US ban on China’s ZTE forces telecoms to rethink business
11:11 July 17, 2018 Reuters Agency
The U.S. trade ban on Chinese telecom equipment maker ZTE wreaked havoc at wireless carriers in Europe and South Asia and forced operators worldwide to consider broadening their supply networks, industry sources told Reuters.
Disruptions at Russian and emerging markets mobile operator Veon, one of the world’s 10 largest mobile firms by number of customers, illustrate the effects of the U.S. ban, which lasted three months, ending when the U.S. Commerce Department lifted the order on Friday.
IMF warns US vulnerable in escalating trade fightThe International Monetary Fund warned on Monday that escalating and sustained trade conflicts are increasingly likely, threatening to derail economic recovery and depress medium-term growth prospects.The IMF, in an update to its World Economic Outlook growth forecasts, said that the United States, as the focus of retaliatory tariffs from trading partners, was especially vulnerable to a slowdown in its exports.An escalation of tariffs to levels threatened by the United States, China and other countries would not only have a direct effect on demand, but would heighten uncertainty and hurt investment, the IMF said.China files complaint to WTO against US tariffs"Our modeling suggests that if current trade policy threats are realized and business confidence falls as a result, global output could be about 0.5 percent below current projections by 2020," IMF chief economist Maury Obstfeld said in a statement."As the focus of global retaliation, the United States finds a relatively high share of its exports taxed in global markets in such a broader trade conflict, and it is therefore especially vulnerable," Obstfeld added.China's trade surplus with US hits record as exporters rush to beat tariffsThe IMF left unchanged its global growth forecasts at 3.9 percent for both 2018 and 2019, compared to its previous forecast issued in April.Forecasts for the United States and China were both unchanged, with U.S. growth pegged at 2.9 percent in 2018 and 2.7 percent in 2019. China's growth was forecast at 6.6 percent in 2018 and 6.4 percent in 2019.But the Fund cut its 2018 growth forecasts for euro zone countries, Japan, and Britain, citing a softer than expected first quarter performance coupled with tighter financial conditions partly due to political uncertainty.The euro zone's 2018 growth forecast was cut to 2.2 percent from 2.4 percent, with Britain cut to 1.4 percent from 1.6 percent. Japan's growth projection was cut to 1.0 percent from 1.2 percent.US firms doing business in China mostly oppose tariffs: surveyUS readies $200 billion in additional Chinese tariffsThe IMF also trimmed 2018 forecasts for some emerging market countries, notably a half percentage point cut for Brazil to 1.8 percent due to the lingering effects of labor strikes and political uncertainty.The Fund also cut India's growth rate by a tenth of a point to 7.5 percent due to the negative effects of higher oil prices on domestic demand and faster than anticipated monetary policy tightening due to higher inflation.The IMF revised slightly upward 2018 forecasts for Saudi Arabia and several Commonwealth of Independent States countries other than Russia.
Veon was especially hard hit, suffering launch delays at its Italian joint venture and in Ukraine, near network outages in Bangladesh, and lesser disruptions at its Pakistan operations, sources at the Amsterdam-based operator told Reuters.
“Veon has decided to second source everything,” a person familiar with the strategy shift at Veon said of moves to reduce dependence on any one supplier of network gear.
US will consider some waivers on Iran sanctions: US Treasury SecretaryThe United States wants to avoid disrupting global oil markets as it reimposes sanctions against Tehran and in certain cases will consider waivers for countries which need more time to wind down their oil imports from Iran, U.S. Treasury Secretary Steven Mnuchin said."We want people to reduce oil purchases to zero, but in certain cases if people can't do that overnight, we'll consider exceptions," Mnuchin told reporters on Friday, clarifying some U.S. officials' comments that there would be no exemptions. Mnuchin's comments were embargoed for release on Monday.Mnuchin was talking to reporters en route from Mexico where he was part of a high-level U.S. delegation led by Secretary of State Mike Pompeo to meet Mexico's next president, Andres Manuel Lopez Obrador.The Trump administration is pushing countries to cut all imports of Iranian oil from November when the United States reimposes sanctions against Tehran, after Trump withdrew from the 2015 nuclear deal agreed between Iran and six major powers, against the advice of allies in Europe and elsewhere.Trump-Putin summit begins in HelsinkiMnuchin said he would meet with counterparts from developed and developing countries on the sidelines of a G20 finance ministers' meeting in Buenos Aires on July 19-22. U.S. sanctions against Iran are likely to be raised in his talks."We've said very specifically, there's no blanket waivers, there's no grandfathering," Mnuchin said, "We want to be very careful in the wind-down around the energy markets to make sure that people have the time."He added: "The State Department has the ability to issue waivers around significant reductions in the oil markets, that's something that Treasury and State will be doing."Mnuchin said Washington had made clear to allies that it expects them to enforce the sanctions against Iran "but if there are specific situations we're open to listening."French Finance Minister Bruno Le Maire said at the weekend that Washington had rejected a French request for waivers for its companies operating in Iran, according to Le Figaro.Paris had singled out key areas where it expected either exemptions or extended wind-down periods for French companies, including energy, banking, pharmaceuticals and automotive.The Trump administration has said there are more than 50 foreign companies that have withdrawn their business from Iran since Trump announced the U.S. was withdrawing from the 2015 nuclear deal between Iran and the United States, Germany, France, Britain, China and Russia.Pompeo, also speaking to reporters on Friday, said he had discussed U.S. plans to reimpose sanctions on Iran with "all but one" country. He did not name the country he had not yet consulted."What they've asked us to do is review how we get there and the timeline for that," he said, "and so I'm very confident they understand."Iranian President Hassan Rouhani, speaking in remarks carried live on state television on Saturday, said Washington was more isolated than ever over sanctions against Iran, even among its allies.His comments appeared to be trying to ease popular concerns fueled by Trump's decision to withdraw from the deal with Iran on its nuclear program.The likely return of U.S. economic sanctions has triggered a rapid fall of Iran's currency and protests by bazaar traders usually loyal to the Islamist rulers.Trump has said he asked Saudi Arabia to raise oil production if needed to ensure global oil supplies and the country has 2 million barrels per day of spare capacity.The Organization of the Petroleum Exporting Countries agreed with Russia and other oil-producing allies on June 23 to raise output from July, with Saudi Arabia pledging a "measurable" supply boost, but giving no specific numbers.
“We don’t want the company to be in the same position we were in when the U.S. (ban on ZTE) came out: It caused massive problems in three or four of our markets,” the source said.
Perhaps the biggest setback was for Italian mobile operator Wind Tre, which had a 1 billion euro ($1.17 billion) contract with ZTE to upgrade radio equipment.
The ban forced ZTE to abandon more than half of the remainder of the contract, and Wind Tre will use gear from network supplier Ericsson instead, sources told Reuters.
The original deal had marked ZTE’s biggest breakthrough into the European market, which has been dominated by regional players such as Ericsson of Sweden and Nokia of Finland.
China files complaint to WTO against US tariffsChina's commerce ministry said on Monday it had filed a complaint to the World Trade Organization (WTO) regarding Washington's proposed tariff list on $200 billion worth of Chinese goods on July 16.The Ministry of Commerce said last week China would immediately file a complaint to the WTO against U.S. unilateralism, following the U.S.' threat to slap 10 percent tariffs on an extra $200 billion worth of Chinese imports.China wants to seek more balanced trade with EU
Ericsson's win with Wind Tre could be a sign of renewed momentum for the Swedish equipment supplier, which has struggled in recent years with slowing growth, restructuring and big job cuts.
One industry expert said operators may start using multiple vendors to avoid being stuck with a supplier that comes under trade sanctions or suffers other extended disruptions. “Many supplier strategies will be reviewed,” said Bengt Nordstrom, a telecoms industry consultant based in Sweden who advises operators on equipment purchasing strategies. “Wind Tre was the first example so far. This is a wake-up call to the industry that if you have a single vendor dominating your network supply chain – ZTE for now, but other vendors eventually – you are leaving yourself exposed."
Network Fallout
Veon’s Ukrainian unit, Kyivstar, the largest mobile operator in that country, postponed its introduction of 4G mobile services in April because of the ZTE ban, according to two sources at Veon and one at ZTE.
"The 4G launch had to actually be put on hold, so Kyivstar lost ground to competitors because of our obligations to comply with the denial order," said one of the sources, a senior executive at Veon.
Kyivstar's two main rivals are Vodafone Ukraine, owned by Russia's MTS/Sistema and UK-based global operator Vodafone ; and Lifecell, a unit of Turkcell of Turkey.
Kyivstar launched its 4G service in early July, more than two months behind schedule, by using a part of the network that didn't depend on ZTE, one source said.
Network blackouts were narrowly averted at Veon’s Bangalink unit in Bangladesh.
"There was an issue with Bangladeshi network upgrades that really went down to the wire," the source told Reuters. "Only at the 11th hour did the U.S. allow some temporary relief from the order."
Global telecoms trade group GSMA negotiated a one-month reprieve with the Commerce Department that allowed Bangalink and other ZTE customers to engage in "essential transactions" that allowed existing networks and handsets to keep working, the group said.
EU's Tusk calls on China, US, Russia not to start trade warsEuropean Council President Donald Tusk said on Monday China, the United States and Russia had a duty not to start trade wars and called on the three countries to reform the World Trade Organization.He said there was still time to prevent conflict and chaos. Tusk and European Commission President Jean-Claude Juncker are in Beijing to meet Chinese Premier Li Keqiang for an annual China-EU leaders dialogue.
Veon has maintained strict compliance with the ZTE ban in all markets, two company sources said. All ZTE equipment shipped to Veon's subsidiaries after the U.S. order was returned. This included both network hardware and ZTE mobile handsets, a Veon executive at its Russian operating subsidiary said.
Spanish telecom operator Telefonica relied on technical workarounds during the ban, but still cancelled some ZTE contracts, a separate source with knowledge of the relationship between the firms told Reuters.
Lawyers at the two companies held weekly meetings to ensure careful compliance, the source said.
ZTE was unable to ship any gear to the Spanish telecoms giant that relied on components from U.S.-based chipmakers Qualcomm or Intel or smartphones running the Google Android operating system, for example. Disruptions were minimized because ZTE contracts accounted for less than 5 percent of the telecom giant's equipment spending, the source said.
The scale of workarounds and outages at other major ZTE customers, including China Mobile and MTN, Africa's top operator, is not yet known.
The U.S. Department of Commerce in April banned U.S. companies from selling goods to ZTE after the Chinese company failed to comply with a 2016 settlement involving evasion of sanctions against Iran.
The U.S. lifted its ban on Friday, weeks after U.S. President Donald Trump said the punishment was too harsh. ($1 = 0.8535 euros) |
