Europe's 5G roll-out is being delayed by trade war, Huawei pressure and security reviews, says Tele2 CEO

02/7 2019 15:30

Tele2, Sweden’s second-largest telecoms company, has been delaying deals with equipment suppliers

The roll-out of 5G services across Europe has been slowed by US sanctions against Huawei Technologies and as European governments review the impact of using Chinese network equipment, the head of Swedish telecommunications group Tele2 said.

US President Donald Trump’s administration had targeted Huawei on security grounds, but a partial lifting of restrictions was a key element of a weekend agreement to reopen stalled trade negotiations with China.

Tele2 chief executive Anders Nilsson said the biggest impact of the restrictions and security concerns was being felt through a delay in 5G investment across Europe.

Tele2, Sweden’s second largest telecoms company which also operates in the Baltic countries, has been delaying on striking deals with equipment suppliers.

“We have a global supply chain, so whoever you buy equipment from you will find components from China. Even if we buy equipment from Ericsson, which is our neighbour here, you will find Chinese hardware and parts in that equipment,” he told Reuters at Tele2’s Stockholm headquarters.

“We’re right now talking to all the vendors, but decisions are postponed. This is not only Huawei, this is all vendors.”

He also said he had no plans to stop selling Huawei handsets, as US trade sanctions had not led to any significant drop in sales or impact in demand.

5G roll-out has been billed as transformative for the telecoms industry, resulting in a 10-fold increase in data transfer capacity that would help enable self-driving car fleets and smart factories.

Nilsson said that consumers were likely to face higher prices if governments banned Huawei, limiting competition to Nordic suppliers Ericsson and Nokia.

“From our perspective, the main reason to do 5G right now is because it is a good way to build capacity, but we can continue building capacity in 4G. So 5G is not something we need to do right now,” he said in an interview before Sino-US tensions eased over the weekend.

“But … ultimately if we go down the more protectionist route here, consumers will have to pay price.”

In follow-up comments on Monday, Nilsson said his view was unaltered.

“We follow the events with great interest, but it’s too early to take any firm decisions based on it,” he said.

He expects a drawn-out 5G roll-out, with peak capital spending for his company of only about 3-3.5 billion Swedish crowns, largely in line with Tele2’s capital expenditure of 3 billion crown (US$323 million) last year, which included no 5G investment.

Tele2 is focused on turning itself into a cash generative company, growing revenues by improving consumer retention and bundling services together, and then keeping spending flat to allow it to make hefty payouts to shareholders.

Nilsson said possible options for future payouts were special dividends, increasing the regular dividend or share buy-backs.

He also reiterated Tele2’s medium-term outlook for low-single digit growth in end-user service revenue and mid-single digit growth of adjusted Ebitda.

The company has transformed its business to achieve its goals, in recent years exiting several regions and buying cable television firm Com Hem last year.

In February, it doubled its cost savings target from the ComHem deal to 900 million Swedish crowns.

Nilsson said he expected Tele2 to be able to deliver cost savings of “billions of Swedish crowns” on top of that target, by integrating Swedish operations under a common IT infrastructure and integrating the tech service teams.

“We’re still planning right now, but this could add billions of more kronas in savings long term,” he said.