Telus says ban on Huawei over national security concerns could set back 5G network plan

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Pressure mounting to exclude Huawei from 5G
WATCH (Jan. 29): Pressure mounting to exclude Huawei from 5G – Jan 29, 2019

Telus Corp. acknowledged Thursday that the deployment of its fifth-generation wireless network could be delayed and more expensive if Ottawa chooses to ban equipment from Huawei Technologies Inc.

The Vancouver-based company — which has used Huawei radio equipment in non-core portions of its 3G and 4G wireless networks — continues to believe the China-based company doesn’t pose a big risk to national security.

However, Telus said in documents accompanying its fourth-quarter and year-end financial results that it can’t predict the outcome of a review of 5G cyber security being conducted by the federal government.

A ban on Huawei equipment “could have a material, non-recurring, incremental increase in the cost of Telus’ 5G network deployment and, potentially, the timing of such deployment,” the company said in the filing.

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However, Telus chief executive Darren Entwistle took a more reassuring tone in his conference call with analysts.

“We are well prepared for a number of scenarios and developments with respect to the eventual rollout of 5G infrastructure and the acquisition of spectrum that will be critical to deliver 5G,” he said.

A ban on Huawei 5G equipment wouldn’t “impact the timing of when Telus brings 5G to market,” said Entwistle.

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Telus said it doesn’t expect fifth-generation wireless networks — which will provide significantly more data capacity than previous generations — to be deployed commercially in Canada before the second half of 2020.

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Last week, George Cope, chief executive of BCE Inc. and Bell Canada, said a government ban on Huawei equipment would not delay its plans for rolling out fifth-generation wireless services, but provided few details about the company’s timing.

Instead, Cope told financial analysts that the company is “quite comfortable” that it can manage all the potential developments without delaying its rollout or exceeding its capital spending guidelines.

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Both Cope and Entwistle said they’ve not made a final selection of vendors for their 5G networks. Apart from Huawei, other choices could include Ericsson of Sweden, Nokia of Finland and Samsung of South Korea.

The push to ban Huawei from 5G networks has been led by the United States, with support from Australia and New Zealand, which allege the Shenzhen-based company could be forced to spy on other countries by China’s government.

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Canada and the United Kingdom have yet to decide whether to join their partners in the Five Eyes intelligence-gathering group in banning Huawei outright — although they’ve already banned it from the most sensitive portions of their networks.

While Bell and Telus have a network sharing agreement in terms of cellular towers used by their wireless networks, they each independently select equipment installed at the towers.

Both companies have also been spending heavily to install more fibre optic landlines, both to residential customers and to cellular towers, to meet soaring demand for internet-delivered data services.

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Telus issued guidance Thursday that estimates 2019 capital spending will be about $2.85 billion — not counting investments in spectrum licences — compared with $2.9 million last year.

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It also estimates 2019 revenue will grow by up to five per cent and earnings before taxes and other expenses (EBITDA) will rise by up to six per cent over last year’s level.

For 2018, Telus reported overall revenue of $14.37 billion — up 7.2 per cent from 2017 — and $5.1 billion of EBITDA, up 3.9 per cent from 2017.

For the fourth quarter of 2018 ended Dec. 31, Telus said its net profit edged higher and operating revenue grew by 6.3 per cent over the comparable period in 2017 to $3.76 billion — slightly above analyst estimates.

Profit attributable to shareholders amounted to $357 million or 60 cents per share for the quarter ended Dec. 31. That was up from $353 million or 59 cents per share in the fourth quarter of 2017.

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Adjusted net income was $409 million or 69 cents per share, up from $396 million or 66 cents per share a year earlier.

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Analysts on average had expected 69 cents per share of adjusted earnings and $3.69 billion in revenue, according to Thomson Reuters Eikon.

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