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Business Commentary Demanding compensation won’t help Telus beat a Huawei ban

Telus Corp. has delivered a stark warning to Ottawa about the consequences of banning Huawei telecom equipment in the next generation of mobile networks.

Either pay us compensation or watch the cost of wireless skyrocket in Canada.

“A decision prohibiting the deployment of Huawei technology without compensation or other accommodations being made by the Government of Canada could have a material, non-recurring, incremental increase in the cost of [Telus’s] 5G network deployment and, potentially, the timing of such deployment,” the company said in a filing along with its quarterly financial results.

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Telus’s implied demand for reparations is a step too far. It smacks of intimidation. And the government should make it clear to Telus and the other telecom players that it won’t indemnify carriers for their past and future technology choices.

The company should probably stick to its core economic argument, which is that banning Huawei in fifth-generation mobile networks would come at a steep price.

“In the case of a ban, there is a risk that the Canadian telecom market would undergo a structural change, as a reduction to an only two global supplier environment could permanently affect the cost structure of 5G equipment for all operators,” Telus said in its filing.

Talk about compensation marks an escalation of Telus’s campaign to continue buying Huawei equipment. The timing itself is notable, coming just a day after Telus chief executive Darren Entwistle met in Vancouver with Prime Minister Justin Trudeau to discuss the Huawei situation, among other issues.

Ottawa, which is conducting a cybersecurity review of Huawei, is facing pressure from the United States, which has already prohibited the use of the Chinese company’s equipment over espionage concerns.

A Canadian ban would leave Telus, and wireless rivals such as Bell and Rogers, dependent on as few as two major 5G-gear makers – Ericsson of Sweden and Nokia of Finland. In theory, a reduction in suppliers tilts the pricing power to the vendors, raising overall network costs.

Doing without Huawei could be particularly tough on Telus. As The Globe and Mail’s Christine Dobby has reported, virtually 100 per cent of Telus’s current 3G and 4G radio-access network, including antennas and radios on cell towers, relies on Huawei gear. Carriers generally prefer to split their spending between different suppliers as a way to negotiate better prices and reduce technological risk.

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Telus is part of a growing global pushback against U.S. demands to ban Huawei. Mobile carriers in Europe are also complaining loudly about the cost of ditching Huawei, which is often the low bidder. Major European carriers, including Vodafone, BT Group and Telefonica, have similarly warned about higher costs and the risk of falling behind technologically as other countries roll out 5G more quickly and cheaply with Huawei equipment.

All of this highlights the gravity of the decision that Canada faces. It is not just about spying. It’s also about economics.

There is a lot at stake. With faster speeds and more reliable data connections, 5G is expected to be the backbone for a range of new smart devices, including autonomous vehicles and fleets of drones.

Ottawa owes it to the industry to demonstrate that its concerns around Huawei equipment are well founded. A ban should be based on genuine security risks, not irrational fears of the unknown or part of a U.S.-led effort to cripple China economically.

The federal government has another option. It could impose a more limited restriction on Huawei equipment – something short of a total prohibition. Surely, there must be creative ways to address legitimate security concerns, while also keeping the rollout of 5G affordable and on schedule. Britain, for example, is reportedly looking at the possibility of allowing Huawei equipment in applications that have only limited connection to the core of its voice and data networks, such as the gear located on and around cell towers. Canada already has that policy in place for its 3G and 4G networks. Such equipment makes up roughly half the cost of 5G, according to The Wall Street Journal.

Telus is at least partly right.

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One way or another, Canadians will pay a steep price if Ottawa bans Huawei equipment from mobile networks.

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