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Trade war

Huawei blacklisting bites 5G carriers in the wallet

Companies look for alternatives, but cost and uncertainty expected to rise

A Huawei pavillion is seen at a previous Mobile World Congress in Barcelona. The GSMA Mobile World Congress, representing the interests of the worldwide mobile communications industry, will discuss the Huawei ban later this month.    © Reuters

​​​​​TOKYO/GUANGZHOU/FRANKFURT -- As governments worldwide slam their doors on Huawei Technologies, the Chinese telecommunications supplier suspected of being a security risk, mobile carriers are left with little choice but to shell out more money for 5G equipment.

Deutsche Telekom, a major multinational telecom based in Germany, is one of the latest players to re-evaluate its strategy in light of Huawei's troubles. "Deutsche Telekom takes the global debate on the security of network equipment from Chinese providers very seriously," the company said in a statement last Wednesday, describing steps it will take to ensure confidence in its network.

The Huawei blacklisting looks at accelerate after the U.S. Justice Department unsealed a pair of indictments against Huawei last month, alleging that the company skirted trade sanctions against Iran and committed corporate espionage. The charges have fanned the flames of the debate over Huawei.

British carrier Vodafone is weighing whether to quit Huawei, according to local news reports. The GSM Association, the global trade body representing mobile operators, will discuss the issues presented by the prohibitions against Huawei during a gathering slated for the end of this month in Barcelona, Spain.

GSMA and Huawei have established a close relationship over the past few years, with the Chinese company's booths occupying some of the largest tracts of real estate at GMSA-hosted events.

Huawei has built up a global footprint deserving of that attention. It holds the top share in the global cellular base station market at 27.9%, data from IHS Markit shows. Huawei's base stations are said to be 20% to 30% less costly than alternatives offered by Nokia and Ericsson. That price competitiveness has led to 30 contracts for 5G equipment in Europe, the Middle East and Asia-Pacific.

The U.S. campaign against Huawei threatens to dethrone the company from its leading position. In August, President Donald Trump signed into law a defense authorization bill that forbids government agencies from using equipment from Huawei, among other Chinese suppliers.

Furthermore, the U.S. is relaying to allies intelligence concerning the risks posed by Chinese telecom devices. Australia and New Zealand have moved to block Huawei from their 5G sectors. The Japanese government plans to essentially ban ministries from procuring equipment from Huawei and other Chinese providers.

The blackballing has quickly hit smartphone sales in Japan. At one chain of stores, the number of Huawei phones sold plunged by more than half from December to January, according to the operator. Customers are reportedly shying away from Huawei due to fears of data leaks.

One of the biggest victims of this trend are sellers of cheaper smartphones. About half the smartphones sold by Rakuten Mobile, the mobile virtual network operator under e-commerce giant Rakuten, are produced by Huawei, according to a major dealer. Now customers are questioning the safety of buying them, said the source.

The longer-term effect of the blacklisting seems to be showing up in higher costs for introducing 5G technology, along with lost investment.

On Jan. 29, Australia's TPG Telecom said it killed an ambitious rollout of a mobile network due to a government ban on Huawei. "Over the past two years, a huge amount of time and resource has been invested" in the project, Executive Chairman David Teoh said in a statement. Teoh said that it is "extremely disappointing" that the company had to make the decision due to "factors outside of TPG's control."

Huawei's Rotating Chairman Ken Hu told the press in December that Australia will face mounting costs if it sticks with its exclusion. "Without Huawei's participation, the cost for deploying wireless base stations in Australia would be higher by 15% to 40%," he said.

Telecoms are also staring at challenges on the technological front. 5G is mainly based on the time division duplex, a communication linking process that has been adopted in China since the age of 3G. When it comes to network reliability and other areas, Huawei's tech is said to be nearly a year ahead of rivals.

"When I think about the technology, I would like to use [Huawei], to be honest," said Junichi Miyakawa, chief technology officer at Japan's SoftBank Corp., the mobile arm of SoftBank Group. Nevertheless, the carrier recently decided to replace Huawei equipment in its infrastructure due to security concerns.

On the other hand, the Huawei ban could prompt a changing of the guard in the global base station market. Rakuten is set to become Japan's fourth major carrier when it launches its own cellular service in October. The company has chosen base stations made by Altiostar, an American startup launched in 2011. This is one of the few major contracts won by Altiostar, a virtual unknown in Japan.

Nikkei staff writer Mao Kawano in Tokyo contributed to this report.

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