Vodafone Pauses Huawei Purchases as Governments Mull Bans
(Bloomberg) -- Vodafone Group Plc is suspending some equipment purchases from Huawei Technologies Co. in another setback for the Chinese technology giant’s growth ambitions as governments worldwide weigh bans.
Vodafone, one of the world’s largest mobile carriers, will “pause” buying Huawei equipment for the core of its networks in Europe amid talks with the company and various agencies and governments, the U.K. company’s chief executive officer, Nick Read, said. There’s too much “noise” around the situation and more facts are needed, he said.
Carriers are becoming wary of expanding their ties to Huawei amid a U.S.-led crackdown on the largest telecom-equipment supplier. President Donald Trump’s administration has been pushing allies to block Huawei from fifth-generation wireless networks, citing fears that China could use its equipment for spying, something its executives have denied.
The move by Vodafone follows a decision by BT Group Plc to rip Huawei gear out of the backbone of its U.K. mobile network. Deutsche Telekom AG, Europe’s largest carrier and a major Huawei customer, is also reviewing its purchasing strategy.
Any bans on Huawei would have a “significant implication” for European carriers’ costs as they roll out 5G and create “significant delay,” Read said on a call with reporters Friday. Vodafone aims to start offering high-speed, low-latency 5G services in several countries including its home market in 2019 and has locked in pricing for equipment with all vendors, he said.
Huawei said the policy change only affects a small proportion of Vodafone’s 5G networks, which it will continue to support. “Vodafone and Huawei are long-term strategic partners that have worked together since 2007,” said a spokesman by email. “We are grateful to Vodafone for its support of Huawei and we will endeavor to live up to the trust placed in us.”
Some carriers kept Chinese suppliers out of the core -- the gateway that connects other parts of the network -- even before the latest global crackdown on Huawei, because it’s seen as critical by security officials. Huawei is also a major supplier of equipment for radio-access network components on mobile towers.
Huawei has spent a decade seeking a technological edge over its European rivals Ericsson AB and Nokia Oyj for 5G technology due to be rolled out in coming years. Those efforts are now under threat in Europe, where the U.K., France, Germany, Norway and other countries have been reviewing their policies. The vendor already faces bans in the U.S., Japan, Australia and New Zealand.
Carriers are reluctant to pivot away from Huawei unless they are forced to. The company has spurred competition, driving down equipment costs, and its equipment has become deeply enmeshed in networks in many big markets. Vodafone uses Huawei in the core of its Spanish network and some other smaller markets, but most of its spending with the Chinese vendor has been radio-access network gear.
Executives from Nokia and Ericsson have been careful not to be seen to benefit from Huawei’s pain. Both companies manufacture in China and do business with carriers in the country. Ericsson CEO Borje Ekholm said Friday the discussion around potential restrictions on Huawei is creating uncertainty among operators, which is “never good.”
Ericsson indicated in full-year financial results that it’s gaining market share across Europe and Latin America -- key markets for Huawei -- in addition to North America, where the Chinese supplier hardly operates. Ericsson posted a 30 percent increase in sales for the fourth quarter in northeast Asia, which includes China.
Investors are watching the shifting winds affecting Huawei closely, too. The CEO of one of Ericsson’s largest shareholders, Investor AB, Johan Forssell, said he’s been following the rising number of bans imposed on Huawei.
“The most important thing for us as a main owner in Ericsson is that Ericsson develops a competitive offer, and makes sure to win against its main competitors Huawei and Nokia,” Forssell said in an interview.
Vodafone shares were trading down 5 percent at 3:50 p.m. in London, their lowest in more than a decade, after the company narrowly missed estimates for third-quarter revenue.
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