More expensive and deferred without Huawei equipment

In their fourth quarter results, Canadian Telecom Telus Corporation (TSE: T) said the ban on Huawei equipment would not only affect the cost of deploying 5G technology, but also its timing .

Telus

Telus and its subsidiary Telus Mobility are the third largest telecommunications company in Canada, behind Bell and Rogers in terms of revenues and users. Telus and Bell (TSE: BCE) generally share the same standards and equipment in their deployments to reduce costs and use many of the same tricks while using CMDA technology while Rogers was using GSM before deploying LTE. With LTE deployments, much of Telus's equipment was Huawei in the past. Telus also noted the success of its 5G tests with Huawei equipment in 2018 and its planned deployment in 2019, although they have not yet designated a supplier for the final deployment.

Huawei

There is no secret that many different regions, including the United States and the EU, are studying the use of Huawei equipment for their network infrastructure. Citing privacy concerns, the Canadian Radio-television and Telecommunications Commission and the Government of Canada have begun to review the deployment of 5G technology with the help of Huawei equipment. Huawei has publicly declared to each country in which they operate that they guarantee the integrity and security of the networks in which they operate, including Canada. Huawei noted that the hardware bans did not affect the fourth quarter results, but if more countries maintain these bans, the investigations could harm Huawei.

Telus Statement on 5G Network Risk

Government or regulatory actions regarding certain countries or suppliers may affect us and other Canadian telecommunications companies. The Government of Canada is conducting a Cybersecurity Review with international suppliers of next-generation Huawei technology-based network equipment and technologies to badess potential risks to the development of 5G networks. in Canada. A decision on 5G technology in Canada is expected in the coming months. Over the last decade, our partnership with Huawei has allowed us to use the most advanced technology cost-effectively in our advanced 3G and 4G networks without any security incidents. When building our national 3G and 4G networks, we have worked closely with the Government of Canada for many years to ensure robust protection for all equipment used. This involves adhering to a series of security protocols that effectively ban Chinese equipment from our central networks and limit this equipment to less sensitive parts of the radio and antennas. We continue to work with the government on this cyber security review and have not yet chosen a vendor for our 5G network. Given the range of potential results from the cybersecurity review, the impact on Canadian wireless service providers can not be predicted at this time. A decision prohibiting the deployment of Huawei technology without compensation or other adaptation from the Government of Canada could result in a substantial, additional, non-recurring increase in the cost of deploying TELUS '5G network and, possibly, the timing of this deployment. . In the event of a ban, the Canadian telecommunications market could be subject to structural change, as a reduction to a global provider environment of only two suppliers could permanently affect the 5G equipment cost structure for all carriers. See Section 10.4 Vendor Risks. Risk Mitigation: We try to mitigate regulatory risk through our advocacy work with all levels of government, including through our participation in CRTC and Board proceedings, studies, reviews and other consultations. federal government. representations to provincial and municipal governments regarding telecommunications; court proceedings that affect our activities at all levels of the courts; and other relevant investigations (such as those relating to the exclusive federal jurisdiction over telecommunications), described in Section 9.4 Regulatory Developments and Procedures in the Communications Sector. See also Vertical Integration in Ownership of Competitor Broadcast Content in Section 10.3 Competitive Environment.

Source: (page 77)

Impact

Like all telecommunications companies that now charge taxes, Telus immediately stated that it could hurt consumers by costing them more or delaying the deployment of 5G. Since the initial 5G tests were done on Huawei devices, I tend to believe that their deployment would be delayed if they could not use the provider. In its section on risk reduction, Telus did not indicate whether other vendors were willing to badist in its deployment, as did Bell with Nokia Networks. Canadians relied heavily on 5G for a more efficient mobile broadband because the country's population density is low and they currently rely on a combination of satellite, 3G and LTE networks to cover the most of their rural population. Bell and Rogers (TSE: RCI.B) both indicated that their deployment would not be delayed, and Rogers publicly announced that it would not use the Huawei equipment for their 5G network, using rather Ericsson.

From a global perspective, a Canadian service provider does not have much impact, but if other providers declare regulation and investigations detrimental to their networks, governments could to take greater account of the issue and provide an opportunity or subsidy for telecommunications. In the United States, telecommunications lobbyists are very powerful and if they can convince consumers that costs can increase, regulators may need to revisit their subsidy model.

It is also interesting to see how the Ericsson and Nokia Networks shares evolve or if they are able to compensate for the possible shortage of 5G equipment that will be needed. The less competition there is for suppliers, the higher the costs will be, especially if there is a sudden shortage of suppliers of network equipment approved for telecommunications.

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