British Prime Minister Boris Johnson announced on thursday that the UK will stop purchasing Huawei 5G equipment from the end of this year and stop using all Huawei 5G equipment by 2027. The decision is a major change in the UK government’s attitude towards Huawei’s products, after the UK allowed UK companies to use 35 per cent of Huawei equipment in 5G construction.
Without these surprises, 5G would have been a good opportunity for Huawei to consolidate its market share, said Yang Guang, senior strategist at research firm Strategy Analytics wireless carriers. But even if Huawei’s share of Europe falls for a variety of reasons in the future, Ericsson and Nokia will fill some of the market vacancies, but they are unlikely to fill them all.
UK 5G development or delay for a year
Europe has always been a must-have for global telecommunications equipment manufacturers and one of Huawei’s overseas “granaries”, which is self-evident in terms of Huawei’s annual investment in the UK. Of the 91 5G commercial contracts disclosed by Huawei in February, 47 came from Europe, accounting for more than half. For nearly two decades, Huawei has been actively involved in BT’s infrastructure development, and has become a major network provider in the UK, with Ericsson and Nokia.
“Huawei entered the European market in the 3G era, and in the 4G era, several major operators in the UK were basically Huawei customers.” Yang Guang told reporters that Huawei has been doing well in the UK market, with Ericsson and Nokia in the European market.
According to reporters, the mobile network mainly includes the core network and wireless access network (RAN), the current BT eE mobile network in its 4G and 5G network core network using Huawei, other mobile operators such as Vodafone, 3 UK and other major wireless access network use Huawei. In addition, Huawei provides broadband equipment to BT’s Openreach division, which has infrastructure used by other Internet service providers (ISPs), including Plusnet, Sky and TalkTalk, and virtual network operators (MVNos) that also use Huawei’s devices.
It can be said that the uk’s major telecom operators in the network deployment of Huawei equipment, the implementation of all replacement will be a huge project.
Oliver Dowden, the culture secretary, said: “The shorter the timetable we will be, the greater the risk of actual disruption to the mobile network. He expects the move to delay the launch of 5G in the UK by a year. Andrea Dona, Vodafone’s UK head of network, has warned that replacing Huawei equipment in telecoms base stations will result in a failure to provide telecommunications services and a disruption of mobile phone signals for days.
Assembly Research, a British consultancy, estimates that a complete replacement of Huawei’s network equipment would cause 18 to 24 months of delays in 5G construction in the UK and cost between 4.5 billion and 6.8 billion pounds.
In reality, European telecom operators do not want to switch in a short period of time. Unlike 2G/3G/4G, the 5G era has defined two ways to network in order to rapidly advance deployment. Among them, the NSA is a transition program, relying on 4G base station and core network work, and SA’s core network is a new network architecture, can give full play to 5G capabilities, but the investment is greater, network construction will take longer.
Yang Guang told reporters that at present, foreign operators generally choose the NSA as a 5G network structure. In order to smooth the transition to 5G, operators need to use the same vendoras as 4G networks, and once a new vendor is selected, migration costs will undoubtedly be increased.
“It’s a lot of trouble, so British operators are disgusted by this, they don’t want it, but it’s a political decision.” Yang Guang pointed out.
Who will take Huawei’s UK share?
Huawei has been in the UK market for nearly 20 years and currently employs about 1,600 people in the UK. Huawei’s investment in the UK has reached 2 billion pounds ($2.34 billion) by the end of 2017 and has planned to invest another 3 billion pounds ($3.9 billion) in research and development by 2022. On June 25th Huawei revealed that it had obtained a UK licence to set up a research and development manufacturing centre in Cambridge, England, for the manufacture of advanced optical devices and optical modules. The first phase of the project will cost 1 billion pounds and will serve as the global headquarters of Huawei’s optoelectronics business in the future.
Huawei did not update the investment in its latest response. Earlier, Huawei’s UK head said: “These (investments) will not retreat, will not waver.” What’s the reason? Sooner or later Britain will buy our equipment, and we can’t go to the mall because we don’t buy it for a while. “
But it can also be seen that Huawei’s market share in Europe is being split by other communications giants.
“In China, Huawei has an absolute advantage, the U.S. market is dominated by Western manufacturers, and Chinese manufacturers can’t get in. So what’s really up for grabs is the European market, where several big equipment manufacturers are competing fiercely. Yang Guang told reporters.
EE is using Ericsson’s products to replace Huawei and has pledged to do so by the end of 2023, while other operators are looking for alternatives.
According to the latest data released by Dell’Oro, a market research firm, Huawei has the largest market share of 5G communications equipment in the world in the first quarter of 2020, at 35.7%. It is important to note, however, that this figure is only 0.4 per cent month-on-month. Ericsson, Nokia and Samsung came in second, third and fourth, with market share of 24.6%, 15.8% and 13.2%.
Huawei has never provided a breakdown of revenue in each region, but according to its annual report, markets such as Europe and the Middle East are 206 billion yuan, second only to the Chinese market. Considering that 5G construction investment has a certain cyclicality, the current financial results data more reflect Huawei in the 3G and 4G market situation, but also can be seen in the European market “granary role” is very obvious.
Once Huawei (further) is banned, is Ericsson and Nokia the biggest beneficiaries? Yang Believes the biggest beneficiary is companies that will be able to replace Huawei in the European market in the future, “because the network equipment market is now a very closed market, and it is very difficult to enter one market.” The Tier2/3 supplier, represented by Samsung, may have a chance to break through the European market. “
For Samsung, South Korea is an important market, with both 4G and 5G leading the way. Samsung is currently breaking through the U.S. market, and its presence in India (4G devices) is large. In Europe, Samsung’s market share was almost 0.
Mr Yang said that even if Ericsson and Nokia filled some of the market vacancies, they would not be able to fill them all. Carriers are likely to bring in new vendors, including Samsung or OpenRAN. “European telecom operators are also short of money, their financial situation is not particularly good, they may need to find some relatively low-cost or more cost-effective.”
“Furthermore, will Samsung be able to cope with this large-scale delivery in the future?” Including supply chain management, engineering delivery, after-sales service, etc. , this set of systems may have a gap, not overnight can be completed, Huawei spent a lot of effort to build. Samsung needs to build trust with European operators to convince customers of their products and delivery capabilities. Mr Yang said.