TOKYO -- Japanese mobile carrier SoftBank has decided to replace the Huawei Technologies equipment in its 4G telecommunications network infrastructure with hardware made by Ericsson and Nokia, Nikkei has learned.
The decision reflects rising security concerns over potential leaks of sensitive information, system shutdowns and other risks involved in using Chinese telecommunications equipment.
The hardware will be replaced over the next few years. SoftBank is the only telecom carrier in Japan that uses Huawei equipment, which is regarded as competitive in terms of both technology and price, for its base stations.
The carrier is also expected to place orders with the two European companies for its 5G networks.
The move has considerable implications for SoftBank, given its involvement in China's business landscape. Its parent company SoftBank Group owns 29% of Chinese e-commerce giant Alibaba Group Holding and is a major shareholder in the country's leading ride-hailing leader Didi Chuxing.
The company, however, appears to have viewed security concerns and the loss of major clients as greater risks than the potential repercussions for its China operations.
The move comes on the back of government efforts to restrict the public sector from procuring Chinese communications equipment. Tokyo on Monday effectively banned central government ministries and the Self-Defense Forces from doing so, with measures set to come into force in April.
"It's extremely important to avoid buying equipment that includes malicious functions like stealing or destroying information or halting information systems," Prime Minister Shinzo Abe told reporters.
Japan's two other mobile carriers, NTT Docomo and KDDI, have also decided not to use Chinese equipment in their 5G networks. E-commerce company Rakuten, which is set to become the country's fourth provider next year, will procure from Nokia for its 4G network.
Elsewhere, New Zealand has blocked one of its main wireless carriers from using Huawei products, while British provider BT has said it will remove the Chinese manufacturer's equipment from its 3G and 4G networks.
Huawei and ZTE are already banned in the U.S. market, having been sanctioned for alleged dealings with Iran. Washington will also block companies that use products from certain Chinese companies from doing business with government agencies from 2020 -- a concern for SoftBank and NTT as they look to expand overseas.
The decision also comes at a sensitive time for SoftBank's operations in the U.S. The company operates mobile phone service in the U.S. through Sprint, the country's fourth-largest carrier. The subsidiary is seeking regulatory approval for plans to merge with T-Mobile US, the third-largest provider.
SoftBank Group is also a major investor in several U.S. companies like Uber Technologies.
In Japan, Huawei is estimated to have sold about 15 billion yen ($132 million) worth of equipment for base stations in the year ended in March, representing a 13.2% share of the $1 billion market, according to market research company MCA. Almost all of its sales are believed to have come from SoftBank, said Hironori Amano, an MCA analyst.
The Japanese company is still estimating the cost of replacing Huawei equipment, but "it shouldn't amount to a huge sum," according to a senior company official.
Between fiscal 2015 and 2017, the carrier invested 76.7 billion yen in base stations. Of the total, 20.6 billion yen went to Huawei, and 3.5 billion yen to ZTE.
For Huawei, SoftBank's decision could entail a loss of up to 20 billion yen in annual sales, said Amano.