Swapping Huawei for Ericsson or Nokia could seriously delay Europe's rollout of 5G networks because the European suppliers do not have the resources to cope, according to sources in the service provider community.

Executives at one of Huawei's major mobile network customers, who spoke with Light Reading on condition of anonymity, said the resources for a swap-out do not exist within Ericsson AB (Nasdaq: ERIC) and Nokia Corp. (NYSE: NOK). One senior technology executive at the operator said Ericsson's main priority is currently the large US market, where Huawei Technologies Co. Ltd. is effectively shut out from doing business with the main service providers. (See Ericsson Opens Largest Training Center in US for – You Guessed It – 5G.)

"They don't have the product portfolio, they don't have the stock, they don't have the [support] resources," he told Light Reading. "They cannot replace Huawei."

The warning comes as European authorities consider banning Huawei and smaller Chinese rival ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) from network equipment markets amid growing security concerns: China's opponents say the Chinese military could use Huawei products to spy on other countries, but the accusation that Chinese vendors would have to support these efforts is one Huawei has always denied. (See Huawei Pledges $2B to Address Security Concerns, Appease the Brits, How the West Can Hurt Huawei and Where Huawei Fears to Tread.)

Figure 1:

Anti-Huawei forces in the US government are now leaning on European allies to exclude the Chinese vendor and pursuing criminal charges against Meng Wanzhou, Huawei's chief financial officer, who is accused of covering up deals in Iran that may have breached US sanctions. (See Huawei Hits Out at DoJ Amid Global Backlash and Will Trump Fan the Flames as Huawei Is Burned at the Stake?)

The Huawei customer that talked to Light Reading said it had prepared "contingency" plans, including the stockpiling of equipment, in the event of an American ban on Huawei's purchase of US-made components. Similar steps against ZTE last year led to major disruption for operators such as Italy's Wind Tre, delaying upgrades to mobile networks at considerable cost.

But it seems no contingency plan would address all the risks. The same operator flagged the logistics and resource challenges of sending technicians on "truck rolls" to thousands of mobile sites. Across Europe, an estimated 360,000 4G sites could eventually need upgrading to 5G, and the overall number of sites could increase as regulators license higher radio frequencies -- which provide faster connections but worse coverage than 4G spectrum.

Among other things, that service provider has relied heavily on Huawei for the installation of radio equipment on rooftops and is worried that Ericsson and Nokia would struggle to fill the gap any Huawei ban would create. The job, notes the operator, requires expertise in both engineering and rigging that is in short supply in many parts of the world.

Huawei's customer said the Chinese vendor, which employs around 180,000 people, had clearly seen the benefits of the investments it has made and the expertise it has gained in its domestic market, where there are now more than 2 million mobile sites across the mainland.

Alluding to Huawei's resource strengths, another European operator previously told Light Reading the Chinese supplier would respond immediately to any problem, while Ericsson might take several days.

You can't get the staff
The service provider remarks come after a series of cost-cutting moves at Ericsson and Nokia in the last two years.

While Ericsson has ringfenced its R&D business from any cuts, it has slashed 16,000 jobs since CEO Börje Ekholm took charge in early 2017, leaving it with 95,359 employees in December, according to its last earnings update.

Nokia has also recently announced plans for major job cuts as it looks to realize another €700 million (US$791 million) in annual cost savings over the next two years. It has indicated that layoffs will affect staff across all departments, including support functions where investments in digital tools and automation are expected to pick up the slack. (See Nokia Plots Job Cuts Outside Europe.)

Following its 2016 takeover of Alcatel-Lucent, the Finnish vendor had around 102,000 employees worldwide in 2017, when figures were last disclosed, including 14,910 in North America. So far this year it has revealed plans to cut more than 1,300 jobs across Finland, France and Germany. (See Nokia Targets 1,330 Job Cuts in Europe.)

Headcount reductions would probably not hinder Ericsson and Nokia when it comes to network rollout because vendors have typically relied on contractors for that work, said Bengt Nordström, the managing director of the Northstream consulting business.

But he agrees that any disadvantage Ericsson and Nokia have in Europe is mainly about resources. "If you think of the strategy work going on at Ericsson, Huawei and Nokia in September and October last year, the plan was not for swap-outs of Huawei in Europe on a massive scale," he tells Light Reading. "There is no supply or resource preparation to deal with that in a short period of time. No one has planned resource-wise for the big ramp-up of equipment to deal with this problem."

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Even replacing Huawei in the core of an operator's network -- rather than across the radio sites -- would be very challenging, according to Nordström. "It is a complex task because it is linked to the IT systems of an operator and it must not cause outages during the process," he says. "It is not like taking out a Lego piece and putting another one in. There are long lead times with planning, too."

Both Ericsson and Nokia have been wary of answering questions about the impact of a Huawei ban on their own activities, but Ericsson is already struggling to meet demand in North America, Ekholm acknowledged during a call with analysts in January. "We see the limitations on rolling out and the limitations on tower crews," he said. "That limitation still exists. We are increasing our investments in bringing more tower crews online but this takes some time. There is stronger demand than we'd anticipated." (See Ericsson Hails First Annual Sales Growth Since 2013 as 5G Comes Calling.)

Told of the service provider concerns, Nokia responded with the following statement: "Nokia is well-positioned to support all of our customers as they deploy 5G, especially as we are the only provider of a 5G end-to-end portfolio available in all markets."

Ericsson said recent efforts under a new strategy were aimed at supporting the shift to 5G. "This also means that we have the internal resources and the supply chain capacity to meet market demand as 5G is introduced globally," it said in comments emailed to Light Reading. "Our strategy is to work with leading customers in lead markets following the pace of 5G introduction as spectrum becomes available. Over the last few years we have made several large swaps gaining both the experience and the capacity to do so."

Ericsson also claimed to have been "first" with the deployment of commercial 5G networks in the US and said it has now deployed operational 5G networks in Europe, Australia and Asia. "To date, Ericsson has announced 5G deals with 10 publicly named operator customers, which, at the moment, is more than any other vendor."

— Iain Morris, International Editor, Light Reading