Huawei's Trojan Horse

Huawei Technologies Co. Ltd. 's radio access network contract with EE , the U.K.'s largest mobile operator, could be a "Trojan Horse" deal that leads to similar deals elsewhere in Europe. (See Huawei Lands First UK Mobile Deal and Euronews: Huawei Breaks New British Ground.)

And that's bad news for Ericsson AB (Nasdaq: ERIC) and Nokia Networks , the two incumbent suppliers that are being replaced by Huawei at Everything Everywhere, as they stand to lose out if the Chinese vendor goes on to win similar contracts with other major carriers throughout Europe.

Here's why.

Everything Everywhere -- a joint venture owned by European operator powerhouses Deutsche Telekom AG (NYSE: DT) and Orange (NYSE: FTE), which combined their U.K. businesses, T-Mobile (UK) and Orange UK, to form a single carrier -- is replacing all its existing Ericsson, Nokia Siemens and Nortel GSM base stations with radio access equipment from Huawei. (See Orange, T-Mobile Do Everything Everywhere .)

"All of T-Mobile and Orange’s existing 2G base stations will be replaced, but due to business confidentiality, we cannot disclose the exact number of base stations," states a spokesman from Everything Everywhere in an emailed response to questions from Light Reading Mobile.

While the deal may sound like just another 'Chinese vendor replaces European vendor' decision, there's more to the story than that.

"Getting into Everything Everywhere is the ultimate Trojan Horse for Huawei and therefore very threatening to incumbent European vendors in Europe," says Heavy Reading Senior Analyst Patrick Donegan.

By breaking in at Everything Everywhere, Huawei has an opportunity to win bigger deals at Deutsche Telekom and France Telecom across their combined footprint.

That's because the European giants announced plans last month to forge a procurement joint venture to consolidate their suppliers for network gear, customer equipment, service platforms and IT infrastructure. For network equipment contracts, the operators want to adopt a dual-vendor strategy for their combined footprint, which covers multiple T-Mobile and Orange operators in multiple markets. (See DT & FT Deepen Ties and FT, DT Form Procurement JV.)

Incumbent infrastructure suppliers to both operators will already be apprehensive at the prospect of the vendor rosters being cut from many to just two. Now, with Huawei having moved in and replaced their 2G gear at a Tier 1 operation in a major market, their position is even more perilous.

Both Deutsche Telekom and France Telecom already source radio access equipment from Huawei in certain markets. The German giant's initial Long Term Evolution (LTE) network in Germany, for example, is built with base stations from Huawei and Nokia Siemens.

France Telecom, meanwhile, uses five different radio access vendors for 2G and 3G across its group: Alcatel-Lucent (NYSE: ALU), Ericsson, Huawei, NSN and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763).

But the "rip-and-replace" deal at Everything Everywhere is more significant for Huawei than the business it has won so far with the operators because of the increased potential to win future contracts under the new procurement regime.

Ready for LTE in the UK
In the U.K., Huawei is now in a strong position to compete for LTE deals at Everything Everywhere because the base stations the operator is deploying from Huawei (the SingleRAN model) are LTE-ready as well as supporting 2G and 3G.

The Chinese vendor already has a foot in the U.K.'s next-generation mobile market as the equipment supplier for Telefónica UK Ltd. 's LTE trial. (See O2 to Test 800MHz LTE in UK .)

In addition, Huawei's new U.K. contract opens the door to other mobile deals in the country as the Chinese vendor will further expand its operations and support infrastructure to meet Everything Everywhere's rollout requirements during the contract's four-year term. The vendor has already announced that it will add 500 new jobs in the U.K. (See Huawei to Hire 500 in UK.)

In its press announcement, Huawei described the U.K. deal as a "milestone." In this case, that doesn't sound like an exaggeration.

— Michelle Donegan, European Editor, Light Reading Mobile

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