Andrei - stock.adobe.com
Sweden’s leading IT and telecoms companies anticipate a robust negative economic response by China following the administrative court’s (Förvaltningsrätt) decision to uphold a ban on the use of technology from Huawei or ZTE in the country’s 5G network.
China warned Sweden that blocking Huawei Technologies and other Chinese suppliers from its 5G network roll-out could result in reduced growth opportunities for Swedish companies doing business in China.
The first signal of China’s threat emerged in July when Ericsson saw its market share of 5G contracts in China reduced. The development followed hot on the heels of the administrative court’s ruling on 22 June that upheld Swedish Post and Telecom Authority’s (PTS) ban on using Huawei’s equipment in the national 5G network.
Ericsson criticised the court’s ruling, stating that the decision would likely have a “negative impact on the economic interests of Sweden and Swedish companies” trading with China.
“Ericsson has from the outset been critical of the PTS’s decision to ban certain competitors in Sweden. We believe in open trade between countries, and do not support calls for restrictions to be imposed on our competitors,” Ericsson said in a communication.
Huawei will seek to reverse the administrative court’s ruling when it takes its case to Sweden’s court of appeal (Hövrett), according to Kenneth Fredriksen, Huawei’s director in the Nordic region. That appeal, which was lodged by Huawei Technologies Sweden in July, is expected to be heard before the end of 2021. Huawei’s principal argument is that the ban imposed by the PTS runs contrary to Swedish and European Union (EU) laws on free competition and discrimination.
Kenneth Fredriksen, Huawei
“The PTS has produced no concrete evidence of wrongdoing by Huawei to support its views that our 5G equipment constitutes a security threat to Sweden,” said Fredriksen. “All of its arguments are based on assumptions that are in conflict with European Union and Swedish laws. During the appeal and legal process, we will continue to work with our customers and partners to build a digital Sweden.”
Huawei claims the PTS’s imposed “ban” violates Article 18 of the Treaty on the Functioning of the European Union (TFEU). The treaty was introduced to prohibit “any discrimination on grounds of nationality” and ensure that all nationals and EU citizens could be treated equally within the scope of the treaties.
The Chinese supplier’s legal argument, based on Article 18 of the TFEU, is that the PTS is treating the company differently to competitors Nokia and Ericsson in the Swedish marketplace.
The PTS rejected any breach of the TFEU in its filings to the administrative court. The regulator reinforced its view that 5G equipment supplied by Nokia and Ericsson to the Swedish marketplace did not raise national security or network risk concerns.
“The administrative court found that the conditions for Huawei on the one hand and Nokia and Ericsson on the other hand are not comparable. Against this background, the court considered the conditions under appeal did not infringe Article 18 of the TFEU,” the PTS said in a statement.
The court’s ruling to uphold the PTS’s ban on Huawei means the Chinese giant is blocked from participating in 5G auctions or tendering its equipment for contracts connected to the roll-out of 5G in Sweden. Specifically, Huawei is denied access to the auction of frequencies in the 3.5GHz and 2.3GHz bands. Furthermore, the PTS’s decision will require equipment already installed by Huawei in older 3G and 4G networks in Sweden to be removed by 1 January 2025.
The ruling was heavily weighted by national security arguments presented by the PTS, said the court’s chair judge Ulrika Melin.
“We [didn’t just take] into account the national security concerns raised by the PTS, but also the risk assessments provided to the court by our intelligence services and our Armed Forces. Combined, the administrative court’s ruling is based on an overall picture regarding the security risk situation and the potential threat against Sweden,” said judge Melin in the court’s concluding statement.
The PTS initially informed Huawei of its intention to ban the company from participation in Sweden’s 5G network roll-out in October 2020, in the wake of lengthy risk-based consultations with the Swedish national security service Säpo.
In advance of its decision and in consultation with the Swedish Armed Forces, the PTS commissioned Säpo to analyse and assess a broad range of risks in allowing Huawei and ZTE to participate in Sweden’s 5G roll-out.
Säpo’s final report described Huawei and ZTE equipment as presenting security risks due to their perceived associations with the Chinese government, intelligence and defence agencies. Säpo concluded that any equipment supplied by Huawei or ZTE to the 5G network carried the risk of “facilitating cyber espionage” by Chinese authorities.
The PTS, on the basis of this risk analysis, decided to implement the ban on Huawei and ZTE equipment in the national 5G network. Moreover, Huawei and ZTE are prohibited from carrying out new 5G installations or tendering for 5G-related network contracts.
Sweden became the first Nordic country in 2020 to impose a market ban on Huawei and ZTE equipment in its national digital network. Influenced by similar 5G network bans on Huawei by the UK and the US, Sweden now finds itself in the firing line of Beijing, which has warned of “economic consequences” for Swedish companies selling to the giant Chinese market for communications products and technology solutions.
The backlash from China could result in Ericsson losing out on contracts and hinder the building of market share in China, said Daniel Djurberg, a telecom analyst at Handelsbanken.
Daniel Djurberg, Handelsbanken
“The ban on Huawei in Sweden is not good news for Swedish companies. For companies like Ericsson, business revenue growth and 5G licensing opportunities are larger in China compared to Sweden. There have been warnings from China, but it is still unclear what action Beijing might decide to take to retaliate against Swedish companies,” said Djurberg.
Specifically, Ericsson remains concerned that it could be excluded from lucrative new 5G base station builds across China, which is at the early stage of its 5G journey. Ericsson has already secured contracts on over 30,000 5G base stations in China.
The 5G business growth setback experienced by Ericsson in July resulted when China Mobile awarded the Nordic telecoms supplier a reduced market share after a review of bids relating to the 700MHz radio round in China’s 5G network development. Ericsson secured a 2% share of total work, much less than the 11% market share the company received in China Mobile’s 2.6GHz CP2 round.
Ericsson linked the lower market share encapsulated in China Mobile’s “business and contracts review” to the PTS’s ban on Chinese participation in Sweden’s national 5G network.
“As previously disclosed by Ericsson, the risk of lower market share awards in China follows the decision by the Post and Telecom Authority to exclude Chinese suppliers’ products from the 5G auction process in Sweden,” said Ericsson in a statement.
Read more about Huawei in the Nordics
- Chinese tech giant seeks to reassure Nordic governments over security concerns in 5G contracts.
- Nordic countries are investigating spying allegations made against Chinese networking supplier Huawei.
- Norway fears trading relationship with China will suffer as a result of Huawei losing 5G contract to Ericsson.