Huawei –Nowhere to run pt. XIX.

The UK extracts its pound of flesh.

• The protestations of the UK operators against the Huawei ban is likely to fall on deaf ears as their claims are questionable and are really aimed at protecting the bottom line as the loss of Huawei will diminish competition making infrastructure a little bit more expensive.
• The UK has banned the sale of Huawei 5G equipment from January 2021 and requires that all Huawei equipment is removed from UK networks by 2027.
• This follows a hearing where both BT and Vodafone claimed that the ban would cost them billions of pounds, cause service interruptions as well as delay the roll-out of 5G in the UK.
• As my colleague John Strand eloquently points out (see here) there are problems with all of these claims implying that for the telecom industry in the UK, this is not such a big deal.
• For example:
  • First: 70-80% of the radio network needs to be replaced when upgrading to 5G meaning that the Huawei equipment will be ripped out regardless of who the 5G vendor is.
  • Second: The example of TDC, KPN, Telenor and Telia indicates that a switch from Huawei to Ericsson does not necessarily mean a much higher capex bill.
  • Third: A case study by Huawei showed that it was able to complete a 6,000 cell site migration in Norway in 10 months beggaring the question as to why it will take the UK 7 years.
  • I suspect that there are some good answers to this such as the economic cost of ripping out functioning equipment before it is fully depreciated and end of life in rural areas where there will be no 5G for some time but it does seem to be a very long time.
• The net result from this is that it is Huawei that suffers by far the most from this decision.
• The real danger now is that other countries such as EU members and India follow the example set by the US and UK and also ban Huawei from their networks.
• In the face of all of this controversy, Huawei has been able to perform exceptionally well with revenue growth of 13% YoY in H1 2020 despite the increasingly hostile environment in which it is operating.
• I suspect that the reality is that the domestic market has provided great support in the last 6 months which increasingly points to where Huawei’s future lies.
• This is a future as a Chinese vendor of Chinese products for the Chinese market and not much more.
• That is more than enough to ensure its survival but calls into question whether it will be worthwhile even showing up at Mobile World Congress, the biggest global event for the mobile phone industry.
• Nokia and Ericsson are in pole position to benefit from the switch away from Huawei but of the two, Nokia has by far the most to rally.
• This is because prior to a Huawei exit it is the small player stuck between two giants but now it will be the only alternative to Ericsson.
• Perhaps it is time to have another look at Nokia after many years of malaise.