NEWS ANALYSIS: Huawei’s future in SA called into question
The Chinese company’s foothold in the local market could prove shaky if the US ban becomes permanent
If the US-blacklisting of Chinese technology group Huawei becomes permanent, this could result in high mobile data prices in SA, says an analyst.
This week Google suspended its business with Huawei after the US imposed trade restrictions on the company.
“The question that people are not asking is what effect this will have on mobile operators who use Huawei equipment for their networks,” said Michael Treherne, portfolio manager at Vestact Asset Management.
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In SA, operators such as MTN, use Huawei equipment for their cellphone network infrastructure. Huawei has dominated the market for years, providing network equipment and other products at a lower cost compared to competitors such as Nokia and Siemens.
If local operators are forced to switch their suppliers for networking equipment, it may increase their cost base substantially. Those costs could be passed on to consumers who may face higher data costs as a result, Treherne said.
There is an ongoing debate about the high cost of data prices paid by consumers, with regulators mulling ways to cut the rates. Cellphone network operators have argued that the cost of building networks directly affects the cost of data as they seek to recoup costs. A potential rise in equipment prices would likely feed into the already high cost of data in SA.
This week, Google became the first major US tech company to suspend business with Huawei after its blacklisting by US authorities, effectively halting updates and support services for its Android operating system (OS), except those covered by open-source licences. Huawei generates about 48% of revenue from its consumer device segment, which will likely be the most affected by the ban. The segment is its biggest revenue contributor.
“While we prefer to continue using Android, which our consumers love, we have been working on contingencies,” Glenn Schloss, vice president of corporate communications for Huawei, told Business Day.
Local operators say they are continuing to monitor the situation.
MTN said it is working with Huawei and relevant partners to try and ensure continued service to customers.
A spokesperson for Vodacom, SA’s biggest operator, said: “We are reviewing the situation and assessing the possible implications for Vodacom.”
Cell C said: “Huawei has advised Cell C that they will continue to provide security updates and after sales services for all existing Huawei devices, covering those that are in our customers hands and those in stock awaiting sale.”
Tefo Mohapi, technology analyst at iAfrikan Digital said South Africans with Huawei smartphone devices may be vulnerable to security threats by not receiving future software updates from Google.
Mohapi said Huawei could migrate all its phones to its own OS but might not have access to apps for the new platform. “What’s the point of a new OS without an ecosystem of apps?” he said.
With Google services banned in China, Huawei has developed a number of its own apps for that market. Treherne questioned the suitability of those apps for the SA market if a Huawei OS is to be released globally.
Huawei has become a popular smartphone brand in SA in recent years. If the ban is to persist over the long term, Huawei’s competitors could stand to benefit in the local market, said Mohapi.
Momentum Securities analyst Frank Kahumba said South African consumers, like those globally, will not be hit too hard by the ban since they have more options to choose from apart from high end devices.
A report by Counterpoint Research revealed that affordable device offerings have been a driver of smartphone penetration in SA, with shipments rising 7% in 2018.
Huawei’s share of the market grew from 9% to 15% between 2017 and 2018, according to Counterpoint, making it the third most popular brand locally.
“Where Huawei is concerned, we cannot at this stage confirm what the sales impact would be,” MTN said regarding the SA market.