm said in a recent interview in Stockholm.

Cisco Systems Inc., Qualcomm and other U.S. suppliers of telecom equipment are partly shielded from Huawei’s rise because the Chinese company has been essentially shut out of the American market after a congressional report deemed it a risk to national security.

Yet, Western executives and analysts warn Huawei could gain meaningful, indirect access to the U.S. market if it holds some of 5G’s key patents. Huawei denied it followed such a strategy, saying it participates in joint innovation activities world-wide to promote a consensus on standards.

After meetings such as the ones in Vienna, the International Telecommunication Union, a Geneva-based United Nations agency, will specify final 5G standards, listing which patents are essential to the technology starting in 2019, said Dimitris Mavrakis, an analyst at technology consultancy ABI Research.

“You won’t be able to deploy or create a 5G network without these essential patents,” he said.

The first large-scale cellular networks, often referred to as first generation or 1G, were deployed in the 1980s, and relied on national technologies that were rarely compatible. That proved a particularly big headache for telecom carriers and subscribers in fragmented Europe.

In 1982, a European group of national post and telecom agencies set up an association called Groupe Special Mobile, or GSM, with the aim of designing a pan-European mobile standard. The initiative was quickly endorsed by national governments and European authorities, forcing European equipment suppliers to fight for slices of GSM technology. It bore fruit in 1991, when Finland launched the first commercial GSM network.

Developed as a multinational standard from the get-go, GSM was adopted by carriers in Russia, China and even the U.S. The standard became a byword for 2G networks as it eclipsed rival U.S. technologies such as CDMA.

GSM made the fortune of companies such as Ericsson and Nokia, which supplied large parts of the necessary equipment or owned patents that generated a windfall in licensing revenue.

“The path was shaped up by Europeans,” said Jorma Ollila, who was chief executive of Finland’s Nokia from 1992 to 2006. “Europe was the winner of that geopolitical game.”

The standard-setting process became more international in the 1990s, when ITU, the U.N. agency, oversaw the development of 3G. At the time, Huawei was busy manufacturing GSM equipment under license, mainly for operators in rural China. Europeans succeeded in retaining key positions within industry working groups, maintaining extended sway over patent-picking decisions.

The battleground became more disputed in the following decade as Huawei, founded in 1987, expanded in-house research capacities and became involved with the design of 4G.

Huawei “went from zero to being a big contributor to the whole standardization process,” said Michael Thelander, a consultant at Signals Research Group.

Building on its success in securing 4G patents, Huawei became a leading supplier of wireless equipment, even winning over clients on Ericsson’s and Nokia’s turf in the Nordics. Huawei also diversified in handset making, a business the Nordic companies have abandoned.

In 2016, Huawei said its revenue shot up 32% to 520 billion yuan ($75.7 billion). In the same period, revenue fell 10% at both Nokia and Ericsson.

In the race for 5G dominance, executives at European equipment suppliers said Huawei tends to saturate working groups with design proposals that aren’t always relevant, going for quantity rather than quality. A Huawei spokesman said the company’s research was “professional, collaborative and based on a significant contribution to investing in research and development.”

After hearing some of Huawei’s proposals for 5G design in Vienna, the senior Western company representative said: “If they threw the same resources with the quality of Ericsson or Qualcomm, it would be game over.”