Telecom operators are designing 5G systems based on either Ericsson’s technology or that of Nokia Oyj.
On Tuesday, Australia’s nascent network TPG Telecom Ltd stated, it would abandoned building its mobile telephone network which relied heavily on Huawei Technologies Co Ltd for equipment since the Australian government has banned Huawei on security grounds.
Across the world, there have been a growing number of nations who are waking up to the fact that Huawei’s devices could be used by Beijing for espionage purposes, an allegation that Huawei has denied.
Huawei’s chief financial officer, Meng Wanzhou, has been arrested in Canada since December 2018 and faces deportation to the U.S.
On Monday, the U.S. Justice Department filed criminal conspiracy charges against the company as well as on Meng, for conspiring to steal trade secrets from T-Mobile US Inc as well as for bank and wire fraud.
In a statement, TPG said it chose Huawei as a telecom equipment supplier since it offered a simple upgrade path from 4G to 5G.
“That upgrade path has now been blocked,” said TPG. “It does not make commercial sense to invest further shareholder funds.”
TPG stated, it came to this conclusion now since the project had reached a point where it would have had to place new orders.
TPG did not say, what would be the fate of the completed part of the project; it however did say it does not expect any impact on 2019 earnings guidance.
“Australians will now miss out on cheaper and more affordable mobile services,” said Jeremy Mitchell, Huawei’s spokesman.
With the news reaching the market, TPG’s shares touched their 6-week peak.
Although the cancellation has cost it $72 million (A$100 million), it is widely seen as eliminating duplication under the A$15 billion merger it has agreed with the Australian arm of Britain’s Vodafone Group PLC.
Incidentally, TPG’s announcement have buoyed the shares of other players in the sector, including that of Telstra Corp Ltd, which saw its shares rise by 8% and touch their more than 3-month high as investors expect relief from profit-margin pressure in the price-competitive sector.
The broader market closed down 0.5%.
TPG’s decision will add to pressures Huawei is facing globally. Many countries have already banned or are in the process of blocking Huawei and ZTE Corp citing espionage risks.
Case in point, operators in Europe, including Orange and BT, have either already removed Huawei’s equipment or are taking steps to limit its future use within their network; Vodafone has also paused its usage of Huawei’s telecom equipment.
In Australia, Vodafone and Optus, must now design 5G systems based on either Ericsson’s technology or that of Nokia Oyj, said TPG’s Executive Chairman David Teoh.