The global political climate is reaching a fever pitch following China and Russia’s tightened relationship. Last week, Chinese President Xi Jinping and Russian President Vladimir Putin issued a joint statement detailing their agreement on key foreign controversies that ultimately undermine US interests globally.
Notably, Russia welcomed Huawei to develop and accelerate the launch of 5G in the country; officials banned this in the US and are pressuring allies to follow suit. The US even threatened to restrict intelligence-sharing with nations that go against its viewpoint.
Despite Huawei being a point of contention in the 5G space, the firm’s strong foundation as a leader in 5G technology and its competitive advantages will deliver opportunities to markets that haven’t cut ties with it.
- Huawei’s been aggressively building up its presence in core markets and entering new ones amid tensions with the US, and will likely maintain growth in the years ahead. In 2018, Huawei saw global sales revenue jump almost 20% year-over-year (YoY) without the US market. It also increased its share of the telecom equipment market to 29% in 2018, up two percentage points from 2017. Huawei currently has a presence in 170 countries and counts about half of the Fortune 500 companies as customers of its products.
- The telecom’s global experience in launching 5G solutions, like devices and network equipment, has helped drive its success in attracting clients around the globe. So far, the carrier has secured 46 commercial 5G contracts in 30 countries, with more likely to come. Moreover, it’s possible countries working with Huawei, like Russia, are leveraging the political tensions with the carrier to receive even better deals, like accelerated deployments. For instance, Huawei just signed a deal with Russia’s largest network provider, MTS, to build and launch 5G technology in Russia in 2019 to 2020 — which is a very ambitious deployment roadmap.
- Huawei’s equipment beats its competitors on price and quality, allowing telcos to increase capital allocation to other emerging networks or industry segments. Huawei’s equipment was 20-30% cheaper than other suppliers’, and the company even offered to customize the equipment, according to Nemont CEO Mike Kilgore, cited by The New York Times. This affordability resonated with other telecoms: Eastern Oregon Telecom CEO Joe Franell indicated that Huawei equipment’s affordability is one reason his company buys from the Chinese company. Huawei’s ability to undercut on price and quality is likely because of support from the Chinese government in providing annual subsidies.
Meanwhile, countries that choose to ban Huawei risk losing the 5G race — and a decade of competitive advantages. Countries that revoke cooperation with Huawei will likely have to push back their 5G deployment roadmaps to compensate for the consequences of this action: A ban on the telecom would require massive upfront costs to replace existing Huawei equipment, along with high input costs due to reduced competition.
For example, in Europe, where the company’s devices are in high demand and its equipment is widely used by operators, a ban on Chinese-based companies Huawei and ZTE would result in an estimated $62 billion in 5G network costs and delay the technology by about 18 months, according to Reuters.
A setback like this would be problematic, as winning the global race to 5G will have far-reaching economic and social benefits: 5G has the potential to contribute $2.2 trillion to the global economy over the next 15 years.
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