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A man walks by a Huawei logo at a shopping centre in Shanghai in December. Photo: Reuters

In push to replace Huawei, rural US carriers look to Nokia and Ericsson

  • Small carriers are looking for inexpensive alternative as Chinese telecoms firm becomes target in trade war between Washington and Beijing
  • Switching vendors will not be easy, however, as Nokia and Ericsson will not match Huawei’s pricing

About a dozen rural US telecoms carriers that depend on Huawei for network gear are in discussions with its biggest rivals, Ericsson and Nokia, to replace their Chinese equipment, sources familiar with the matter said.

The carriers, which include Pine Belt in Alabama, and Union Wireless in Wyoming, are seeking discounted pricing and looking forward to government assistance but have yet to reach agreements, these sources said. Nokia and Ericsson declined to comment.

The talks are critical for small carriers that have relied on Huawei Technologies or ZTE for inexpensive, high-quality mobile network gear in recent years even as the big US telecoms companies shunned the Chinese firm.

The US government has labelled Huawei a security threat and effectively banned US companies from doing business with it.

But switching vendors will not be easy. Nokia and Ericsson, both of which have struggled financially in recent years, will not match Huawei’s pricing, analysts and company executives say.

Huawei’s prices “were not market-based”, said an equipment industry executive who has worked for years in North America. “They made no sense.”

Roger Entner, an analyst at Recon Analytics, estimated Huawei and its compatriot, ZTE, charged 30 to 50 per cent less than rivals.

Talks are not expected to continue until legislation in the US Congress to provide US$700 million in subsidies to help rural carriers with the switch is approved, sources familiar with the discussions said.

Trump considers move to require US 5G equipment to be made outside China

No action has been taken on the bill since it was introduced in May, according to Congress.gov.

The Rural Wireless Association (RWA), a trade group, estimates it would cost between US$800 million to US$1 billion to install new gear.

John Nettles, president of Pine Belt, said he reached out to Ericsson and Nokia last year when the federal ban on using money from the US$8.5 billion Universal Service Fund for Chinese equipment was first suggested.

“The conversation has been going on for about a year and they are looking for ways to bring down the price, within the reach of the smaller carriers,” he said. Without a discount, he added, rural carriers would not be able to afford it.

Union Wireless said it was in discussions with Nokia, but declined to provide details.

The Nokia logo and ticker are displayed on a screen on the floor of the New York Stock Exchange in May. Photo: Reuters

Industry executives briefed on the discussions confirmed that Nokia and Ericsson were in talks with rural carriers but detailed discussions will not happen until later this year as the regulators are still trying to determine which parts need to be replaced.

Ericsson and Nokia, however, may have little incentive to offer discounts as economies of scale are not in rural carriers’ favour.

The US$700 million opportunity is scattered between small operators that, in total, according to one industry executive, need at most 2,000 base stations to be swapped. By comparison, the top US operators each run networks of more than 50,000 base stations.

ZTE secures more than 25 commercial 5G network contracts

The availability of local workforces that manage swapping of the equipment could also be a problem.

“The scarcest resource in the US today is tower-climbers. There is tremendous job growth in this sector right now,” said one industry executive.

Rural wireless carriers typically serve between 50,000 to 100,000 subscribers in remote areas that are out of reach by big telecom companies like Verizon Communications or AT&T and are often the sole regional provider.

Among these carriers, the RWA estimated that 25 per cent of its members have Huawei or ZTE equipment.

An Ericsson 5G antenna seen on stage during the company's annual shareholder meeting in Bonn, Germany, in March. Photo: Reuters

SI Wireless, which has 20,000 mobile customers across western portions of Kentucky and Tennessee, said most its network uses Huawei equipment.

Viaero, which serves 110,000 mobile customers across Eastern Colorado, Western Kansas, Nebraska and parts of Wyoming and South Dakota, said roughly 80 per cent of its network equipment, including core, wireless, microwave and fibre, was manufactured by Huawei, according to FCC filings.

“Rural telcos are not very profitable and a lot of the owners are in their 50s, 60s and 70s. If they have to rip out their network, they are probably going to shut down if they can’t easily find a buyer,” Recon Analytics’ Entner said.

Huawei fights to keep US funds flowing to its rural mobile customers

That means basic communications could disappear from poorly served communities.

The advent of 5G networks poses a dilemma: companies that are forced to rip out Chinese equipment could try and move to 5G immediately, but that would be more expensive in the short term.

Still, 5G could give the rural carriers some leverage with Nokia and Ericsson.

Telecommunications equipment maker ZTE’s booth at MWC Barcelona in February. Photo: Bien Perez

Handelsbanken analyst Daniel Djurberg noted small deals would boost the number of 5G wins Nokia and Ericsson are counting to show their advances in the new technology.

Ericsson and Nokia are likely interested in the deals also for strategic reasons.

“It’s important to be in the US and these operators may be bought by bigger operators later on and then they have positioned themselves,” said Bengt Nordstrom, head of Stockholm-headquartered consultancy firm Northstream which advises telecoms operators and vendors.

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