For a while, Europe didn’t share the US’s concerns about Huawei. Its products and services were cheaper and better than their competitors’, says Gabriel Brown, principal analyst at the US telecoms research group Heavy Reading. An industry report published last year by Strand Consult found that Huawei supplied 45% and ZTE 7% of the technology for 4G RAN in Europe. In some countries, like Austria or Belgium, these companies supplied all of the 4G RAN equipment. According to Strand Consult more than half of Europe’s mobile customers, across 102 mobile operators, “access Chinese infrastructure, primarily from Huawei.” (ZTE is a much smaller player in Europe and is already banned in countries like the UK.)

The report, published before many operators announced they would replace Huawei gear, concluded that “these numbers should be a wakeup call.”

Things changed this year for many reasons. Europe’s relations with China have gotten worse, contributing to fears that Beijing could shut off critical infrastructure in a bid to punish countries that got out of line, by denouncing China’s actions in Hong Kong and Xinjiang for example. Europe is also looking to “level the playing field” with China and it’s not failed to notice that Chinese authorities favor Huawei and ZTE over European vendors for its own telecommunications infrastructure. Iain Morris, news editor at the industry publication Light Reading (which is part of the same company as Heavy Reading), recently wrote:

“While Huawei derives nearly a quarter of its revenues from Europe, the Middle East, and Africa, and is Europe’s biggest mobile infrastructure supplier, Ericsson made just 7% of last year’s revenues in China, and for Nokia the figure was only 8%. When China recently handed out 5G contracts, about 90% of the business went to Huawei and ZTE. Nokia even gave up on 5G radio in China when it missed out entirely in that area.”

In January the European Commission released a roadmap for member states to limit their dependence on foreign vendors while supporting domestic alternatives. (It didn’t mention Huawei by name but it was the unspoken elephant in the room.) The UK banned Huawei in July following a mutiny in the government’s parliamentary majority, reversing its January decision to let Huawei supply up to 35% of operators’ RAN gear. Most recently Sweden said that Huawei and ZTE gear should be phased out by 2025 and that no new gear should be installed. Stefan Pongratz, vice president at the Silicon Valley telecoms research group Dell’Oro Group, described that decision as “a game changer that could have ripple effects in Europe.”

Who will replace Huawei in Europe?

The telecommunications equipment market is dominated by just four players—Nokia, Ericsson, Huawei, and ZTE. Developing innovative technologies like 4G and 5G is expensive and deploying them around the world demands a lot of global expertise that is also expensive to maintain. Historically vendors have consolidated over and over again to reduce costs and take on more market share. Nokia, for example, absorbed five different mobile equipment vendors, including Siemens, Motorola, and Alcatel, while today’s Ericsson includes Nortel, Marconi, and parts of Qualcomm. “This industry is all about scale,” explains John Strand, the founder of Strand Consult.

That’s why European operators are left with just these two main options to replace Huawei. A smaller player like Samsung can’t compete at the same level because it doesn’t supply 2G and 3G equipment, which operators need even as they build out their 5G networks.

Ericsson is in a better position financially than Nokia. It beat quarterly core earnings forecasts (pdf) last week, is rolling out 5G in China with the country’s three largest operators, and is increasing its footprint in Europe. Meanwhile, Nokia cut its profit forecast for this year and set a lower-than-expected one for 2021, meaning that it’s not growing in line with the market. The company has a smaller share of China’s mobile infrastructure market (pdf) and recently lost a major 5G RAN contract with Verizon in the US. It still hasn’t recovered from its acquisition of Alcatel-Lucent in 2016, which delayed its 5G rollout.

A good rule of thumb, says Richard Windsor, founder of the research company Radio Free Mobile, is that “Huawei is about six months ahead of Ericsson and Nokia about 18 months behind Huawei in terms of its offering.”

But it’s not that simple. The last thing operators want is to rely on just one vendor for their entire network, even if the vendor isn’t Chinese. They hope to diversify risk and get the best price, so they have a vested interest in seeing Nokia “survive and thrive,” says Windsor. The company’s new CEO Pekka Lundmark (paywall) has made it clear he will do “whatever it takes to win in 5G,” including an ambitious overhaul of Nokia’s internal structure. So Windsor believes Nokia is “in pole position to take most of the Huawei business…because in the operators where it was Huawei and Ericsson, you’re not going to be quite comfortable giving it all to Ericsson.”

In an earnings call yesterday (Oct. 29), Lundmark estimated that Nokia has snapped up roughly 43% of the deals available from “operators who are reconsidering their vendors as a result of geopolitical issues.”

Also, while Nokia has struggled in 5G, it has a more diversified portfolio than Ericsson. A recent example of this is that it won a contract with NASA to build the first-ever lunar cellular network. Yes, you read that right—data on the moon. They’re also active in other areas like IP routing and optical transport. Heavy Reading’s Brown believes that Nokia “is going to come back as competitive” and that the competition between it and Ericsson will “look about equal five years from now.”

There is a way for operators to theoretically break up the Nokia/Ericsson duopoly but it’s controversial: Open RAN. Open RAN breaks down the technology used in radio access networks so telecom operators can switch between different vendors for each part. Operators currently working with this solution include Japan’s Rakuten and Dish in the US

But experts say the technology’s not there yet. Mobile operators are pretty risk-averse and Open RAN is definitely a risk; where it’s been implemented it’s run into issues. “Open-RAN is something in the future,” says Strand. “It is not an alternative to the equipment Nokia, Ericsson, Huawei, and ZTE are delivering today.”

Still, there’s momentum building around the idea that Europe needs more diversity in its supply chain for these critical technologies. The EU is studying this question as part of a package of large-scale digital reforms and the UK recently formed a task force to “advise on bold interventions to open up and grow the telecoms market.”

This, argues Strand, means that the major winner of Europe’s Huawei backtrack won’t be a particular vendor over another; “the citizens of Europe are the big winner because we get more secure infrastructure.”

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