Ericsson, Huawei & Nokia Are Facing an 'Oil Crisis' Upheaval

Iain Morris
7/31/2019
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The end of globalization?
The conditions are now ripening for a seismic shift to regional or even local sources of production. The UK has delayed a Huawei decision while it assesses the impact of a US components ban that could leave Huawei-dependent operators high and dry. Before vacating the role of digital secretary in a government shake-up this month, Jeremy Wright told members of parliament that "diversification" in the choice of equipment vendors would have to be a long-term goal. "Part of the reason you want a larger number of suppliers is not simply because it is commercially and economically beneficial but because there is a security benefit too and not overdependence on one supplier," he said.

The diversification imperative is also partly behind a plan by Ofcom, the UK's telecom regulator, to free up 5G spectrum for organizations that are not telcos. Introducing that plan at Informa's 5G World event in June, Mansoor Hanif, Ofcom's chief technology officer, presented it as a potential boost for start-ups involved with the Telecom Infra Project (TIP), a Facebook-led initiative to spur innovation in the network equipment sector. "There has been skepticism about mobile operators buying from start-ups but now it can be a new ecosystem for TIP and that should incentivize more start-ups to go out and build products," he said.

Diversification Holds the Key
Former UK digital secretary Jeremy Wright, shown here speaking at an Informa event in London in June.
Former UK digital secretary Jeremy Wright, shown here speaking at an Informa event in London in June.

Similar geopolitical dynamics are evident in other countries. Last week, a state-backed Russian company called Rostec said it would begin developing standards-compliant equipment for Russia's 5G market. "We are making developments in the field of 5G and are interested in partnerships with foreign manufacturers, such as from India and China," said Victor Kladov, Rostec's director for international cooperation and regional policy, in a prepared statement. Despite news of a recent 5G partnership between Nokia and Russian mobile operator MegaFon, Russia's gravitation toward China and the emergence of Rostec may limit the role available to Western vendors in the Russian 5G market.

Opportunities are also shrinking in China amid growing support for "local vendors," said Nokia CEO Rajeev Suri on a call with reporters last week. Asked if it had the same concern, Ericsson referred Light Reading to comments in the risk factors section of its latest financial report. "Geopolitical turbulence and trade frictions… could result in material negative impact on Ericsson's global operations, lead to increased, unrecoverable costs and may have a negative impact on the company's profitability," that reads. "It may also be disruptive to Ericsson's international supply chain and export/import activities (including component supply, manufacturing, sourcing and deliveries of products and services)."


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India is another big country showing a determination to be less reliant on certain external parties. Last year, it announced a $77 million funding allocation for local 5G development. Under those plans, authorities are developing a 5G test bed to help telcos and start-ups develop 5G products. In partnership with state authorities, the Indian Institute of Technology (IIT) in Chennai is setting up a development center to work on 5G. Meanwhile, Ericsson is collaborating with Delhi's IIT on a "5G for India" program.

Enthusiasm for the local as opposed to the global is rising in the US, too. A major 5G network built by Dish Networks, as a regulatory condition of the merger between Sprint and T-Mobile, will rely heavily on "American vendors," said Charlie Ergen, the chairman and co-founder of Dish Networks, during an interview with Light Reading shortly after the deal was announced. "I'm unaware of any operator today that uses any equipment from US vendors. It's all European or Chinese or Korean," he said. "Nobody writes better software than in the US, and most of our network will be software. So we know we'll have a much more American-centric set of vendors than the traditional incumbents."

Next page: Open networks, closed doors

 
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lichin0607
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lichin0607,
User Rank: Light Beer
8/8/2019 | 4:41:11 AM
Unsure of your logic
Mr. Morris

Till now, there is still no evidence revealing that Huawei puts spyware in equipmet. Furthermore, China is a country with legal system, so it is illegal to force local branches of global firms to install spywares in their equipments. No evidence just staying oral is not convincing.

 
bosco_pcs
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bosco_pcs,
User Rank: Light Sabre
8/2/2019 | 7:26:47 AM
Re: Scratching my head
Thanks Iain! 
iainmorris
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iainmorris,
User Rank: Blogger
8/2/2019 | 4:18:54 AM
Re: Scratching my head
The parallel with oil, as described in the article, is that something of vital strategic and economic importance to a country is controlled and developed by a small and powerful club (a small number of oil-producing nations in the case of oil; a handful of vendors in the case of telecom networks). Energy security was all about diversification of supply so that countries weren't at the mercy of OPEC. Likewise, there is now a push for diversification (including the development of domestic suppliers) in the telecom industry to guarantee network security.

Obviously, yes, there are still major differences between oil and telecom. I wouldn't for an instant suggest the industries are exactly alike.
sergemelle
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sergemelle,
User Rank: Light Beer
8/1/2019 | 8:56:27 PM
Huawei is why we only have Nokia and Ericsson left
Its interesting you mention Nortel's bankruptcy as an example of the risk of having only Ericsson and Nokia left as Huawei alternatives for 5G (BTW you forgot Samsung).

While Nortel had many self-inflicted problems, the same way that someone who is always sick is less able to fight off a life-threatening condition, or like the diseased tree that can't weather the drought, Huawei acted as the sickness or disease that led Nortel to die.  

Huawei's arrival onto the mainstream telecom markets in the late-1990's/early-2000's was underscored by a relentless "sell 50% lower than any western vendor" strategy that crashed industry profits, shrank R&D budgets, and fundamentally weakened the ability of not only Nortel, but also Lucent and Alcatel, to survive.

It is sort of surprising that it took nearly two decades for a broader understanding to permeate that Huawei's rise to dominance was underpinned and enabled by a deliberate and unfair geo-political strategy of economic warfare guided by deliberate Chinese government policy. 

I am sure that a lot of industry insiders who were on the front lines of Huawei's aggressive pricining practices from the early-2000's would wonder why it took Western governements and institutions so long to recognize and categorize the threat for what it was, and still is.

So rather than question whether exclduing Huawei creates the risk of having only Ericsson and Huawei left to rely on, maybe the more realistic risk assessment is that unless more restrictions/conditions are placed on Huawei's Western 5G deployments, then do we create the conditions where eventually ONLY Huawei will be left to rely on?
bosco_pcs
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bosco_pcs,
User Rank: Light Sabre
8/1/2019 | 4:24:28 PM
Scratching my head
Not quite sure I understand the parallel between oil and 5G at all. But then I am no expert in either.

However, oil is a finite physical resources while 5G is really an intellectual properties protected only by international agreements.

Oil has always been at the mercy of OPEC until the advent of Russian oil and American technologies (fracking).

Before 5G, during the telecom bubble, optical was king and dominated by a duology, namely Nortel and Lucent, with Ciena being a niche specialist. Huawei's role in Nortel's demise is still subject to debate but the two giants are no more. 

The world is increasingly interconnected. Regionists want to put the globalization genie back into the bottle while standardization is a way to improve productivity. There are many forces at work here. Some complementary and some contradictiory. 

Like it or not, Huawei is state sponsored and able to undercut Ericsson and Nokia. However, since Nokia has been able to sell 5G gear in China, it demonstrates its pedrigree. However you see the jockeying of positions in 5G (infrastructure), I don't see the parallel between it and oil
James_B_Crawshaw
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James_B_Crawshaw,
User Rank: Blogger
7/31/2019 | 4:06:36 PM
Crisis? What crisis?
As an ex British prime minister actually said (unlike the Sun newspaper's mendacious headline) "I promise you that if you look at it from outside, and perhaps you're taking rather a parochial view at the moment, I don't think that other people in the world would share the view that there is mounting chaos."

Those network operating margins of Ericsson and Nokia look fairly healthy. Huawei just reported 1H revenue up 23% YoY (albeit driven by handsets). 5G is just taking off and should be a boon for all three. The insatiable demand for bandwidth remains ... insatiable. 

If anyone is facing a crisis it is the CSP purchasing departments. They have gone from a market with 10 credible mobile infrastructure suppliers to 4 or 5. Huawei has done them all a great service by driving down prices but there is only so far you can cut. And now they face the prospect of the market fragmenting with only Ericsson, Nokia and Samsung able to supply many countries outside China and only Huawei and ZTE able to supply in China. 

This drives the need for new entrants which have been lacking given the poor reputation that telecom technology has with the VC community. That will only change if some of the start-ups in mobile technology see bumper exits.