Chinese Telecom Firms Weigh Sharing 5G Network to Pare Costs, Potentially Hurting Huawei

August 22, 2019 Updated: August 22, 2019

China Telecom, a state-owned firm, said it’s ready to build a 5G mobile network with its rivals in order to reduce costs, a proposal that is likely to weigh on multibillion-dollar equipment orders for vendors such as Chinese tech giant Huawei Technologies. The latter is privately owned, but has close ties to the Chinese military.

China’s big three state telecom companies are racing to roll out fifth-generation network services in more than 50 cities this year, following countries such as South Korea and the United States that have already rolled out the service that promises to support new technologies, such as autonomous driving.

While the gradual rollout of 5G services globally is a boon to telecoms gear makers, tie-ups by mobile operators in China, the world’s biggest smartphone market, to build the network together threaten to cut the size of the overall 5G infrastructure spending.

The proposal also comes as Huawei is fighting a trade ban from Washington that has hurt its business since May and could block off its access to essential U.S. suppliers.

China Telecom Chairman Ke Ruiwen said Aug. 22 the company had reached a tentative deal with rival China Unicom to jointly build a 5G network with shared infrastructure, after China Unicom expressed interest in that last week.

“Co-building and co-sharing would bring great savings in capital expenditure, operating expenditure, as well as improve resource utilization,” Ke said, without giving numbers.

China Unicom Chairman Wang Xiaochu said last week that 5G network sharing could save it 200 billion to 270 billion yuan ($28.2 billion to $38.1 billion). But both companies kept their 2019 capital expenditure estimates unchanged.

Mobile operators are seeking to cooperate on building networks to share the heavy capex burden, as their earnings growth eases because of slowing subscriber growth and government pressure to cut tariffs.

Unlike South Korea and the United States, China aims to build the kind of 5G network known as a stand-alone network, which is more powerful than an upgrade based on the existing 4G network, but is costlier.

Both Ke and Wang said they are open to working with other players, including China’s largest telecom operator China Mobile, with Ke saying it is “totally possible” for the three to jointly build networks in low population density areas, which would have “great cost-saving.”

China Mobile didn’t immediately respond to a request for comment. Earlier this month, it announced an increase of its 5G capital expenditure this year to 24 billion yuan.

Huawei, the world’s largest telecoms equipment vendor, said at the end of June, it has won 50 5G contracts around the world. Its home market has become more crucial as the company’s international business has been hit by a U.S. trade blacklist imposed in mid-May.

China Tower Corp., the telecom tower company jointly owned and shared by the three mobile operators, said earlier this month that it had received client demands to install 65,000 5G base stations so far, a number that it expects to rise to 100,000 by the end of the year.

By Sijia Jiang