Australia’s TPG Telecom dumps Huawei-supplied mobile network

January 29, 2019

By Tom Westbrook

SYDNEY (Reuters) – Australia’s TPG Telecom Ltd canceled the rollout of its mobile telephone network on Monday because it relied on Huawei Technologies Co Ltd equipment that has been banned by Australia’s government on security grounds.

The nascent cut-price network is the first commercial casualty in Australia of the ban announced last August and comes as Western powers crack down on the Chinese telecoms giant over concerns at its links with China’s government.

The world’s biggest telecoms equipment maker has been under siege since the arrest of its Chief Financial Officer, Meng Wanzhou, in Canada last December. The U.S. Justice Department on Monday accused the company of bank fraud and conspiring to steal trade secrets from T-Mobile US Inc.

TPG said in a statement that it chose Huawei as a supplier because it offered a simple upgrade path to 5G technology.

“In light of the government’s announcement in late August 2018 that it would prohibit the use of Huawei equipment in 5G networks, that upgrade path has now been blocked,” the statement said.

The company has spent A$100 million ($72 million) on the rollout so far, but said it did not expect the decision to affect its 2019 guidance.

TPG has agreed to a A$15 billion merger with the local arm of Britain’s Vodafone Group Plc. News of the cancellation boosted its shares as investors saw it eliminating a duplication of expenses. Both TPG and Vodafone said on Monday they remained committed to the merger.

Huawei had no immediate response when contacted by Reuters.

Shares in TPG rose as much as 5 percent in early trade, briefly hitting a six-week high before giving up its gains to trade flat, since the deal is still awaiting regulatory approval. Telstra Corp Ltd shares also rose 3 percent on the anticipated reduction in competition.

“You take one network out and then, obviously, in the end for customers you’ve got less choice,” said Paul Budde, an independent telecoms analyst. “This will be a relief for Telstra and others.”

Huawei is facing pressure globally after the United States and Australia initiated measures to restrict the Chinese firm and its compatriot ZTE Corp, citing security threats.

Australia’s intelligence agencies feared that if mobile operators use Huawei’s equipment, the company could develop a means of collecting data at Beijing’s request – something the company strenuously denies.

Chinese law requires organizations and citizens to support, assist and cooperate with intelligence work.

(Reporting by Tom Westbrook in Sydney. Additional reporting by Colin Packham in Sydney and Aby Jose Koilparambil in Bengaluru; Editing by Dan Grebler and Richard Pullin)