Malone’s Liberty Global Takes Gamble on All-Huawei Swiss Carrier

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While the White House is pushing allies to ban telecommunications equipment made by China’s Huawei Technologies Co., billionaire John Malone is preparing to buy a pile of it.

His Liberty Global Plc has agreed to purchase Zurich-based Sunrise Communications AG, whose network of 3,500 base stations all rely on equipment from the Shenzhen-based vendor. The deal values the Swiss carrier at about 5 billion Swiss francs ($5.5 billion).

It’s a sharp contrast to what’s happening in other nations like the U.K., where a ban on Huawei gear will saddle carriers with the cost of removing it from networks and replacing it with kit from other manufacturers. Were Switzerland to mandate an exclusion of Huawei as carriers install the next generation of wireless communications equipment, Sunrise could find itself in the same situation.

“There would be a major cost implication” that could also hinder its 5G roll-out, said CCS Insight analyst Kester Mann.

That’s a risk Liberty’s Chief Executive Officer Mike Fries says he’s willing to take.

“We have analyzed multiple outcomes on the Huawei issue, and none of them have changed our interest level, and the deal remains highly attractive under all those scenarios,” he said on a call with reporters Wednesday. “There will be no rip and replace.”

Sunrise’s CEO said earlier this year the Swiss government had already concluded the Chinese company’s equipment poses no significant risks. Sunrise’s attitude toward Huawei hasn’t altered, and the company does not plan to change Huawei as a supplier, a spokeswoman for the Swiss company said in an emailed statement.

But officials can change their mind, as BT Group Plc knows -- the British carrier says it will have to spend about 500 million pounds ($655 million) to replace its Huawei equipment.

The U.K. had initially said Huawei gear could be used in parts of the nation’s communications network. In July it abandoned this policy in favor of a ban for all 5G kit from the company after the U.S. in May imposed new sanctions that significantly constrained Huawei’s silicon supply chain.

Berenberg analyst Usman Ghazi said the worst-case scenario for Sunrise to replace all its Huawei kit would involve costs of a “couple of hundred million” Swiss francs for the antennas and a further 30-40 million francs for the core.

That’s still not a problem for Fries. Even if Switzerland copies the U.K. approach, “that’s certainly manageable,” he said.

Huawei Fan

Sunrise has worked closely with Huawei since 2013 and was one of the first carriers in Europe to launch 5G, in a push spearheaded by former CEO Olaf Swantee. He left in January after a previous attempt at a deal with Liberty Global failed.

“The quality of their solutions and people have contributed significantly in securing a network leadership position in 4G and 5G,” Swantee said by email, adding “I have only worked with fantastic and trustworthy people at Huawei.”

Swantee also leaned on Huawei in his previous role as head of British mobile carrier EE, which rolled out the U.K.’s first 4G mobile broadband network, months earlier than rivals. But that led to a sting in the tail for BT Group Plc, which bought EE in 2016.

BT started building 5G systems mainly using Huawei because the early 5G equipment bolts directly onto the 4G kit, which in EE’s case is majority Huawei. Now it has to rip it all out.

Even if no Swiss ban seems imminent, the global situation is changing fast: The U.K.’s U-turn came just six months after the initial policy.

©2020 Bloomberg L.P.

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