T-Mobile/Sprint Merger Clears Hurdle, as Huawei Is Shunned

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1Q 2019 | IN-5348

The United States has been exhibiting its dominance as a market leader in the telco industry, most recently in the demands placed on other countries dealing with companies that have violated trade sanctions, putting security, trade, and intellectual property at risk.

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The U.S. CFIUS Clears the Merger


The U.S. Committee on Foreign Investment in the United States (CFIUS) has cleared the proposed US$25.6 billion merger between T-Mobile and Sprint, paving the way for a merger of the country’s third- and fourth-largest mobile operators. Approvals are still required from the Federal Communications Commission (FCC) and the Justice Department. If the two companies receive those approvals, then T-Mobile expects the deal to close during 1H 2019.

What Has That Got to Do with Huawei?


Neither T-Mobile nor Sprint operate their networks in the United States using any Huawei equipment; however, the devil is in the details. Sprint’s parent company is Japan-based SoftBank and T-Mobile’s parent is Deutsche Telekom (DT) in Germany, both of which do use Huawei equipment.

Press reports indicate that U.S. government officials had been pressuring both DT and SoftBank to put a halt to their use of Huawei equipment based on the suspicion that Chinese-originated equipment poses a security risk. The conspiracy theory was that without an agreement to eliminate Huawei from their networks, then the T-Mobile/Sprint merger would not have received the green light from the CFIUS.

In fact, as recently as December 10, 2018 the Japanese government effectively banned China’s Huawei and ZTE from official contracts and the top three mobile network operators in Japan—SoftBank, NTT DOCOMO, and KDDI—have said that they will, of course, follow suit. While DOCOMO and KDDI use little or no equipment from Huawei or ZTE, they will follow the government lead by not using Chinese equipment in their current and upcoming 5G networks. SoftBank now plans to replace 4G network hardware from Huawei with hardware from Nokia and Ericsson, and use them for 5G networks. While this is a setback for Huawei in Japan, it might appear to be a boost for Western manufacturers, such as Ericsson and Nokia. However, should the trade war escalate, and China decide to retaliate by eliminating Nokia and Ericsson equipment from Chinese networks, both of which have significant sales in China, then this would put a dent in those companies’ revenue and plans.

The situation in Germany is more nuanced, with only DT saying that it is reviewing its network equipment suppliers in Germany and other markets where it operates, given the Huawei security concerns raised by the United States, thus avoiding any conflict over the T-Mobile/Sprint merger. The German Federal Office for Information Security (BSI) has said that it will not ban Huawei equipment without evidence of espionage. This might sound surprising, given the pressure from the United States, but many of Germany’s operators are dependent on Huawei equipment. Having recently opened a research center in Bonn, Huawei may be able to avoid a formal ban by allowing due diligence inspections by its customers and potential customers. This would help avoid potential retaliation from China by prohibiting German products, such as BMW or Mercedes automobiles.

A more detailed deep dive on Huawei’s woes can be found in ABI Research’s recent foresight, “The U.S. Government is Making the Telecom Infrastructure Market Western Again.”

Another Demonstration of U.S. Dominance over Global Commerce


The U.S. government has lobbied its allies about the security risks of using Huawei equipment. Huawei denies there are any risks, but there are several mobile network operators in the United Kingdom, Australia, New Zealand, Taiwan, the Czech Republic, and now Japan and possibly Germany and France all banning the company’s network gear. This leaves Canada, as a member of the Five Eyes club, continuing to use Huawei equipment. In Canada, Meng Wanzhou, Huawei’s chief financial officer and daughter of its founder, was arrested at the request of the United States and accused of committing bank fraud to help the company’s business in Iran, violating U.S. sanctions. Now out on bail pending extradition to the United States, Meng’s arrest is the most recent manifestation of the standoff between the United States and China—a dispute that involves national security, trade, and intellectual property. In retaliation, China has detained two Canadian diplomats in what appears to be a reprisal for Meng Wanzhou’s arrest. Recent reports in the press suggest that not only was Huawei violating sanctions in Iran, but also in Syria.

Another significant market for networking gear is India, with more subscribers than the U.S. population. India is bound to be a target of Huawei and its Western competitors Nokia, Ericsson, and Samsung. The Indian telco market is very cost competitive and low cost is one of Huawei’s strengths. So, we might expect Huawei to progress there if the Indian government does not intervene. If India does ban Huawei equipment, then we do not see how Huawei can continue to be a telco equipment vendor outside its home market.

This is one example of the dominance and influence that the United States holds over world commerce. In March, the United States blocked Broadcom’s US$120 billion acquisition of Qualcomm over concerns that the new company could improve Huawei’s competitive position. (In July, Qualcomm called off its US$44 billion acquisition of NXP after failing to get China’s approval.)

In April, the U.S. government almost put Huawei’s competitor ZTE out of business by banning U.S. companies from selling its products, claiming the company broke U.S. sanctions on Iran and North Korea. Later, the ban was lifted after ZTE paid US$1.4 billion in penalties as a condition of resuming business.