Ericsson has won 5G contracts with China Mobile, China Telecom and China Unicom. In an announcement today related to China Mobile, Ericsson said it won a 5G contract, including 5G radio access network (RAN) and 5G core components for the second phase of China Mobile’s nationwide new radio (NR) standalone rollout.
However, according to the Chinese website C114 Communication Network, the bulk of China Mobile’s latest 5G contracts, worth about $5.2 billion, went to Huawei and ZTE. The website said China Mobile currently has about 80,000 5G base stations, and it’s targeting a goal of 300,000 5G base stations by the end of 2020.
Another C114 article said that both China Telecom and China Unicom had also awarded the bulk of their joint 5G contracts, worth about $4.5 billion, to Huawei and ZTE. And Ericsson had been awarded a smaller contract with those carriers, similar in proportion to the deal it got with China Mobile.
China Telecom and China Unicom are jointly building 250,000 5G base stations in 2020.
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According to the local news reports, Huawei and ZTE together commanded about 85% of the 5G awards from the Chinese carriers. Ericsson’s percentage of the contracts was in the 10% range. And Datang Mobile won the remaining percentage.
Based on the fact that all three Chinese carriers awarded their 5G contracts to the same vendors in approximately the same proportions indicates a coordinated strategy, likely coming from the Chinese government. One vendor that was notably absent from all the recent deals with China Mobile, China Telecom and China Unicom was Nokia.
In its latest earnings report, Nokia CEO Rajeev Suri made several comments about the company’s business where he excluded China from the context. “Outside of China, our position remains strong with customers where we have an existing 4G base, and we have added some new 5G customers as well,” said Suri, according to a Seeking Alpha transcript.
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Suri also said, “We are looking at our 4G plus 5G share, excluding China, given that pursuing share in China presents significant profitability challenges, and the market has some unique dynamics.”
There’s been some speculation that Nokia has been snubbed by China because of its relationship to the United States as part of a retaliation for the U.S.’s snubbing of Huawei and ZTE. But that analysis doesn’t explain why Ericsson would receive awards in China, while Nokia did not.
MTN Consulting recently published a chart showing the Capex spending of top global carriers in the fourth quarter of 2019. MTN’s research indicates China Mobile’s Q4 Capex budget was $5.7 billion; China Telecom’s was $3 billion; and China Unicom’s was $2.4 billion.
According to the analyst firm Jefferies, the combined Capex for 2020 of the big three Chinese carriers represents an 11% year-over-year increase (8.5% for China Mobile).
On its recent Q1 2020 earnings call, Ericsson CEO Börje Ekholm said the company expects an acceleration in the second half of 2020 partly driven by China.
Even though it won only about 10% of the recent contracts from the big Chinese carriers, Ericsson's awards translate into about $1 billion.
Ericsson’s deal with China Mobile
Under Ericsson’s deal with China Mobile announced today, China Mobile will extend its 5G RAN partnership with Ericsson to 17 provinces. In addition, Ericsson will provide 5G core network equipment in two major regions, covering five provinces. The 5G Core network will be deployed on Ericsson’s network functions virtualization infrastructure (NFVI), which just means that it’s a telco cloud platform using virtual machines and containers.
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China Mobile will also use Ericsson’s Dynamic Orchestration, which brings automation to operation support systems. As part of a previous agreement, Ericsson is also providing Cloud VoLTE, cloud unified data management and policy to China Mobile.