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20 July 2020

Ericsson scores as Brazil grapples with Huawei dilemma

While the world’s focus over Huawei’s involvement in national 5G infrastructures settles temporarily on the UK after its government bowed to US pressure to reverse its January 2020 decision to allow it some involvement outside the core, Brazil is locked in a similar dilemma. In fact the country and its regime sympathetic with President Trump is enduring even greater angst as it comes under intense pressure from both sides.

The country is gripped in a financial crisis and ideally would like to encourage investment from both the US and China. Similarly, on the 5G front, it has been pursuing the same strategy as many other countries by seeking to avoid dependence on one or even two major suppliers in a field where consolidation has concentrated power in just a handful, primarily for the RAN and core as opposed to backhaul Huawei, Ericsson and Nokia, along with Samsung to some extent. These two points are intimately connected, not least because 5G has come to be seen as a surrogate for the wider intensifying technological battle between the US and China.

The USA has been pushing Brazil, whose government is heavily in favor of the Trump administration, to ban Huawei and has reportedly offered financial help to operators to introduce Ericsson or Nokia kit to their networks.

Huawei already has a significant presence in Brazil’s 3G and 4G infrastructure and is currently lobbying for the lion’s share of 5G, having earmarked $800m for investment in a factory to manufacture the gear from 2022.

It has conducted 5G tests with all four Brazilian operators, América Móvil’s Claro, Oi, Telefônica Brasil and TIM, and was reported to be preparing to invest $800m in a 5G factory in São Paulo. Like its proposed new 5G R&D facility in Cambridge, UK, this plan may be affected by government sanctions.

Meanwhile, Claro is using Ericsson Dynamic Spectrum Sharing (DSS) technology for 5G services launched in a few areas of Sao Paulo and Rio de Janeiro on July 14, 2020, over a mix of 700 MHz, 1800 MHz and 2.5 GHz spectrum. Testing of DSS, designed to enable 5G to be introduced over existing 4G infrastructure with spectrum allocated to either service on demand, has been taking place across Claro’s network since October 2019, involving Qualcomm and Motorola as component suppliers alongside Ericsson.

Then Nokia, although yet to announce an active commercial 5G service in the country, has been jostling hard for position when auctions delayed by the covid-19 take place. The company already has some stakes in the ground, especially in the industrial IoT arena with early deployments over private spectrum, for example with the country’s National Service for Industrial Training (SENAI-SP) in São Caetano do Sul, in São Paulo state.

But this balance between the three major 5G infrastructure vendors is now threatened with disruption under US pressure. This was ratcheted up in June 2020 when the US ambassador to Brazil Todd Chapman offered financial support, via the International Development Finance Corporation, a bank launched in 2018 to counter China’s financial power, if Brazil picked a non-Chinese company for its 5G deployments. Effectively this meant Ericsson or Nokia instead of Huawei.

Chapman told São Paulo newspaper Folha this was an issue of national security, to protect data and intellectual property and that “all of this has an impact on the investment climate in the country. I hope that we will have, here in Brazil, a decision that will satisfy your national, economic and security interest.”

He said: “There have been some conversations in Brazil, including with my participation. And this is also happening in other parts of the world. It’s not only in Brazil that we want to work with Ericsson and Nokia.”

This was well received by Brazil’s president Jair Bolsonaro, who is more pro-American than any other leader in the country’s history, also sharing a strong anti-China stance with his foreign minister, who is also a national security advisor. This would no doubt be decisive but for the deep tentacles China has in the country, which would cause acute financial pain if extracted. China accounts for around one-third of Brazil’s exports compared to one-sixth for the USA.

China has made many big investments totaling several billion dollars over the past two years in Brazil to gain influence, especially on infrastructure including railways and ports. The two countries have in place a $30bn currency swap agreement whereby the Chinese yuan becomes an alternative for trade to the US dollar. This is part of China’s wider ‘de-dollarization’ strategy to wean its trading partners from dependence on the US currency and promote its own.

China’s investment in Brazil was not derailed by the president’s bashing of the country during the election campaign two years ago, but kicking Huawei out of the country would be a different matter. For that to happen, the US would have to commit far greater resources to the country than it has already. Otherwise Brazil is unlikely to oust Huawei, especially as its equipment is particularly attractive to developing countries on account of being cheaper than the alternatives.