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10 August 2020

Portugal’s MNOs unite in banning Huawei from 5G cores

The three MNOs that account for almost all of Portugal’s mobile customers have collectively announced they will not use Huawei equipment in their core 5G infrastructures. The move announced by NOS, Vodafone and Altice covers routers, servers and gateways inside the fixed backbone networks that connect to the RAN via backhaul.

This is further evidence of MNOs pre-empting governments and regulators by deciding on their own to keep Huawei out now in order to avoid more costly switches towards other vendors later on. As it becomes increasingly clear the tide is flowing against Huawei in Europe at any rate, more operators are likely to follow suit by banning Huawei from their cores. This then leaves the question of whether bans will extend to the RAN as well, as has happened in the UK.

Again, as we reported last week, that leaves some operators in a dilemma as they have already made commitments to Huawei for the RAN and to ditch the Chinese company now would be very expensive as well as incurring delay. Given this situation, as we report in a separate story today, some operators will be relieved that the Covid-19 pandemic has incurred some delay in 5G spectrum auctions, investments and deployments.

Meanwhile, one or two major international telcos face different positions in their various markets. This is certainly the case for Vodafone and Telefónica , which have become more interwoven with Huawei in some countries than others. This is not just about 5G, because in practice during what will be a lengthy transition phase operators will want ideally to have the same vendor’s RAN kit for 4G and 5G under spectrum sharing arrangements. There is also the little matter of legacy voice, 3G and even 2G traffic, which most European operators will take some years more to migrate fully.

Some of the newer entrants, including Samsung as well as smaller dedicated players, lack support for 2G and 3G in their portfolio, which makes them unsuitable candidates for RAN modernization, even if they support Open RAN (O-RAN) for interoperability at the 4G and 5G level.

Naturally, most operators are enthusiastic advocates for O-RAN, especially now, because it promises greater vendor diversity in future and reduced costs as services penetrate further into both rural and dense urban environments. But that is more for the future and in practice many operators have for now adopted a three-vendor approach to obtain as much diversity and leverage as possible, that is Ericsson, Nokia and Huawei, in some cases with China’s ZTE also thrown in.

That was certainly the case for Vodafone, which is most dependent of all operators on the two Chinese vendors Huawei and ZTE, with 62% of its 4G RAN equipment from one of those, according to telecoms specialist Strand Consult. This dependence reaches 100% in six European countries, the Czech Republic, Cyprus, Greece, Hungary, Malta and Romania, which was a calculated risk driven largely by price and technological availability. It was notable then that Vodafone has agreed to keep Huawei out of its core in Portugal where the dependence is less, but not at this stage the RAN.

Deutsche Telekom is also highly dependent on Huawei and ZTE in the 4G RAN, at 57% according to Strand Consult. This reliance has so far been carried forward to 5G, noting Telekom’s announcement in June 2020 that it had 12,000 5G antennas in live operation, able to reach half the country’s population. This all looks like Huawei kit given that it was only the following month, July 2020, when Telekom announced it had picked Ericsson for its next 5G RAN expansion, presumably to reach the other half of Germany’s people.

This of course made sense in the context of vendor diversity, as well as to emphasize it was aiming to reduce reliance on Huawei. Telekom had also indicated to Reuters in July 2020 that it was keeping Chinese providers out of “security-critical areas such as core mobile network”.

Under 5G though, this distinction between core and RAN, as well as with the backhaul or xHaul in between, will fray at the edges and this factor too will bear down on operators. It is also true that, in keeping with the principle that network costs are concentrated mostly in the access layers, mobile cores only account for about 5% of total infrastructure expenditure.

We note that several European telcos had earlier appointed Huawei as their sole supplier of 4G RAN equipment, because it was the most competitive. These include Proximus in Belgium and Sunrise in Switzerland. A few others that had also appointed Huawei for 4G, such as Denmark’s TDC, have since switched to Ericsson for 5G, which will entail stripping out the former.

Then Telefónica , which has a presence in more countries than almost any other telco (though this will change when it exits most of its Latin American markets), like Vodafone has different positions across its territories. In Spain, Telefónica  awarded the contract for part of its 5G core network to Huawei in December 2019, intending to adopt at least a two-vendor approach, while putting pressure on Ericsson and Nokia to make more competitive pitches for the next round, according to sources cited in Spanish newspaper Expansion at the time.

Meanwhile in Latin America Telefónica  has a number of collaborations with Huawei over what it described as 4.5G evolution towards 5G. Telefónica  may well continue its closer relationship with Huawei in Latin America where it may feel under less pressure, while paring back in Europe.