Nokia and Ericsson win in China despite Huawei crisis, trade 5G successes

Nokia and Ericsson have been careful not to gloat over Huawei’s challenges in 5G networks, caused by the US-China trade and security wars (see lead article). They recognize that if operators have only three vendors to select, and some have to work out migration strategies from existing Huawei 5G-ready networks, this could result in slowdown and capex deferral, with bad effects for all vendors. They will also be concerned that China will retaliate by dictating, or at least encouraging, its own operators to buy from homegrown suppliers.

So far, that does not seem to be a factor. The three Chinese MNOs (and new 5G licensee China Broadcast) have always shown some favor to their local suppliers, but have awarded significant portions of their build-out contracts to Nokia and Ericsson too. They are as keen as any other operators to have as wide a choice of vendors as possible, to ensure access to all the innovations in the market, as well as encouraging price competition.

So, Ericsson and Nokia are reported to have won close to half of a range of core network contracts with China Mobile, the world’s biggest MNO, despite the fact that some US allies, including the UK and Germany, are suggesting that they will keep Huawei out of their core networks, even if they do not impose bans in the RAN. The deals mainly relate to 4G upgrade rather than 5G, though they will include some 5G-ready elements, and they total $2bn in value. While Mobile initially planned to be the world’s only mainstream MNO to deploy a 5G core and a Standalone network from day one, it has since reversed that strategy and is initially rolling out a 5G NR Non-Standalone RAN, which works with the LTE core, while upgrading that packet core.

Huawei did secure a good half of the China Mobile deal, according to a document on the MNO’s website, cited by the South China Morning Post. This said that Huawei won the contract to supply 49% of the MME/SGSN (Mobility Management Entity/Serving GPRS Support Node) and 54% of the SAE-GW/GGSN (System Architecture Evolution Gateway/Gateway GPRS Support Node).

Ericsson gained 34% of the MME/SGSN project and of the SAE-GW/GGSN, with Nokia winning shares of 12% and 9% in those respective core elements. ZTE won just 5% of the MME and 3% of the SAE work.

Nokia told LightReading: “We are delighted to play an important part in helping China Mobile realize its 5G ambitions with the upcoming commercial deployments. China is an important market for Nokia. We have been operating there for 40 years and have always been a trusted, strategic partner.”

In the first quarter of this year, Ericsson generated $402.7m in sales in north east Asia, mainly China, out of a total of $5.15bn, while Nokia generated $468.8m out of a total of $5.64bn in Greater China.

Both have cited the slowdown in China’s vast 4G capex spend, associated with its rapid national roll-out of LTE, as a challenge in recent quarters, and will be hoping that the geopolitical climate does not limit their opportunity in 5G contracts, which promise to be the world’s largest over the next few years.

The three main MNOs will have 5G coverage over at least 40 cities this year, representing investment of $2.53bn, according to the Ministry of Industry and Information Technology (MIIT) in a new white paper, and 5G spending will peak at around $33bn a year by 2024, it claims. It is looking for 5G to boost China’s economic output by RMB10.6 trillion ($1.53 trillion). Services will go live early next year, starting in 18 pilot cities, mainly in the populous eastern region, and including Beijing, Tianjin, Hebei, Shandong, Shanghai, Jiangsu, Zhejiang, Fujian and Guangdong.

On the other side of the world, Huawei is, of course, calculating the impact of US restrictions on its revenues. It has been excluded from national infrastructure deals in the USA for years, but now it faces the risk of these being extended to other countries just as 5G investment kicks off, as well as suffering the impact of being on the US entity list, and so unable to buy components from US or US-dependent suppliers.

The US embargo will cost the company $30bn in revenue this year, said founder Ren Zhengfei last week, though he still expects the firm to achieve total sales of $100bn in 2019. This would be down from last year’s $104bn, whereas the firm had previously expected growth, to reach $125bn to $130bn. OF course, the revenue target is still huge – by contrast, Ericsson reported sales of $22bn last year, partly because it does not have Huawei’s breadth of portfolio including handsets and enterprise kit. International sales of Huawei’s smartphones fell by 40% in a month, Huawei also admitted.

“We cannot get components supply, cannot participate in many international organizations, cannot work closely with many universities, cannot use anything with US components, and cannot even establish connection with networks that use such components,” he told a press briefing.

“We never thought that the US’s strategic determination to attack Huawei would be so strong,” Ren added. He called his company a “badly damaged plane”, but insisted: “By 2021 we will have regained our vitality.” He pledged that Huawei would not reduce its R&D investments, which totaled $14.6bn last year and result in the kind of innovations that make operators keen to be able to deal with Chinese companies for 5G (the support of MNOs like Vodafone and BT/EE, reiterated at last week’s Connected Britain conference in London, is not just about price competition).

Ren said: “In the next five years, we are going to invest $100bn to reshape the network architecture so that the network will be simpler, faster and most trustworthy. If we have some financial challenge, we would not reduce our research and development investment.”

Meanwhile, Nokia was countering criticism that it was less commercially ready for 5G than its rivals, saying five operators now provide commercial 5G services on its networks – the three South Korean MNOs plus Vodafone Italy and the UAE’s Du.

It added that “near term launches” are planned in Japan, where it claims 5G deals with NTT Docomo and SoftBank, and the UK, with Three UK.

Nokai CEO Rajeev Suri said recently: “With our Nordic rival, when there are swaps we win two-thirds of the time. We have a good track record against them.”

Nokia boasts 43 commercial 5G agreements in total and has now disclosed details of 23 of them. Among the 18 that have yet to launch live services are A1 (Austria); Antel (Uruguay); four US MNOs (AT&T, Sprint, T-Mobile and US Cellular);  Elisa (Finland); Ooredoo (Qatar); Optus (Australia); Rain (South Africa); Salt (Switzerland); STC (Saudi Arabia); Telenor; Telia; TIM (San Marino).

Arun Bansal, the head of Ericsson’s Europe and Latin America business, had claimed that his firm was winning market share against Nokia because service providers did not want to be “late” to 5G. “One of our nearest [competitors] has not managed to launch a single 5G network yet in Europe or America,” he told LightReading earlier this month.

At Connected Britain, Bansal said nine customers had launched live 5G services on Ericsson’s equipment. Those are AT&T, Sprint and Verizon in the USA; Etisalat of the UAE; KT and SK Telecom in Korea; Swisscom; Telstra of Australia; and Vodafone Spain. It has also announced commercial 5G deals with another 13 operators that have yet to launch services. Those are three US operators – GCI, T-Mobile and US Cellular; Vodafone UK; Softbank of Japan; STC, Batelco and Ooredoo in the Gulf; Wind Tre in Italy; and four Nordic roll-outs, with Telenor in Norway, Sweden and Denmark, and TDC Denmark.

Huawei says it has now signed 46 commercial 5G contracts and shipped as many as 120,000 5G base stations, up from 40,000 in February. It has provided fewer details of its customers, while its Nordic rivals do not reveal the numbers of base stations they have shipped so far.