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27 November 2019

Huawei replaces Ericsson in KPN, but has to share NZ spoils with Nokia

New Zealand mobile operator Spark has pulled back from plans to use Huawei as its sole 5G RAN supplier, but has retained the Chinese vendor on its preferred 5G vendor list, alongside Nokia and Samsung. It will also continue to work with Cisco and Ericsson for the core.

The company has so far launched a small fixed wireless access service in the town of Alexandra, and aims to extend it to another five similar locations by year end, taking a multivendor approach.

“We’ve consistently said our approach to 5G will be multivendor. A key reason for this is that 5G technology is still emerging and is likely to develop significantly in the next few years, so a mix of vendors makes sense,” said Rajesh Singh, Spark’s general manager of value management – though in fact, it had applied for a permit to use just Huawei, before the Chinese company was placed on the US entity list, and other countries came under pressure to exclude it from 5G deals.

Nokia will be the first launch partner but the other two remain accredited vendors for later phases, though that will require Spark to apply for government permission. “What we haven’t yet done, is put another application for Huawei,” a Spark spokesman told Reuters. “The point at which we want to start using their equipment as part of this multivendor approach, we will put in another application.”

Spark’s fixed wireless services run in 2.6 GHz spectrum while it waits for the 3.5 GHz spectrum auction next year, which will power its first mobile services.

“We are prioritising our activity to heartland locations as we think these are the places that will benefit most from the increased capacity and speed of 5G wireless broadband, and we are excited to be bringing the early benefits of 5G to customers in parts of New Zealand that have usually lagged well behind the major centres for previous technology rollouts,” said Mark Beder, technology director at Spark.

The fact that Spark is keeping its options open highlights the uncertainty that faces most operators about whether they will be safe to choose Huawei, amid risks that governments will decide to succumb to US pressure and ban the supplier.

For instance, although Germany has refused to ban Huawei, saying it would apply stringent security checks in 5G to all vendors, German Chancellor Angela Merkel recently told members of her Christian Democratic party (CDU) that Germany would use more European components in its 5G network than it does in the existing platforms. Huawei accounts for about 70% of the current mobile network.

The US Department of Commerce placed Huawei on its entity list, which means no US firm can trade with it, without a special licence, for alleged national security reasons. Since then, the DoC has reportedly awarded no licences, despite many applications, but it has introduced temporary general license (TGL) conditions, which allow for “specific, limited engagements” with Huawei for a short time. These were recently extended for another 90 days.

But some operators, even in US-allied countries, are taking the risk on choosing Huawei. Indeed, KPN of the Netherlands is phasing Ericsson out of its RAN in favor of Huawei. The deal was signed in April, but at the time, the operator said at the time that it could be “adjusted or reversed to align it with future Dutch government policy”.

But according to Huawei, the swap-out is now proceeding, allowing older generation Ericsson gear – which preceded its 5G-ready portfolio – to be replaced by Huawei 4G/5G gear.

KPN’s new CEO, Joost Farwerck, told the most recent earnings call: “We started the modernization of our mobile network, swapping equipment in The Hague area, and there we have installed the latest Huawei RAN equipment enabling the use of six to eight spectrum bands.”

This will be a welcome reversal of fortunes for Huawei, which has lost business to Ericsson within several operators, amid the climate of uncertainty. Examples include some projects for Germany’s Deutsche Telekom, Denmark’s TDC, Telia Norway and Telefónica Argentina.

But gaining market share this way can be expensive. Vendors sometimes win contracts from rivals by promising to do the swap-out for a very low price, or no fee at all – which is why modernization contracts can hit margins in a way that new builds or same-vendor upgrades do not. And Ericsson is understood to have bid very aggressively to win some 5G contracts in China and Europe – for instance, it has promised to build a nationwide 5G network for Telia Norway by 2023, phasing out Huawei 4G in the process, which will be an ambitious project by anyone’s standards.

“We are upgrading our network with future-proof technology and other areas will follow soon,” said Farwerck on KPN’s recent earnings call when discussing the overhaul. “The first results are very encouraging, with download speeds significantly increasing,” he added. “We are confident that ongoing upgrades in the coming years will result in a further improved customer experience.”

However, he has ruled out the use of Huawei in the core, and the operator said: “KPN plans to select a western vendor for the construction of the new mobile core network for 5G.” Its main fixed-line vendor is Nokia.