America is on the defensive: the country has no «own» network equipment provider to set up 5G mobile radio networks. Because you don’t trust the Chinese Huawei and ZTE, you rely on the Scandinavians. This puts them in a bind.
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Let a trial balloon go up: US Attorney General William Barr is considering a US stake in Nokia and Ericsson.
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The United States has a problem. You are dependent on outside help when setting up new 5G mobile radio networks. The Chinese providers Huawei and ZTE, which are in the starting blocks around the world and control 40% of the market for radio access network equipment, do not want, of course. On the contrary: Washington is waging a global campaign against the two companies, which are seen as security risks and prolonged arms of the Chinese Communist Party.
Last week, for the first time, the American Attorney General William Barr also made a prominent contribution to the discussion with sensational statements. He said in a speech on Thursday at the CSIS think tank that the US and its allies must act together to avoid handing over their economic fate to China.
One had to think about strengthening the other two big providers Ericsson and Nokia, which were not of the size of Huawei and did not count on the backing of a strong state with a huge home market like China. According to Barr, Huawei is now the leader on every continent except North America, while the Finnish Nokia and the Swedish Ericsson have market shares of 17% and 14%, respectively.
Barr was cautious: he didn’t launch his own concrete proposal. Instead, the justice minister spoke of “ideas” that the US could address the Huawei 5G problem by taking the side of Nokia and / or Ericsson, for example by acquiring a majority stake. This could be done either directly or through a consortium of private American and Allied companies. Giving Nokia or Ericsson or both financial backing and offering a large market could give these companies competitiveness and stamina, Barr said. “We and our closest allies must seriously consider such an approach,” he said.
Samsung is no longer mentioned
It is not the first time that US government officials have explicitly expressed their confidence in the two Nordic companies Ericsson and Nokia. Government experts are of the opinion that no technical precautions can be taken in the 5G network infrastructure to contain the risks posed by Huawei and ZTE equipment. On the other hand, Ericsson (Sweden), Nokia (Finland) and Samsung (South Korea) offer “excellent” systems at competitive prices; These are all companies that are not exposed to authoritarian regimes, it was said at an event of the Foreign Ministry in November. Interestingly, Barr made no mention of Samsung in his speech on Thursday.
What is new is that an American member of the government has brought up the idea of state-orchestrated investments in foreign companies such as Ericsson and Nokia for security reasons. Such a move is unusual for a country like the United States, which generally spurns state holdings in private companies and takes little notice of instructions to investors on how to invest their money. There is an episode from the 1980s when the US Congress approved hundreds of millions of dollars to fund Sematech, a consortium to promote the US semiconductor industry in the face of the then dominant Japanese competition.
What if you separated hardware and software?
The Justice Minister brought up another approach on Thursday: the development of OpenRAN technology. With Open Radio Access Network, the hardware would be separated from the software and placed on fully virtualized systems. Under OpenRAN, the 5G standard would be little more than a software update. Bar described the approach as “pie in the sky”, as unrealistic and too time-consuming.
In his speech, Barr had to admit that there was no American RAN supplier. There are only two companies that Huawei can currently stand up to when it comes to 5G infrastructure: Nokia and Ericsson. The two had high quality, reliable products that guaranteed performance. And Ericsson and Nokia have successfully migrated customers from 4G to 5G, the U.S. Attorney General said.
But isn’t it risky to openly bet on two European horses that are considered “national champions” in your home country? US government officials replied to this question on other occasions that the strengthening of the American backs at Nokia and Ericsson is just proving that Washington basically disregards national industrial policy and the establishment of its own companies.
In fact, Barr’s appearance shows a certain helplessness and despair. In view of the challenge posed by China, he called for a kind of national mobilization and close cooperation between the state and the private sector as during the Cold War. Unfortunately, Barr said soberly, the cooperative ties and determination that have repeatedly characterized America in the past are more difficult to muster today.
A toxic offer for the northerners
Meanwhile, there is silence at Ericsson and Nokia. The commentary on the statements of the US Attorney General is left to others. With good reason: it is very easy to burn your fingers if you let yourself be drawn into a dispute that is not primarily economic but geopolitical.
For Sven Carlsson, a specialist in Swedish broadcasting for technology issues, any kind of American-led engagement with Ericsson or Nokia would be attractive for these companies in the short term. It would strengthen their market position and support the stock price. This effect has already been observed; According to Barr’s comments, the titles of both companies rose in the mid single digits on Friday.
A jump of joy at Ericsson
Share price in sKr.
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Positive reaction at Nokia
Share price in €
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In the medium and longer term, however, said Carlsson, the two Nordic technology companies could risk a lockout from the Chinese market in the worst case. A political reaction by the leadership in Beijing cannot be ruled out if it gives the impression that Ericsson, for example, has become a tool of the USA in the 5G conflict. China, however, is an enormous market and will remain so. A restricted presence, according to Carlsson, would have devastating consequences for Ericsson.
Cevian welcomes the idea – the Wallenbergs are silent
On the shareholder side, at least in isolated cases, they ventured a little more out of cover than the companies themselves. The Financial Times quoted Christer Gardell, head of the activist investment company Cevian, as saying that the Ericsson board of directors should examine the American initiative. Not getting involved in this discussion could prove dangerous. However, Investor AB, the investment vehicle of the Swedish entrepreneurial dynasty of the Wallenberg family, was more cautious. The news had been seen, but they did not want to comment on it, it was said by the Swedish broadcaster on the part of this major Ericsson shareholder.
“No comment” was also said by the ministries of economics in Sweden and Finland. This is what Anders Ygeman, the Swedish Minister for Digitalization, said. There is no official request from the United States, Ygeman was quoted by the Swedish financial news agency Direkt, and it is also not considered likely that one will arrive. On the other hand, one could well imagine that Ericsson would attract interest from certain US companies due to its leading position in 5G development.
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