Deutsche Telekom CEO warns coronavirus is hitting networks supply chain

Germany's Deutsche Telekom today warned the market to expect some possible disruption to its supply chain in the network equipment sector due to the outbreak of coronavirus. It has now opened a coronavirus crisis center as it evaluates the impact of the respiratory disease.

Commenting on the impact of the virus after Deutsche Telekom had published a bumper set of financial results for 2019, CEO Timotheus Höttges today said the operator's dual-supplier strategy would help to mitigate any problems and that he was closely monitoring developments.

"When it comes to network technology, yes, supply chains are affected because the Chinese started ramping up the production of components fairly late in the New Year," he told reporters during a streamed press conference in Bonn. "I could make comments on individual vendors but will skip that. What I can say is that we are not facing problems at the moment but will have to closely monitor what is happening."

In Germany, Deutsche Telekom relies mainly on China's Huawei for mobile network infrastructure. In its German radio access network, it also uses Swedish firm Ericsson, which replaced Nokia as a RAN supplier to the operator in late 2017.

Ericsson's Chinese factory reopened on February 10 after the Chinese New Year and has been running at capacity since then, the Swedish vendor said last week. In response to the coronavirus outbreak, it has ramped up production at its other global manufacturing site in Tallinn, Estonia. "We have contingency plans and we don't now see any impact from this," said Fredrik Jejdling, Ericsson's head of networks. "As of now, we see it is recoverable."

According to the latest statement by the World Health Organization, there have now been 74,279 coronavirus cases in China, including 2,006 deaths. Outside China, 918 cases and three deaths have been reported in total.

The Chinese outbreak could have a direct impact on Deutsche Telekom because a number of employees at T-Systems, its IT business, work in the Chinese market, said Höttges.

He is also looking at developments in the consumer devices market after iPhone maker Apple this week said it would miss sales guidance for the current quarter because of coronavirus disruption. Foxconn, a contract manufacturer that assembles devices for both Apple and Huawei, has indicated it is operating at "considerably reduced capacity," said the Deutsche Telekom boss.

"We don't see that yet because our warehouses are full, but the question is how long that is going to last," he said. "When it comes to Samsung, Huawei and other providers, we are not facing a delivery bottleneck at the moment."

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Höttges also today said there should be tougher penalties for any foreign vendors that breach security rules in Germany. "We believe we need tighter security regulations in Germany," he said. "If any vendor from abroad violates our security standards in Germany, then fines should be higher than they are now."

The remarks come as the German government continues to face pressure over Germany's heavy reliance on Huawei, which US authorities want banned from Europe's 5G markets on security grounds.

Citing links between Chinese companies and the state, US critics have argued that Huawei's products could include hidden features allowing the Chinese government to spy on other countries – charges Huawei has regularly denied.

"We are waiting for the federal government to make a decision on how it wants to proceed and we will respond and align our strategy accordingly," said Höttges.

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— Iain Morris, International Editor, Light Reading

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