Telus says it can manage a Huawei 5G ban after warning of costs, delay

The head of Telus Corp. says the company would be able to “adeptly” financially manage a change in supplier dynamics if the federal government moves to ban Huawei Technologies Co. Ltd. from Canada’s 5G networks. The comments come the same day the company’s risk assessment warned there could be a “material” risk of increased costs and deployment delays if a potential ban didn’t come with financial compensation or other measures to reduce the impact. The company’s management discussion and analysis document, published along with its quarterly earnings Thursday, warned reducing the number of equipment suppliers on the market would put the Canadian telecom market through a “structural change” that could permanently lift costs. “A decision prohibiting the deployment of Huawei technology without compensation or other accommodations being made by the Government of Canada could have a material, non-recurring, incremental increase in the cost of TELUS’ 5G network deployment and, potentially, the timing of such deployment,” the document said. “In the case of a ban, there is a risk that the Canadian telecom market would undergo a structural change, as a reduction to an only two global supplier environment could permanently affect the cost structure of 5G equipment for all operators.” That all said -- it noted the range of options in front of the government is large enough that it’s too hard to say what the full impact could be. CEO Darren Entwistle moved to reassure investors on the company’s Thursday earnings call that it could handle any potential outcome, following Bell’s move to do the same last week. “Depending on the scope of a government decision, including a potential supplier ban, we may see an incremental, non-recurring financial cost that we will manage adeptly,” he said on a company earnings call Thursday. He said such a ban would concentrate the supply chain and “risk diluting Canada’s global leadership in wireless network performance and excellence,” but added the company would be able to “work to ensure it does not impact the timing of when Telus brings 5G to market.” Entwistle underscored that Telus has not yet chosen its 5G equipment supplier, and said the company will begin its standard request for proposals process for that later this year. BCE Inc. top brass similarly said last week on the company’s fourth quarter earnings call that Bell would not face significant cost or timing problems in the event of a ban, and that it has also yet to select its 5G vendor. Bell CEO George Cope said last Thursday whatever Ottawa ultimately decides, it would not “in any way impact our timing in the market for 5G.” The comments come after a hailstorm of negative headlines about Huawei and speculation about how a ban would affect the Canadian telecom industry, notably in terms of costs. On their respective calls, senior management from each company addressed the Huawei situation in their opening statements, although none of the analyst questions inquired further about the impact of banning the Chinese-based equipment supplier. Bell made no mention of Huawei in its Safe Harbour Notice last week, a document which addresses forward-looking risks for the company. Both CEOs mentioned Huawei is not part of their network cores. Bell and Telus, which both extensively use Huawei equipment, have been singled-out as the most likely to suffer in some way from a ban. Analysts have speculated Telus would likely be in a similar position to Bell. Telus noted it has used Huawei equipment in its 3G and 4G networks “without any security incidents,” the company’s MD&A document said, noting the equipment has been “cost-effective.” The Liberal government, in the midst of a cybersecurity review looking at 5G suppliers, has said it is not anywhere close to reaching a decision yet, but has faced intense pressure domestically and diplomatically from the U.S. and China on both sides of the issue. The U.S. has been pushing Canada to ban Huawei, citing security concerns and the possibility China could use its 5G involvement as a tool for spying. Last month the U.S. announced criminal charges against Huawei and its CFO Meng Wanzhou, who is currently in Canada facing an extradition request. Entwistle meanwhile met with Prime Minister Justin Trudeau Monday, a meeting that was expected to involve a discussion about network security. Telus posted quarterly earnings Thursday showing a 6.3 per cent growth in operating revenues from the same quarter last year, up to $3.76 billion from $3.54 billion. Wireless revenues were up 5.5 per cent to $2.18 billion, while wireline was up 7.4 per cent to $1.7 billion. Net income was $368 million, an increase of four per cent from the same period a year ago. Desjardins analyst Maher Yaghi said the company’s results show “strong momentum entering 2019,” which were “mostly in line in terms of financials and above expectations in terms of wireless and wireline subscribers.” Telus added 112,000 net postpaid wireless subscribers in the quarter, compared with 121,000 the previous year. Telus said the lower number was driven by a drop in gross subscriber additions due to the “non-recurrence of an attractive holiday rate plan offer.” A five-day promo in December 2017 saw Telus and Bell report significant increases in wireless customer additions in the same quarter last year. Prepaid net adds dropped by 6,000 -- still an improvement from losing 23,000 the same quarter the year before but falling below expectations. The company attributed the improvement to higher gross additions -- up 20 per cent to 93,000 -- resulting from promotions. Wireless average billing per user (ABPU) dipped 0.7 per cent to $66.80, which the company said in its press release was due to “lower chargeable data usage and competitive pressures on base-rate plan pricing.” Telus added 28,000 net internet subscribers to a total of 1.8 million and 24,000 TV subscribers -- with growth up 71 per cent from same quarter last year -- to a total of 1.09 million. The company projected revenue growth of three to five per cent for the year. — With reporting by Kyle Duggan at kduggan@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca CORRECTION: This story has been updated to correct the amount Telus earned in operating revenues.

Telus says it can manage a Huawei 5G ban after warning of costs, delay

News | February 14, 2019

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Telus says it can manage a Huawei 5G ban after warning of costs, delay

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