Strand Consult report: How dependent is the European market on China?

According to a new study by Strand Consulting, Chinese equipment suppliers accounted for more than half of the business during the construction of 4G networks by European operators between 2008 and 2020, according to a report from Light Reading. So it is no wonder that some of Europe’s biggest telecoms operators, including Deutsche Telekom and Vodafone, are strongly opposed to a possible Huawei ban.

Strand Consult report: How dependent is the European market on China?

By offering low-cost deals and competitive products, Chinese companies have succeeded in replacing Europe’s Ericsson and Nokia in dozens of networks in Europe. Huawei now has about 45 percent of the 4G RAN market, while ZTE has a 7 percent share, the report said.

Regardless of the growing international talk of chinese suppliers and the growing concerns of operators about relying on specific suppliers, several European carriers have agreed a single supplier cooperation agreement with Huawei for their 4G RAN products, including Proximus of Belgium, TDC of Denmark and Sunrise of Switzerland.

The authors of the Strand Consult report said TDC’s deal with Huawei faced “significant political opposition”. The carrier switched to Ericsson when it signed a 5G contract last year, under which TDC will replace Huawei’s 4G equipment.

The study showed that 16 of the 43 operators in Europe bought all 4G RAN equipment from Chinese suppliers.

Deutsche Telekom and Vodafone appear to be the most dependent on China as China and ZTE among the largest multinational telecommunications companies in Europe. According to Strand Consulting, about 57 per cent of Deutsche Telekom’s 4G RAN equipment in Europe comes from Chinese suppliers, while about 62 per cent of Vodafone’s network equipment comes from Chinese suppliers.

Vodafone is 100 per cent dependent on Huawei in six markets, including the Czech Republic, Greece, Hungary, Malta, Cyprus and Romania, according to the study.

John Strand, chief executive of Strand Consulting, said: “No operator has been forced to buy Chinese equipment and discussions about Chinese equipment have been going on for years. When Vodafone decided to use only Chinese RAN devices in its six national markets, they made a deliberate decision knowing the risks. “

Vodafone’s UK subsidiary believes that excluding Chinese suppliers from the sensitive “core network” and leaving Huawei only as a RAN supplier would reduce any risk. But in other European markets, Vodafone has not made the same judgment. Recent political pressures have forced Vodafone to phase out Huawei in its core network system by spending 200 million euros ($225 million) in other markets.

Other experts say the boundary between RAN and core networks in 5G networks makes little sense because they allow smart features to be hosted in different domains.

Operators have been concerned that the Trump administration’s campaign against Huawei could force them to abandon Huawei at too high a cost. In addition to urging European governments to ban Chinese suppliers from networking, the United States is trying to cut off supplies of key parts to Huawei through trade sanctions.

Telecom executives said the 5G ban would also lead to the replacement of 4G equipment to avoid interoperability issues between different suppliers.

John Strand has repeatedly played down estimates of the cost of replacing Chinese equipment, which would cost billions of dollars and delay the deployment of 5G in Europe.

“The cost of removing and replacing equipment is very low because operators need to replace them anyway,” he said. “

He argues that 70-80% of Europe’s RAN infrastructure needs to be replaced with 5G equipment, which is not a problem for Huawei because they have been in use for more than three years and cannot be upgraded.

Over the past three years, European operators have spent only $8.75billion on RAN devices, including about $3.5 billion to Huawei and ZTE. “This equates to a one-time cost of $7 or $6.5per per mobile user,” Strand Consult said. “

However, Stefan Pongratz, an analyst at Dell’Oro Group, a market research firm, said that if the U.S. recent trade sanctions against Huawei were fully implemented, it could force operators in multiple international markets to switch suppliers in a very short period of time.

“Operators have to do something they’ve never done before — they need to complete nationwide equipment replacements in months (or a year) or years (assuming 4G and 5G inventory is about one year and 1-2 years, respectively), ” he said. He said.

Stefan Pongratz said RAN was only “part of the puzzle” and that operators would have to dismantle transmission, core and fixed-line assets if the US sanctions went into effect. “The idea of operators in the US and Europe is that it will take 3-4 years to phase out Huawei, ” he said. “