No 5G Deal: Huawei Misses Out at SKT

Iain Morris
9/17/2018

China's Huawei has missed out on an early 5G deal with SK Telecom, which has chosen Europe's Ericsson and Nokia, alongside South Korea's Samsung, as the vendors that will initially build its next-generation mobile network.

The South Korean operator, widely regarded as a frontrunner in the development of 5G technology, is reported by several news outlets to have said it ruled out using Huawei in its final decision, without explaining why.

At the time of publication, SK Telecom (Nasdaq: SKM) had not responded to Light Reading's enquiries about Huawei's exclusion from the 5G project.

In July, Huawei Technologies Co. Ltd. was reported by Bloomberg to be vying for a 5G deal with all three of South Korea's national operators. At the time, Bloomberg said that initial 5G contracts with SK Telecom, KT Corp. and LG U+ could be worth as much as $9 billion.

Operator representatives were said to have expressed interest in using the Chinese vendor, but there is a possibility they have come under pressure from politicians arguing the company is a potential threat to national security because of its close links with the Chinese state.

In March, SK Telecom CEO Park Jung-ho described Huawei as a "concern" during an interview with the Korea Herald, hinting that a supplier decision made in the interests of SK Telecom's customers might not satisfy authorities.

Citing security concerns, government authorities in the US and Australia have already locked Huawei and smaller Chinese rival ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) out of network deals in their respective markets. After Australia recently indicated that neither Chinese vendor would be allowed to sell 5G equipment to the country's operators, speculation surfaced that US authorities may have leaned on Australia's government to exclude the Chinese suppliers. (See Australia Excludes Huawei, ZTE From 5G Rollouts.)

Both Australia and South Korea have traditionally been close allies of the US, whose moves against Huawei and ZTE are seen by critics as part of a broader campaign against China. President Donald Trump is imposing tariffs on billions of dollars of Chinese imports, while parts of the US administration appear worried that China's technological advances could leave the US trailing in important new markets. (See Trump Admin Reboots $50B China Tech Tariffs, Unicom, Telecom Merger: A 5G Bull in a China Shop and America Is Losing the 5G Race, Says Deloitte.)

Despite the reports of security concerns, a source with direct knowledge of the matter told Light Reading that Huawei had not expected to secure a 5G deal with SK Telecom at this stage because it has not previously worked with the operator on the rollout of 4G technology. That same source said Huawei does not feel security concerns were a factor in SK Telecom's decision, but acknowledged the Chinese vendor is facing "headwinds" because of the pushback in the US and Australia.

Huawei is understood to be more hopeful of securing 5G business with KT Corp and LG U+, with which it already has a 4G relationship.

SK Telecom will reportedly use Ericsson, Nokia and Samsung as suppliers of basestations and other transmission equipment when building a non-standalone 5G network based on 3.5GHz spectrum.

The non-standalone variant of 5G relies on existing 4G infrastructure for the core network, taking advantage of the 5G New Radio standard that was finalized at the end of last year.

The most natural move for an operator building a non-standalone 5G network is to use the vendors that built its 4G network, said France's Orange (NYSE: FTE) in a conversation with Light Reading earlier this year. SK Telecom appears to have worked with Ericsson, Nokia and Samsung during the rollout of 4G technology, and so the decision to continue with the same vendors may simply have been the most pragmatic one for the South Korean operator. (See Standalone or Non-Standalone? 5G Trials Will Help Orange Decide.)


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Huawei first rose to prominence as a low-cost rival to more established Western vendors, including Ericsson AB (Nasdaq: ERIC) and Nokia Corp. (NYSE: NOK). It has continued to report impressive rates of sales growth while those companies blame a downturn in equipment markets for a disappointing run of earnings announcements. (See Huawei Shrugs Off Challenges With Surge in H1 Profit.)

But with the current backlash against the Chinese, and signs that some operators are starting to make investments in long-awaited 5G networks, the gap between European and Chinese vendors may have started to narrow.

In the US, where operators are warned off using Huawei and ZTE, the likes of Verizon Communications Inc. (NYSE: VZ) and T-Mobile US Inc. have recently awarded substantial 5G contracts to Ericsson and Nokia. New business with SK Telecom and the situation in Australia also bode well for the European vendors. (See Ericsson Lands $3.5B 5G Deal With T-Mobile Weeks After Nokia Did Same.)

The US and Australia are not the only countries where Huawei and ZTE seem to be facing a backlash. In India, the Department of Telecommunications has just excluded both companies from the list of firms asked to participate in 5G trials. Cisco, Ericsson, Nokia and Samsung Electronics Co. Ltd. (Korea: SEC) all feature on that list. (See India Joins US & Australia to Give Huawei, ZTE 5G Cold Shoulder – Reports.)

In the UK, meanwhile, security experts have recently flagged concern that some of Huawei's products could pose a risk to national security, echoing the objections that have already been heard in the US. Despite its warning, Three UK, the country's smallest operator, was revealed in August to have picked Huawei, and not existing 4G suppliers Nokia and Samsung, to build its 5G network. (See Nokia, Samsung Miss Out as Three UK Gives 5G Job to Huawei.)

In South Korea, the 4G deal between LG U+ and Huawei has not been without controversy. In 2013, the US Congress was said to have raised objections about the inclusion of Huawei equipment in the LG U+ 4G network, arguing the Chinese vendor's products could leave US forces in South Korea vulnerable to spying, according to the Korea Herald.

Given the existing supplier set-up, any exclusion of Huawei from a 5G deal with LG U+ could point to government pressure. Observers may also be interested to see if Huawei has a role to play in SK Telecom's future deployment of a standalone 5G network using 28GHz spectrum.

— Iain Morris, International Editor, Light Reading

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