Kyivstar expects to phase out Chinese kit in future

Kyivstar aims to reduce its reliance on Chinese vendors, seen by many Western countries and observers as a security threat, but the process may be difficult.

Tereza Krásová, Associate Editor

July 10, 2024

7 Min Read
Chinese flag and drawing of planet Earth with lines of letters, numbers and symbols in the background
(Source: Klaus Ohlenschlaeger/Alamy Stock Photo)

Reliance on Huawei and ZTE has raised security concerns worldwide, prompting several countries to restrict or ban their use. The fear is that China's government, accused of carrying out cyberattacks, could force its national vendors to disclose sensitive data on other countries or even bring down their critical infrastructure. The invasion of Ukraine by Russia, seen as a Chinese ally, is now fueling concern about local telcos such as Kyivstar and their apparent heavy use of Chinese kit.

Owned by telecom group VEON, Kyivstar and its local rivals are already under pressure to keep Ukraine connected amid attacks on its infrastructure (both physical and cyber), power cuts and labor shortages. But security concerns can hardly be overlooked or dismissed by a country at war. And Kyivstar has acknowledged the risk of dependency on Chinese vendors.

In a statement emailed to Light Reading, VEON said: "As previously stated, Kyivstar has been managing its vendor landscape with caution, focusing on vendor diversification and alignment to Western policy and practices. This includes working exclusively with Western vendors in critical domains such as cybersecurity, IT and parts of the core network even in the middle of the war, while relying on a broader mix of vendors for RAN as it was trying to keep the network up and keep Ukraine connected."

"In the future, further phasing out of Chinese vendors can be anticipated including working on the financial feasibility plans," VEON added.

Kyivstar has previously argued for moderation when discussing the swap-out of Chinese vendors. In June 2023, Oleksandr Komarov, Kyivstar's CEO, told the Ukrainian press agency Interfax that a "replacement of Chinese suppliers in some of the most critical elements of the network" would be feasible.

Last year, Komarov also reportedly told Bloomberg (paywall applies) that Kyivstar had a "mid-term program" for replacing Chinese core components with equipment from Western vendors, which could be applied if policy towards Chinese kit were to change.

The Huawei problem

Yet Kyivstar still looks to be a heavy user of Chinese equipment, especially in its radio access network (RAN). During a recent press roundtable in London, Komarov said it currently has technology from both Ericsson and ZTE in the core of its network. As for its radio network, Kyivstar has told Light Reading it relies on "a broader mix of vendors for RAN as it was trying to keep the network up and keep Ukraine connected."

Data from consulting agency Strand Consult, meanwhile, suggests Kyivstar's RAN consists entirely of equipment supplied by Chinese vendors. This would likely make a complete overhaul of the RAN a long and costly process.

Kyivstar, it should be noted, is not the only Ukrainian telco that looks heavily reliant on Chinese vendors. Officials have previously said at least 70% of the country's networks are based on Chinese equipment. 

According to Strand Consult, Ukraine's second-largest operator, Vodafone (owned by the Azerbaijan-based Neqsol), has sourced 75% of its RAN kit from Chinese vendors, while Lifecell, the country's smallest operator (recently acquired by French businessman Xavier Niel), relies on Chinese gear for 50% of its RAN. 

None of this breaches rules because Ukraine's government has not yet followed the US and European Union in taking steps against Chinese vendors. From a regulatory perspective, using Huawei and ZTE kit is acceptable, despite the security concerns.

While Huawei says it is privately owned by its employees, one of the main concerns in Europe and the US is that China's authoritarian government could force it to hand over sensitive data on other countries. ZTE, meanwhile, is state-owned. Moreover, there are fears that both vendors' products might contain "backdoors," allowing China's government to collect vast amounts of data.

This comes against the backdrop of concerns about Chinese hackers, accused of carrying out several recent cyberattacks in other countries. Earlier this year, a group of hackers said to be run by the Chinese government was accused of targeting Beijing critics in the US and UK. New Zealand, meanwhile, said in March that China had hacked into government services in 2021. 

Security concerns have prompted the US, EU and UK to take steps against Huawei and ZTE. The US introduced its rip-and-replace program in 2019, while the EU marked the two vendors as "high risk" for the purposes of its 5G rollout a year later. Ukraine, where 5G auctions were put on hold after the start of the war, has recently entered into negotiations to join the EU.

But Ukraine may have even more reason to be cautious given Beijing's relationship with Moscow. China has supplied Russia with equipment that can be used for making weapons, and it has been accused by President Volodymyr Zelensky of disrupting the recent peace conference in Switzerland.

No ban in sight

While Ukraine has considered restricting the use of Chinese equipment, it has yet to act. Last October, the country's deputy digital minister, Yegor Dubynskyi, told Politico that Western countries had not offered any evidence of the security risks associated with Chinese vendors.

"We have no official proof and according to the rules of transparent public procurement set by our partners, the United States and European Union, we have to give the contract to the [bidder] who will propose the lowest price – obviously it will be ZTE and Huawei," he told the publication.

Meanwhile, the cost of replacing equipment supplied by Chinese vendors could be high. The government has estimated a swap-out by all three operators would cost more than $1 billion. And Chinese vendors continue to enjoy a reputation for price-competitiveness alongside their Western rivals.

Coincidentally, $1 billion is the size of Kyivstar's whole planned investment package in Ukraine for the 2023 to 2027 period, as announced earlier this year. This would include spending on the core business, including energy backup, as well as any mergers and acquisitions and non-telecom ventures.

At the same time, all Ukrainian telcos are having to cope with the extremely difficult conditions brought on by the war. Russia's army still targets vital Ukrainian infrastructure, including telecom gear and the electricity needed to keep it running. According to a World Bank report, the direct costs of destroyed or damaged physical assets amounted to $899 million among mobile operators and $950 million for fixed broadband providers as of December. 

The recovery and reconstruction needs of the telecom industry are, meanwhile, expected to cost $1.65 billion between 2024 and 2033, according to the World Bank. 

Meanwhile, Komarov confirmed in an interview with the Kyiv Post last year that there had been talk of nationalizing Kyivstar. While there have been no moves along this road so far, perhaps authorities could be persuaded to act if they disapprove of Kyivstar's continued reliance on Chinese vendors.

Until now, Kyivstar has been seemingly happy to keep buying from the Chinese. Ukrainian news site Ain, using information from a trade database, reported in December that Kyivstar received 30 supplies of Huawei equipment in 2022 and 2023. This seems to include basestations, as far as Light Reading can establish using Google Translate. Other deliveries of equipment were also made by Ericsson and ZTE.

Open RAN an option?

Progress on removing Chinese kit has been halting even in the US, where the pushback against Chinese vendors originated. While none of the main service providers buys from Chinese vendors, Huawei has been a supplier to various rural US networks. As for the EU, only ten countries are said to have restricted the role of Chinese vendors in their 5G networks.

Nothing suggests there will be a speedy replacement by Kyivstar, either. The operator, VEON told Light Reading, is currently "exploring options for further diversification, including in our RAN (such as exploring Open-RAN partnership with Rakuten)."

This open RAN partnership with Rakuten, however, appears to be at a very early stage. During the press roundtable, Komarov said: "We both need to understand first how technology works, how it complements to our existing infrastructure and how it can be built on the top." Earlier this year, Kyivstar's CTO, Volodymyr Lutchenko, told Light Reading the companies also need to negotiate on price and figure out the logistics of delivering products to Ukraine.

In addition, open RAN has so far failed to gain traction as an alternative to established vendors, raising questions as to whether a mass open RAN rollout will become a real possibility anytime soon.

Read more about:

Europe

About the Author(s)

Tereza Krásová

Associate Editor, Light Reading

Associate Editor, Light Reading

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