Vodafone Ditches Huawei's Core Products in Europe at €200M Cost

Vodafone will phase Huawei out of its European "core" networks at an estimated cost of €200 million ($220 million) during the next five years after UK and European regulators said that any high-risk vendors should be excluded from these sensitive parts of new 5G infrastructure.

The decision comes about a year after the UK-headquartered operator said it would pause investments in Huawei's core network products, which are used by a number of its European subsidiaries but not its UK business, and was announced as the company published its trading update for the December-ending quarter.

Group CEO Nick Read told analysts he was pleased that regulatory authorities had drawn an important distinction between the core -- often seen as the brain of the network -- and less sensitive areas such as the radio access network (RAN), where Vodafone is heavily reliant on Huawei.

Stripping the Chinese company's gear out of the RAN would land operators with a huge bill and delay the rollout of 5G services, Read has previously warned authorities, and he today urged European regulators not to follow the example of the UK, which last week imposed limits on Huawei's activities in any 5G RAN.

While the UK business is already in compliance with those caps, similar moves in other European markets could prove highly disruptive, he said. "We do not advocate a quota-based approach," said Read. "In non-sensitive areas, Huawei is an important supplier reflecting its high-quality technology. RAN quotas would disrupt customers, drive higher prices and delay rollout of 5G by two to five years given our limited operational and financial resources."

His latest warning follows the recent publication of security guidelines by the European Commission, which is giving European Union member states the discretion to finalize their own measures regarding Huawei and other so-called high-risk vendors.

Any RAN restrictions would risk harming Europe's digital competitiveness, said Read. "A better solution is to let the industry improve supply chain diversity. We are already leading efforts by supporting initiatives like open RAN."

Open RAN vendors are positioning themselves as a low-cost alternative to Ericsson, Huawei and Nokia, which today control about 80% of the mobile infrastructure market, according to an estimate provided by Read at Mobile World Congress last year. The technology draws on more open interfaces and uses software that can -- in theory -- work on general-purpose equipment.

Vodafone last year put its entire European RAN footprint up for tender, inviting open RAN vendors to pitch for contracts. In the UK and Ireland, it is currently in trials with Mavenir and Parallel Wireless, two US developers of open RAN technology.

However, Read's latest remarks about the difficulty of changing vendors suggest open RAN is unlikely to win a significant share of business at this stage. Industry experts have also pointed out that open RAN is still immature and not ready for a mass-market deployment. "We too want vendor resilience and balancing but these things take time," said Read today as he implored authorities not to restrict Huawei.

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US authorities insist the Chinese vendor is a threat to national security because of its perceived links to the Chinese government, arguing that its products could include "backdoors" for spying or sabotage. Huawei has repeatedly denied the charges.

Huawei's opponents also regard the company as a trade cheat and intellectual property thief. Meng Wanzhou, its chief financial officer, has been charged by US authorities with lying to financiers about Huawei's activities in Iran. Since late 2018, she has been detained in Canada, where she is now fighting an extradition request by US prosecutors.

While RAN contracts carry the most value for equipment companies, Vodafone's decision to remove Huawei from its core networks is another setback for the Chinese company, and it creates an opportunity for Western rivals such as Ericsson, Nokia and US-based Cisco, which already provides the core network technology used by Vodafone's UK business.

Nevertheless, extracting Huawei's products from different core networks could be a complicated and drawn-out process fraught with some risk. The UK's BT, which is also replacing Huawei in the core of its mobile network, previously estimated the procedure would take about two years.

More heavily reliant on Huawei than Vodafone UK, BT has also been forced by the recent government decision to replace the Chinese vendor in parts of its RAN. Last week it estimated the overhaul would cost about £500 million ($653 million) in total.

Vodafone today reported a 6.8% year-on-year increase in revenues for the December-ending quarter, to around €11.8 billion ($13 billion), although its service revenues grew by just 0.8% on a like-for-like basis. It has reiterated its full-year guidance of generating €14.8 billion ($16.3 billion) to €15 billion ($16.5 billion) in earnings (before interest, tax, depreciation and amortization).

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— Iain Morris, International Editor, Light Reading