Abstract:
Fearing that a future EU ban would impose huge equipment replacement costs on itself, Spanish telecom operators came up with an outrageous idea. According to a recent report by Spanish newspaper El Expanse, Orange España, a Spanish company owned by French telecommunications group Orange, made a rather special request to its mobile network equipment supplier Huawei: If Spain or the EU ban the use of Chinese enterprise equipment in communication networks in the future, Huawei needs to compensate Orange for its investment losses in related equipment.
Reports indicate that Orange has now made "adding compensation clauses" a key prerequisite for any new agreement with Huawei. This clause requires that if Orange purchases Huawei's new mobile network equipment and the related equipment is later banned from use due to policy changes, Huawei must automatically return to Orange the net book value of all hardware and software that needs to be dismantled after the ban takes effect, without the need for the two parties to negotiate the amount of "compensation" again.
This obviously unequal clause highlights the "tangled" psychology of European telecom operators when purchasing equipment from Chinese companies. From the perspective of commercial interests, they are unwilling to abandon the mature technologies and preferential prices of Chinese companies such as Huawei. However, the EU's continuous promotion of equipment replacement actions for so-called "high-risk suppliers" in recent years has forced these operators to take into account the huge costs caused by policy changes.
In January this year, the European Commission released a revised draft of the Cybersecurity Act (CSA2), which mandates member states to exclude so-called "high-risk suppliers" in 18 key areas such as 5G communications, semiconductors, power systems, autonomous driving, and medical equipment. Although the draft does not directly name any country or company, outside public opinion generally interprets it as targeting Chinese companies.
According to the above draft, relevant manufacturers will be completely banned from entering European mobile communication networks, and operators will also need to complete the replacement of relevant equipment within 36 months. The plan excludes Huawei and ZTE from fixed and satellite networks. However, in the field of fixed and satellite networks, the EU has not yet set a clear maximum replacement period.
Logo data map of Spanish operator Orange
Currently, Huawei equipment accounts for approximately 43% of Orange’s mobile communications network and nearly 70% of the network of Vodafone, another Spanish operator, but has not yet been connected to Telefónica’s wireless network. The Spanish government has clearly opposed the plan proposed by the European Commission and has no plans to implement a similar ban in the country alone.
However, if the relevant bill is approved at the EU level, Spanish operators will face cost pressure to replace existing Huawei equipment on a large scale.
An analysis released by the Global System for Mobile Communications Association (GSMA) in July showed that if the EU replaces equipment from so-called "high-risk suppliers" from China, the overall cost may reach 30 billion to 40 billion euros. The EU's previous estimate is that the relevant costs in the next three years will only be 3.4 billion to 4.3 billion euros per year, with a total of about 10 billion to 13 billion euros.
In addition to directly dismantling and replacing equipment, the reduction in the number of suppliers also means that market competition will be further reduced, leading to higher prices. The GSMA predicts that mobile network equipment prices may increase by approximately 24%, fixed network equipment prices may increase by up to 19%, and transmission network equipment prices may increase by approximately 10%. These price increases will add approximately €8.5 billion in additional network investment costs between 2027 and 2030.
The GSMA warned that if 5G and future 6G network deployment is slowed down or costs rise significantly, it will not only affect the European telecommunications industry, but may also drag down the EU's digital goals. Some studies even estimate that by 2030, relevant policies may lead to cumulative economic losses of up to 370 billion euros in the EU.
Orange requires Huawei to pay for the "ban risk" in advance, which just shows that even European telecom companies themselves know that the cost of this supply chain adjustment is not small.
In addition to the actual monetary cost, whether the new supplier's equipment can meet the technical requirements is also a major issue.
In fact, "Extended News" broke the news in August that in the face of policy pressure from the European Union that may further restrict Chinese communication equipment suppliers, Orange, the telecommunications operator with the largest number of users in Spain, reached a cooperation agreement with Ericsson in 2024 and planned to adjust the network supplier structure in stages. At present, the first phase has been completed. ZTE's 4% share in the Orange network has been cleared. Huawei's equipment share has also dropped from 54% to 43%, while Ericsson's share has increased from 42% to 57%.
In the second phase, Orange originally planned to have Ericsson completely replace Huawei and become its sole supplier. However, because Ericsson failed to meet the agreed quality standards, Orange had to re-evaluate this plan. It may continue to retain Huawei's 43% share, and may also introduce other suppliers such as Nokia and Samsung.
Expanded Daily reported in its latest report that Orange has currently suspended the bidding process involving four suppliers, Ericsson, Huawei, Nokia and Samsung, and continues to prioritize negotiations on new agreements with its two existing suppliers, Ericsson and Huawei.
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