Impact on the Industry from Sanctions on Russia

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By Gu Zhang | 2Q 2022 | IN-6489

Ericsson and Nokia are suspending exports to Russia, which may further complicate the global 5G deployment. Sanctions on Russia will further weaken the confidence in dependence on foreign suppliers for other regions and urge diversification of business partners on both sides.

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Ericsson and Nokia are Suspending Deliveries to Russia

NEWS


On the 28th February, Ericsson announced that it is suspending its deliveries to Russia in assessing the potential impact of sanctions on its business in the market. One day after, Nokia followed the action for the same reason. Ericsson is a supplier to the largest operator in the country, MTS. Last October, they assigned a strategic partnership to develop private 5G-ready network for industrial enterprises. Nokia is a partner to major operators including MTS, Beeline (VEON), Megafon, and Tele2. At the same time, the Russian regulator lifted LTE coverage obligations for all operators in the country and has urged all of them to ensure that their networks operate in a “uniform load” so that quality of experience remains at a high level. Nevertheless, this could also be translated as a call to ensure that no additional external products or services will be required during sanctions.

Further Postpone on 5G Deployment

IMPACT


Suspension from Ericsson and Nokia will directly impact on 5G launch in Russia, which is behind in the 5G development compared to its peer countries mainly due to two reasons.

  1. Undesirable spectrum allocation, as the internationally most common radio frequencies (3.4-3.8 GHz) for 5G equipment have been occupied by civilian and military applications in Russia, which leads to higher cost to produce Russia-only equipment.
  2. Government requirements on the domestic production of base stations. Before the suspension of delivery, both Nokia and Ericsson had set up some local partnerships or considered production in Russia to progress on 5G deployment.

As of April 2022, Ericsson and Nokia have paused operations in Russia, and it appears as if this market will be left with Huawei, who has trailed with MTS for 5G last year. In any case, a vendor swap out is not likely at this stage or in the short-term future. Operators will likely deprioritize their 5G investments and focus on solving the infrastructure maintenance if Ericsson and Nokia can no longer provide support. This may be a good opportunity for Huawei to step in, especially given the restrictions the Chinese vendor is facing in Western markets, but they would have concerns about their remaining international businesses if they become a supplier to the Russian market. As a result, 5G deployment in Russia doesn’t seem to be happening soon, which will further impact the development of 5G ecosystems, such as smart manufacturing, smart cities, and other enterprise verticals where the Russian market is leading.

Technology Innovation is Still the Long-Term Driver

RECOMMENDATIONS


Sanctions on Russia will likely continue no matter when and what the outcome is. Due to the large scale of the Russian economy, chain reactions from sanctions would continue to spread across the global market. That would enhance negative influences on the industry when choosing business partners with political concerns beyond technology or products, which would stagnate technology innovation from a better competition environment.

Before the Russia-Ukraine war, authorities across the world had been working on removing dependence on foreign suppliers in the high-tech area as a long-term plan. Now, new lessons will accelerate this trend. Local authorities are considering taking as much control of their digital ecosystems as possible to avoid disruption on domestic operations from foreign intervention and frost local enterprises to join the competition. This is in fact good for the industry as early startups need some growing space before being eaten from international monopolies. Monopolistic positions in the telecom industry are hard to catch up with because of their accumulated advantages in Research and Development (R&D) and capital, but not impossible to challenge. Especially when 5G Advanced and 6G are ready to be commercialized, new battlefields such as software applications, edge computing, Artificial Intelligence (AI)/Machine Learning (ML), and new verticals may bring opportunities for countries to leapfrog. For international companies, including operators and suppliers, diversification in geographic coverage would help against political uncertainties but the long-term driver is still technology innovation to the industry and society which needs to be invested in continuously.

 

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