In its nastiest form, COVID-19 obstructs the airways and causes breathing problems for the infected. It could also lead to a blockage for the companies that make network equipment.
Despite a surge in network traffic, and a global recognition of broadband's overnight importance, service providers have begun warning investors of the pandemic's financial impact. As capital expenditure is cut, 5G looks especially vulnerable. And Europe and the US are in much worse shape than China.
Indeed, Huawei now expects China to extend its 5G lead over Europe as a result of COVID-19. "5G deployment in Europe will certainly be delayed to when the pandemic is brought under control," said Eric Xu, one of the Chinese vendor's rotating CEOs, during a results presentation this week. "After the pandemic was brought under control, China has accelerated its 5G deployments."
The rationale makes sense. While China is now easing the restrictions that have closed factories and kept workers off the streets, most of Europe remains under lockdown. Notwithstanding the government response in some countries, unemployment is rising, and incomes are being squeezed. Even if telecom is more important than ever, some households will ditch non-essential services and downgrade to cheaper tariffs. Only the insane would pay for a TV sports package when athletes are languishing at home playing Fortnite. Even in Sweden, which has controversially avoided a total lockdown, telecom incumbent Telia has now cut dividends as it prepares for a hit.
Last year, 5G seemed a priority for most operators in developed markets. This year, it will be much further down the to-do list. In the absence of any new 5G applications, one of the main reasons for investing in the technology is to ease the pressure on congested 4G networks. But just like the roads, those networks have featured less traffic since the virus took hold. On March 20, the UK's BT reported a 5% drop in mobile data traffic, compared with normal levels. People confined to their homes need broadband and Wi-Fi, not 4G and 5G.
This forced slowdown is bad for Huawei and the operators building 5G networks, but it will be especially bad for Huawei's Western rivals. Unlike Huawei, Ericsson and Nokia cannot count for a substantial boost on a recovering China, which has long rigged its equipment market in favor of domestic suppliers. When China Mobile this week handed out 5G contracts worth $5.2 billion, about 90% of the work went to Huawei and ZTE. Nokia came away empty handed.
As a mobile-only vendor, Ericsson looks the most exposed to a 5G slowdown, and more than 50% of its business is generated in Europe and the Americas, where the rate of COVID-19 infections is rising. Huawei's logic implies the US will also face a delay in 5G rollout: It has overtaken Italy as the country with the highest number of infections, and its response to the outbreak has been cack-handed and incoherent, with some states under lockdown while others continue as if the virus were fake news. Although less reliant on the 5G radio business than Ericsson, Nokia could also be in trouble: About 30% of its sales came from North America last year, and another 28% from Europe.
Of course, not all operators will immediately tighten their belts. None wants to emerge from the COVID-19 crisis in a weaker network position than its rivals. With that in mind, some will persuade investors of the need for continued spending, even if that hurts profitability. But the statements about capex cutbacks have already started to appear. Today, Belgian incumbent Proximus said capital expenditure would go down this year to offset the impact of COVID-19 on profits. New Zealand's Chorus has also trimmed its capex forecast this year, suspending "non-essential field activity to support the government objective of eliminating the risks of spreading COVID-19."
Fortifying fixed-line broadband networks to cope with a traffic spike seems bound to fall under the "essential" category. The closure of business parks, schools and shops has made broadband a lifeline to the wider world for most Europeans. The trouble for broadband equipment specialists is that networks have withstood the onslaught. BT says it can handle a maximum of 17.5 Tbit/s on its broadband network, way more than the 7.5 Tbit/s it witnessed in daytime traffic during the first week of the UK's lockdown. Berec, a club of European regulators, this week said "no major congestions issues have occurred" in European markets. Many operators are under no short-term pressure to carry out upgrades.
Even if upgrades are needed, labor is available and governments allow work to proceed, supply chain disruption could thwart planned investments. Chinese factories have now reopened, insist Chinese authorities and companies that make equipment in China, but transportation has become more problematic. "It is where countries are completely locked down and you are trying to get stuff from A to B and there is no Fedex service running in certain areas," says John Baker, the vice president of global business development for Mavenir, a US vendor active in the 5G market.
Huawei needs to be careful. China is already under fire in the Western media amid reports that it bulk-ordered face masks and personal protective equipment from other countries while trying to smother news of the original outbreak. As China climbs off its sickbed, the virus that started there is now devastating other parts of the world. And Huawei is suggesting COVID-19 – albeit inadvertently – will give China a bigger lead in such a critical area as 5G. Letting US officials know that is like prodding an angry bear with a very sore head.
- Huawei, ZTE win 90% of giant China Mobile 5G tender
- Huawei gloomy about 2020 as US sanctions take toll and COVID-19 threatens
- Even COVID-19 can't stop Huawei, says founder
- US weighs tighter export controls to check Huawei – report
- Trump is losing the European war against Huawei
— Iain Morris, International Editor, Light Reading