Shortly before the upcoming 5G boom, security and privacy concerns can reshuffle the entire 5G value chain and rebalance the vendor market.
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Growing Distrust and the Ban from Providing 5G Technology Will Shape the International Market
Chinese telecommunication vendor Huawei has been in the spotlight many times, not only because of its significant contribution to the upcoming 5G technology development and considerable product portfolio but also in relation to privacy concerns. The company was accused of shortcomings by the U.K. Government Communications Headquarters with regard to security issues, and it was suggested that Huawei may be implicated in hacking the Chinese-funded headquarters of the African Union in Addis Ababa, Ethiopia. The U.S. government is already restricting the Chinese vendors; Huawei has also been banned from providing 5G technology in Australia due to security concerns. The company has already been excluded from participating in Australia’s National Broadband Network and blocked from laying submarine cables in the Solomon Sea in the Pacific Ocean. This ban from 5G is the next step in undermining the Chinese vendor’s activity in Australia’s $43 billion telecom market.Other recent signs of escalations include Japan, who is also considering a ban on Huawei and ZTE networking hardware, and India’s Department of Telecommunications, who have selected Cisco, Ericsson, Samsung, and Nokia to carry out 5G trailsinstead of Huawei.
The Ban of the Chinese Vendor Is Accelerating Consolidation
While ZTE is less relevant in the global 5G infrastructure competition, Huawei has had a significant involvement in Australia: it is a major provider for Vodafone, the country’s third biggest mobile service provider; to a lesser extent, it is also supplying Optus, the second biggest player in Australia. Huawei is currently supplying TPG Telecom, an Australian low-cost Internet provider; TPG has announced that it will be building its own mobile network for $1.4 billion in 2017. Huawei has a significant footprint in Australia and therefore has a lot to lose with the 5G ban.
One week after the disclosure of the Chinese kit vendor ban, Vodafone and TPG Telecom announced a merger; this new company will become Australia’s third telecommunication giant to be heavily reliant on Huawei’s equipment and services.As a consequence of the ban, each company will need to strike difficult deals with a limited pool of network vendors. However, the merged Vodafone-TPG Telecom business will have a stronger negotiating position when dealing with the remaining viable telco equipment vendors (Nokia, Ericsson, and Samsung). Along with the need to negotiate new deals with other network vendors, the shortage of 5G spectrum, intense competition, and fixed-mobile convergence all helped to create the conditions for this $10 billion telco merger deal.
What Will Happen If Two of the Five Global Competitors Are Banned from 5G Technologies?
The ban of Chinese vendors results in an unexpected opportunity for Nokia, Ericsson, and potentially Samsung to increase their revenues in the Australian market. Optus, Vodafone, and the new vendors will face technical challenges during the integration of the new 5G equipment with the legacy Chinese gear. It could also mean that the Huawei kit may be completely swapped out, since new infrastructure supports multiple technologies in one platform that reduces the TCO.
The ban of Huawei represents an opportunity for network vendors of all sizes. In fact, to increase the numbers of options to deploy their 5G networks, mobile service providers should consider and mix with other vendors who are able to offer equipment and services for the upcoming 5G rollouts. For instance, Samsung and NEC Corporation can supply parts for 5G solutions; however, they currently have less than a 5% share in the global mobile infrastructure market. Furthermore, mobile service providers trying to reduce their dependency are moving toward multivendor strategies; this is an opportunity for smaller 5G infrastructure vendors to expand internationally. Markets with limited competition are a great springboard for smaller players to reach 5G hungry customers.
Other than hoping for a less intense global fight over security and privacy concerns, Huawei and ZTE have already tried in several ways to embed themselves in Australia by hiring advisers from major political offices, sponsoring local rugby teams, and delegating former politicians into its local board of directors. Continuing to build trust, emphasizing independence, showing transparency, and distinguishing itself from the Chinese state is a way to restore the Chinese companies’ reputation.
Despite a growing distrust of Chinese vendors, Huawei is still performing well and building a significant presence in the Western world. Western European countries could have taken measures similar to Australia’s if the Chinese market share in network deployment was not as high. This drives Chinese vendors to continue betting on 4G, doing incremental updates on existing infrastructure, and, of course, investing heavily into its handset business. However, in the case of further escalation of the global battle over network security, Huawei’s significant market presence will not be the most important factor, as European countries could make similar restrictions.