The cost of a Huawei ban

The Globe and Mail (BC Edition) - - FRONT PAGE - ROBERT FIFE STEVEN CHASE SEAN SIL­COFF OT­TAWA

Thou­sands of an­ten­nas would have to be ripped out and re­placed, in­creas­ing costs for Cana­dian com­pa­nies

Cana­dian tele­com gi­ants Telus Corp. and BCE Inc. could face at least $1-bil­lion in costs if Canada fol­lows the lead of close al­lies the United States, Aus­tralia and New Zealand in bar­ring telecom­mu­ni­ca­tions equip­ment made by China’s Huawei from their next gen­er­a­tion net­works, in­dus­try sources told The Globe and Mail.

Ex­ec­u­tives at both com­pa­nies – which have sig­nif­i­cantly in­vested in Huawei equip­ment – have com­piled the fi­nan­cial costs of be­ing pro­hib­ited from us­ing the Chi­nese tele­com’s tech­nol­ogy in 5G mo­bile net­works.

BCE, Telus and, to a lesser ex­tent, Rogers Com­mu­ni­ca­tions, all use Huawei equip­ment in their cel­lu­lar net­works, and as the Shen­zhen-based com­pany has made in­roads in the Cana­dian mar­ket in re­cent years, have come to rely on its com­pet­i­tively priced gear to help re­duce costs in a field that re­quires reg­u­lar cap­i­tal in­vest­ment.

One tele­com ex­ec­u­tive pegged the cost of a Huawei ban at $500mil­lion to $1-bil­lion for Telus alone, while an­other in­dus­try source es­ti­mated it would run Bell hun­dreds of mil­lions. A third se­nior tele­com in­sider, who has di­rect knowl­edge of the is­sue, said the to­tal es­ti­mated cost for BCE and Telus would ex­ceed $1bil­lion. The Globe has given the sources anonymity be­cause they are not au­tho­rized to dis­cuss sen­si­tive com­pany busi­ness.

These costs would arise be­cause, to re­move Huawei equip­ment from cel­lu­lar in­fra­struc­ture as they build their 5G net­work, Bell and Telus would have to rip out and re­place tens of thou­sands of an­ten­nas. They would likely have to turn to Swe­den’s Eric­s­son, which is the main 5G ri­val to Huawei and is al­ready part­nered with Rogers.

Telus de­votes nearly $1-bil­lion to cap­i­tal ex­pen­di­tures a year, most of that for net­work in­fra­struc­ture. Bell in­vested just more than $730-mil­lion in each of the past two years in cap­i­tal ex­pendi- tures in the wire­less busi­ness and about $3-bil­lion each year on com­mu­ni­ca­tions sys­tems that use ca­ble and wire.

Desmond Lau, a telecom­mu­ni­ca­tions sec­tor an­a­lyst with Ver­i­tas In­vest­ment Re­search, said “if they were to rip that out and re­place it, it would prob­a­bly be quite ex­pen­sive.” For each of Telus and Bell, “It would not be un­rea­son­able to think a full rip-an­dreplace would cost in the range of $1-bil­lion.” He noted that fig­ure was a “guessti­mate” as it was not based on in­for­ma­tion dis­closed by the com­pa­nies. He said a ripout “is a pos­si­bil­ity” but “it’s too soon to say that this will, will not or might hap­pen.”

The fed­eral gov­ern­ment is con­duct­ing a na­tional se­cu­rity re­view to de­ter­mine whether Canada should fol­low the United States, Aus­tralia and New Zealand, fel­low mem­bers of the Five Eyes in­tel­li­gence-shar­ing al­liance, in ban­ning Huawei prod­ucts from 5G cel­lu­lar net­works.

In Bri­tain, which is also a mem­ber of the Five Eyes, BT Group an­nounced on Wed­nes­day that it is re­mov­ing Huawei equip­ment from its core 4G net­works and will not use its 5G tech­nol­ogy, a move made two days af­ter Alex Younger, chief of the Se­cret In­tel­li­gence Ser­vice, known as MI6, ques­tioned whether Bri­tain should use Chi­nese gear.

Ja­panese me­dia also re­ported on Fri­day that the coun­try planned to ban gov­ern­ment pur­chases of equip­ment from Huawei and ri­val Chi­nese tel­com ZTE Corp.

For­mer Liberal for­eign af­fairs minister John Manley, a mem­ber of Telus’ board and the for­mer chief ex­ec­u­tive of the Busi­ness Coun­cil of Canada, a busi­ness lobby group, ex­pressed con­cern that the U.S. gov­ern­ment is driv­ing Canada’s for­eign pol­icy on Huawei and China.

“We need to have our own China pol­icy driven by our own na­tional in­ter­est, and un­for­tu­nately we have got our­selves caught in a sit­u­a­tion where our China pol­icy is be­ing much fash­ioned by some hard­lin­ers in Wash­ing­ton,” Mr. Manley told CTV Ques­tion Pe­riod in an in­ter­view to be aired on Sun­day.

How­ever, for­mer prime minister Stephen Harper told Fox News on Thurs­day that he sup­ports Wash­ing­ton’s cam­paign to per­suade Canada and other al­lies to cut ties with Huawei, which he said acts as an agent of Bei­jing.

The U.S. gov­ern­ment has con­tacted al­lies and for­eign tel­com ex­ec­u­tives in a bid to per­suade wire­less and in­ter­net providers to avoid Huawei equip­ment for na­tional se­cu­rity rea­sons.

BCE and Telus have de­clined to re­veal whether U.S. na­tional se­cu­rity of­fi­cials have asked them to avoid Huawei equip­ment. Rog- ers said it had not been con­tacted.

In an in­ter­view in early Novem­ber, BCE chief ex­ec­u­tive of­fi­cer Ge­orge Cope did not com­ment specif­i­cally on any con­ver­sa­tions about Huawei with na­tional se­cu­rity of­fi­cials from any coun­try.

“We’ve had obli­ga­tions that we’ve had to meet with the Cana­dian gov­ern­ment and we’ve al­ways met them, as has Huawei,” Mr. Cope said, adding that BCE does not use Huawei equip­ment in its core net­work, “so I’m re­laxed about it.

Mr. Cope said Huawei “is an in­cred­i­ble com­pany from a tech­nol­ogy per­spec­tive and the real ben­e­fit of that is Cana­di­ans get this great tech­nol­ogy. Do we want to de­prive Cana­di­ans of some of the best world­wide in­fra­struc­ture?”

Pub­lic Safety Minister Ralph Goodale told The Globe ear­lier this week that the fed­eral re­view is ex­am­in­ing the po­ten­tial eco­nomic ben­e­fits of Huawei 5G tech­nol­ogy and the po­ten­tial threat that the Chi­nese com­pany could place spy­ing de­vices in the core net­works.

The fed­eral gov­ern­ment is con­duct­ing a na­tional se­cu­rity re­view to de­ter­mine whether Canada should fol­low the United States, Aus­tralia and New Zealand, fel­low mem­bers of the Five Eyes in­tel­li­gence-shar­ing al­liance, in ban­ning Huawei prod­ucts from 5G cel­lu­lar net­works.

MARK SCHIEFELBEIN /AS­SO­CI­ATED PRESS

A Huawei staff mem­ber works at a dis­play at an ex­hi­bi­tion in Bei­jing. Sev­eral coun­tries, in­clud­ing the United States, Aus­tralia and New Zealand, are ban­ning the com­pany’s telecom­mu­ni­ca­tion equip­ment.

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