Germany launches its auction on Tuesday for the construction of an ultra-fast 5G mobile network as a transatlantic dispute rages over security concerns surrounding giant Chinese telecoms equipment maker Huawei.

The United States has warned it could scale back the sharing of sensitive information with Berlin if it does not exclude hardware made by Huawei from the infrastructure, arguing that Chinese equipment could help Beijing spy on Western companies and governments.

Attempting to play down the row on Monday, Jochen Homann, chairman of the German Federal Network Agency (BNA), said: “No matter whether a supplier comes from Sweden or China, companies must meet certification requirements and security checks.”

'Fifth generation' — '5G — is the latest high-speed generation of cellular mobile communications and Berlin will require winning bidders to offer 5G service to at least 98 per cent of German households and along motorways and rail lines.

Germany, Europe's biggest economy whose wireless networks however rank 46th in the world for download speeds, wants to close the sizeable digital gap by making the shift to the ultra-fast 5G system.

The BNA started the auction in Mainz at 9am (GMT) on Tuesday and the process will allocate 41 different frequency blocks. Four operators are in the running, among them Germany's three main mobile network providers — Deutsche Telekom, Vodafone and Telefonica Germany (O2) — plus United Internet (1&1), a German company specialising in internet services.

Huawei is not one of the bidders but provides the four German companies with essential hardware such as antennas and routers.

The US has accused Beijing of using Huawei's 5G network gear as a Trojan horse, forcing operators to transmit data to the regime, but Washington has not provided evidence to support their suspicions.

Huawei has strenuously denied allegations its equipment could be used for espionage.

Chinese Foreign Minister Wang Yi on Monday lashed out at what he called “abnormal, immoral” attacks on Huawei and demanded a “fair and just competition environment” for Chinese firms.

US-led attempts to encourage other nations to ban Huawei equipment from their telecoms infrastructure suffered a setback when Chancellor Angela Merkel's government decided against imposing company specific-restrictions on the 5G auction.

US fears of security compromise

According to media reports, US ambassador to Germany Richard Grenell last week warned that Washington could review intelligence cooperation unless Berlin agreed a Huawei ban.

In a letter, Grenell told Peter Altmaier, Germany's economy minister, that intelligence-sharing cooperation could be scaled back if Berlin allows the Chinese firm to be part of the 5G network, the Wall Street Journal reported.

The threat escalated last week when Nato's Supreme Allied Commander in Europe, US General Curtis Scaparrotti, warned Germany that Nato forces would cut communications if Berlin works with Huawei.

“We're concerned about their (Germany's) telecommunications backbone being compromised in the sense that, particularly with 5G, the bandwidth capability and ability to pull data is incredible,” Scaparrotti told the House Armed Services Committee last Wednesday.

“If it also is inside of their defence communications, then we're not gonna communicate with them. And for the military that would be a problem.”

Merkel has tried to reassure senior figures in Washington by saying Germany would consult with the US over whether to use Huawei tech, but would “define our standards for ourselves”.

However, Germany's Federal Intelligence Service (BND) shares some of the US fears.

BND security experts have asked the government to take China's overall strategy into account, including a law on forced cooperation in security matters, according to a report in Der Spiegel magazine.

Other media outlets claim Berlin is drawing up a catalogue of measures, for all 5G providers, to change the telecommunications laws.

These measures range from a non-espionage clause to the requirement of testing all components and the obligation to publish source code used in infrastructure.

In some cases, the government could insist equipment already installed is replaced, which could exclude Huawei from the infrastructure without pronouncing a formal ban on the Chinese firm, according to business daily Handelsblatt.