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Telus signals ‘material’ risk if Ottawa bans Huawei from 5G networks

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

Telus Corp. (T.TO) is warning that a federal government ban on equipment from Huawei Technologies Co. Ltd. could have a “material” impact on the company’s deployment of a 5G cellular network.

Ottawa is reviewing whether it will permit the use of the Chinese telecom giant’s equipment in Canadian 5G networks, or join nations including the United States, Australia, and New Zealand in banning the components.

Huawei has long faced scrutiny over perceived links to China’s government, an allegation the company denies. Security experts, including former Canadian Security Intelligence Service director Richard Fadden, have pressed Ottawa to exclude the company from participating in Canadian 5G networks, citing espionage risk.

“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,” the Vancouver-based company stated in regulatory filings released on Thursday. “We are continuing to work with the government as it conducts this cybersecurity review.”

A government ban on Huawei equipment would shrink the pool of top vendors to Sweden’s Ericsson (ERIC) and Finland’s Nokia Corp. (NOK), both of which are seen as pricer alternatives to their Chinese rival.

“A reduction to an only two global supplier environment could permanently affect the cost structure of 5G equipment for all operators,” Telus stated. “In the case of a ban, there is a risk that the Canadian telecom market would undergo a structural change.”

Telus and its larger rival BCE Inc. (BCE.TO) have used Huawei equipment to explore ways to build out a next-generation telecom network. Neither has announced the choice of its 5G vendor.

BCE has downplayed the impact of a federal government ban on Huawei’s 5G networking components. Chief executive officer George Cope told analysts on a recent conference call that Bell would chose another supplier, and said the timing of the company’s 5G plans would not be affected.

Analysts at CIBC recently estimated it would cost $1 billion to remove and replace existing Huawei equipment, and suggested an outright ban would “bring about some problems” for both Telus and Bell.

Telus reported a four per cent rise in quarterly profit on Thursday reported net income of $368 million, or 60 Canadian cents per share, in the fourth-quarter ended Dec. 31, up from $354 million, or 59 Canadian cents per share, a year earlier. Total operating revenue rose to $3.76 billion from $3.54 billion.

Telus shares rose 0.90 per cent to $47.34 on Thursday at 10:24 a.m. ET.

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