Three UK, the smallest of the UK's four mobile network operators, has revealed who will build its future 5G network -- and it's not one of its existing radio suppliers. (See Digging Deeper Into Three UK's Transformation Program.)
The Hutchison-owned telco has been using Nokia Corp. (NYSE: NOK) for 3G and Samsung Electronics Co. Ltd. (Korea: SEC) as a 4G vendor. But it's to Huawei Three UK has turned for its 5G upgrade, after deciding the Chinese vendor's technology beats rival offerings hands down.
Using three different radio vendors in a single European market sounds like it might be a costly way to run a mobile network. Other service providers have stuck by current suppliers and expect to "software upgrade" existing hardware to support 5G technology as and when it is commercially available. Sweden's Ericsson AB (Nasdaq: ERIC) reckons building a strong position in the 4G market will naturally lead to 5G business. (See Nokia Reels In $3.5B 5G Deal With T-Mobile US and Ericsson Beefs Up With Telefónica Argentina as Huawei Goes Hungry.)
For Three, however, the attractions of Huawei's technology -- including its recognized expertise in massive MIMO, a performance-boosting antenna system -- appear to have outweighed any concern about using a multitude of suppliers. A spokesperson for Three also points out that Huawei Technologies Co. Ltd. will have some involvement in the 4G radio access network (RAN) in future.
That sounds like bad news for Samsung, but Nokia is perhaps the bigger loser. It has full responsibility for Three's core network and may have hoped this would open the door to a 5G radio deal. Indeed, it is desperate to sign more telcos up to "end-to-end" deals, in which it provides all the various building blocks in a mobile network. This portfolio breadth, it reckons, gives it an advantage over the RAN-focused Ericsson. (See Ericsson vs. Nokia: Who's Ahead in 5G Right Now?)
Three, moreover, will build its 5G network using spectrum in the 3.4-3.8GHz range, and not (at least initially) in the much higher frequency bands that are Samsung's specialty. (See UK's £1.4B '5G' auction looks bad for industry.)
The 5G deal between Three and Huawei comes amid growing security concerns about the Chinese vendor. In July, the Huawei Cyber Security Evaluation Centre, set up in 2010 specifically to monitor Huawei, said it had identified shortcomings in Huawei's engineering processes and flagged other potential security issues. Huawei remains locked out of opportunities in the US market, where policymakers have seen it as a security threat since 2012, and has recently encountered a similar backlash in Australia, too. (See Huawei Poses Security Threat, Says UK Watchdog.)
Just last week, the UK's O2 was reported to have distanced itself from Huawei. Mark Evans, O2's CEO, told the Telegraph newspaper that his company is less reliant on Huawei than rivals BT Group plc (NYSE: BT; London: BTA) and Vodafone Group plc (NYSE: VOD).
However, Evans did not rule out using Huawei in a future 5G project, and Three's spokesperson plays down the security issue, saying concerns relate to older network equipment and not the technologies that have yet to be launched in a commercial setting.
Huawei this week reported a 15% year-on-year increase in sales for the first six months of 2018, to 325.7 billion Chinese yuan ($47.6 billion), and said its operating margin had grown from 11% to 14% over the same period. It remains far more profitable than Ericsson and Nokia, although its revenue growth rate has slowed in the last couple of years. (See Huawei Shrugs Off Challenges With Surge in H1 Profit.)
Three announced the deal with Huawei as it published its own first-half results, which showed a 2% increase in sales, to £1.19 billion ($1.55 billion), and a 7% rise in earnings (before interest, tax, depreciation and amortization), to £364 million ($474 million). Improvements were driven by a 6% increase in the customer base, to about 10.1 million subscribers.
The operator plans to begin 5G trials in the next six months. "All the key components that are needed for a successful 5G service have been procured over the last few years and I am excited by the prospect of trialing 5G soon, working together with our new IT and core network infrastructure," said David Dyson, Three's CEO, in a company statement.
— Iain Morris, International Editor, Light Reading