Telus Warns of Potential Cost Fallout If Canada Bans Huawei

(Bloomberg) -- Telus Corp. came out in defense of Huawei Technologies Co., saying the Chinese equipment maker has been good for Canada and that a ban on its 5G wireless network could potentially add to costs and delay its rollout.

The Vancouver-based telecom provider, the biggest user of Huawei equipment among Canadian carriers, said a 5G ban without compensation or other accommodations could lead to a “material” increase in the cost of Telus’s 5G deployment.

“Our partnership with Huawei over the past decade has been fruitful for Canada and fruitful for all Canadians,” Telus Chief Executive Officer Darren Entwistle said on a conference call with analysts Thursday. The partnership has allowed Telus to be “exceptionally innovative with our network deployment,” he said.

The comments from Telus -- the most vocal defense of Huawei so far from Canada’s big three carriers -- come amid rising political tensions between China and Canada following the arrest of the Chinese tech giant’s Chief Financial Officer Meng Wanzhou in December. Prime Minister Justin Trudeau is considering a ban on using Huawei gear in 5G networks. His government’s security review is ongoing, with no timeline set for a decision.

Entwistle said that the limitations on Huawei announced by U.K. and European telecom companies are focused on rationalizing the Chinese company’s equipment only in the core of their networks, which is the model that has been used by Telus over the past decade. The CEO also noted that Telus is seeing a “growing realization that the global supply chains of internationally sourced equipment must include a 5G security regime for all suppliers.”

No Vendor

Entwistle said in the earnings call that Telus has not yet chosen a vendor for its 5G network and will be entering into a standard proposal process later this year.

Telus said it expects a decision on 5G in the coming months and that it’s continuing to work with the government. The company doesn’t expect 5G to be deployed commercially across Canada before the second half of 2020.

In building its national networks, Telus said it has worked closely with the government to “ensure robust protections across all equipment used” and complied with security protocols that limit Chinese equipment to less sensitive radio and antenna portions, while banning it from core operations. Telus said it has had no security incidents in a decade of working with Huawei on 3G and 4G networks.

Most Exposed

Telus would be the Canadian carrier most exposed to a ban on Huawei 5G technology, followed by BCE Inc., RBC Capital Markets analysts Drew McReynolds and Caleb Ho said in a note in January.

BCE said on an earnings call last week that a Canadian ban on Huawei equipment wouldn’t affect its spending plans or the timing of its 5G rollout. Rogers Communications Inc., the third major telecom company in Canada, has already decided not to use Huawei equipment in 5G.

While the elimination of a major low-cost equipment supplier could increase the risk of higher prices for Canadian telecom operators, “any such cost inflation can be mitigated by each operator altering the pace of what will be a long multiyear 5G deployment,” RBC said.

Entwistle said that any costs that may arise from a ban on Huawei will be managed adeptly and the firm will focus on ensuring that it doesn’t impact the timing of when Telus brings 5G to market.

“Depending on the scope of a government decision including a potential supplier ban, we may see an incremental non-recurring financial cost that we will manage it that way,” he said. “It’s important to note that we also risk diluting Canada’s global leadership and wireless network performance and excellence only to a concentrated supply chain if that eventuality comes to fruition.”

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