“Excluding Huawei Will Drive Costs Higher”: European Telecom Operators Push Back Against EU Equipment Curbs, Warning of Higher Prices and Replacement Costs

EU moves to amend Cybersecurity Act, excluding “high-risk suppliers” from telecom networks
“How will we cover replacement costs?” Opposition mounts across Europe’s telecom industry
Oligopolistic telecom-equipment market, Huawei’s exclusion threatens sharp erosion of price competition

Chief executive officers (CEOs) of major European telecom operators are pushing back against the European Commission’s restrictions on telecommunications equipment. As the Commission moves to amend the Cybersecurity Act to restrict new installations of equipment from high-risk suppliers and mandate the replacement of existing infrastructure, concerns are mounting over enormous replacement costs and potential investment delays. Market observers also warn that with the global telecom-equipment market now concentrated among a handful of companies—including Huawei, Nokia, Ericsson and ZTE—the exclusion of any one supplier could drastically narrow the pool of alternatives and increase the burden on telecom operators.

EU Tightens ICT Supply Chain Rules

According to information technology industry sources on September 18, the European Commission unveiled a draft revision to the Cybersecurity Act at its Brussels headquarters on January 20 (local time). At the heart of the proposal is an expansion of information and communications technology (ICT) supply chain screening beyond the technical security of individual products to encompass non-technical risks, including △the supplier’s country of origin and ownership structure △dependence on specific countries and △the possibility of intervention by foreign governments. The European Commission and member states would conduct joint risk assessments of major ICT supply chains and could designate suppliers linked to third countries deemed to pose systemic cybersecurity risks as “high-risk suppliers.” Depending on the level of risk, designated suppliers could face measures including △mandatory disclosure of supply chain information △supplier diversification △bans on the use or installation of specific ICT components and △replacement of existing equipment.

More direct phaseout requirements would apply to the telecommunications sector. The draft would require equipment and components supplied by high-risk vendors to be gradually removed from critical assets in mobile, fixed-line and satellite communications networks. Mobile network operators, in particular, would have to replace the relevant equipment within a maximum of 36 months from the publication of the high-risk supplier list, while the use of those suppliers’ products could also be restricted in new equipment procurement. Fixed-line and satellite networks would likewise face replacement mandates focused on critical network equipment, with the specific scope and implementation deadlines to be established by the Commission through separate implementing acts.

Telecom Industry Faces Heavy Cost Burden

Europe’s telecom industry is strongly resisting the Commission’s plan. The CEOs of European operators including Orange of France, Deutsche Telekom of Germany and Telefónica of Spain recently issued a statement through the telecom industry association Connect Europe titled “A Course Correction for Europe’s Technology Leadership,” criticizing the proposed Cybersecurity Act revision for “imposing excessive costs on Europe’s telecom industry.” They argued that “a comprehensive equipment replacement under the revised Cybersecurity Act would cost as much as $45.9 billion,” adding that equipment replacement would “siphon off funding intended for fiber-optic, fifth-generation mobile communications (5G) and sixth-generation mobile communications (6G) investment.” They continued, “Recent studies suggest that the legislative revision could create additional burdens, including operational disruption and adverse effects on customers,” and stressed that “rather than blanket regulation that forces infrastructure replacement without considering investment life cycles or compensation, a targeted approach focused on the areas of greatest risk and alternatives to replacement is needed.”

The GSM Association (GSMA) has also raised concerns about this cost burden. In July, the GSMA released a report commissioned by seven European telecom operator groups—including Deutsche Telekom, Vodafone of the UK and Orange—estimating that removing equipment supplied by Chinese companies such as Huawei from EU telecom networks would cost between $34.4 billion and $45.9 billion. The report projected that replacing mobile network infrastructure, including base stations and other network equipment, would cost between $18.4 billion and $25.3 billion, while substantial additional expenditure could be required to replace transmission equipment and fixed broadband networks. The GSMA also forecast that after Chinese telecom-equipment vendors are excluded, the prices paid by European operators could rise by as much as 24% for mobile network equipment, 19% for fixed broadband equipment and 10% for transmission equipment.

Huawei Rapidly Overtakes Ericsson

These projections reflect the dramatic restructuring of the global telecom-equipment market over the past decade. According to market research firm Gartner, Sweden’s Ericsson remained the dominant leader in the wireless communications infrastructure market as recently as 2010, with a 34% revenue share. Huawei’s market share at the time stood at 16%, less than half that of Ericsson, followed by Nokia Siemens Networks (NSN)—a joint venture between Finland’s Nokia and Germany’s Siemens—and France-based Alcatel-Lucent, each with 13%, and China’s ZTE with 9%. South Korea’s Samsung Electronics held a share of only about 3%.

The gap, however, did not last long. As investment in fourth-generation mobile communications (4G) expanded, Huawei broadened its business from radio access networks (RAN) to core networks, optical transmission equipment and routers. By 2012, it had captured a 24% share of the global RAN market, effectively drawing level with Ericsson. Thereafter, the competitive center of gravity shifted further toward Huawei. Data from another market research firm, Dell’Oro Group, show that Huawei’s share of the overall telecom-equipment market rose from about 21% in 2013 to 29% in 2018, before climbing to 31% in 2020 as 5G investment gathered pace. That year, Nokia and Ericsson each held a 15% share, followed by ZTE at 10%, Cisco at 6% and Samsung Electronics at 2%.

Table 1. Huawei’s Competitive Position in the Telecom-Equipment Market

Chinese Domestic Demand Underpins Growth

The competitive landscape has changed little in recent years. Huawei retained the top position in the global telecom-equipment market in 2024, with a 31% revenue share. Nokia held 14% and Ericsson 13%, followed by ZTE at 11%, Cisco at 4% and Samsung Electronics at 2%. Vendor rankings also remained largely unchanged last year and in the first half of this year, with Huawei, Nokia and Ericsson retaining the top three positions. Huawei and Ericsson broadly maintained their market shares at the previous year’s levels, while only Nokia expanded its share, partly due to its acquisition of U.S. optical networking equipment manufacturer Infinera.

Enormous domestic demand in China has underpinned Huawei’s expansion in the global telecom-equipment market. Successive large-scale investments in 5G network deployment by the Chinese government and telecom operators provided the company with a solid foundation for growth. According to China’s Ministry of Industry and Information Technology, more than 600,000 new 5G base stations were installed in China in 2020 alone, bringing the cumulative total to more than 718,000 by the end of that year. Huawei also secured nearly 57.2% of a China Mobile tender for 232,143 5G base stations at the time, far exceeding the shares won by ZTE at 28.7% and Ericsson at 11.5%.

Limited Choice in the Telecom-Equipment Market

Price competitiveness cannot be overlooked either. During its initial expansion into overseas markets, Huawei adopted a strategy of reducing telecom operators’ capital expenditure burden by undercutting its rivals. When South Korea introduced 5G equipment in 2018, industry estimates placed Huawei’s prices about 20–30% below those of Samsung Electronics, Ericsson and Nokia. The following year, Reuters likewise estimated that Huawei and ZTE equipment used by small and midsized U.S. telecom operators was priced 30–50% below competing products. In Europe, Huawei’s aggressive pricing exerted substantial downward pressure on established vendors. According to an analysis by Germany’s Berenberg Bank, the gross margins of Ericsson and Alcatel-Lucent, which had stood at 45–50% before Huawei’s full-scale entry into Europe, subsequently fell to 30–35%.

Leveraging the business foundation it had established, Huawei aggressively expanded its research and development (R&D) investment and business scope, secured market dominance and became a major supplier that is effectively difficult to replace. An industry official said, “The global telecom-equipment market has already been reorganized around a small number of vendors, including Huawei, Nokia, Ericsson and ZTE, leaving few alternatives if Huawei is excluded,” adding, “If the EU designates Huawei as a high-risk supplier, European telecom operators will effectively have to place new orders and replace equipment through a limited pool of suppliers such as Nokia and Ericsson.” The official continued, “As the range of supplier options narrows, the price competition created by Huawei’s earlier market entry will weaken, inevitably adding to the cost burden.”