Ericsson's China ambitions in jeopardy over Sweden's Huawei ban

European governments have been tightening controls on Chinese companies building 5G networks following diplomatic pressure from Washington, which alleges Huawei equipment could be used by Beijing for spying. Huawei has repeatedly denied being a national security risk.

China had earlier asked Sweden to "immediately correct the mistake" of banning Huawei and issued a veiled warning this month that it might take retaliatory action against Ericsson. (REUTERS)

An upcoming court decision that will decide the future role Huawei can play in Sweden could also be a potential turning point for national champion Ericsson's ambitions in China.

The case stems from the Swedish government's decision last October to ban Huawei from supplying 5G equipment due to security concerns. Huawei sued to overturn the decision and a verdict is expected in the next few weeks.

China had earlier asked Sweden to "immediately correct the mistake" of banning Huawei and issued a veiled warning this month that it might take retaliatory action against Ericsson.

The Global Times, controlled by China's ruling Communist Party, said on May 10 that while Ericsson has been invited to participate in 5G equipment tests in China, that does not mean it will be hired. Sweden has to carefully reconsider its China policy, the newspaper said.

An Ericsson spokeswoman confirmed that the company has been invited to participate in 5G tests in China. Ericsson last year won 5G contracts from all three major operators in China, and the country brings in roughly 10% of its revenue.

Analysts have been flagging the risk of a retaliation by China and Ericsson Chief Executive Börje Ekholm has acknowledged the concern.

"There is always a risk that we are impacted in auctions in different countries," he said last month, replying to a question on diplomatic tension between Sweden and China.

He had earlier criticized Sweden's ban on Huawei for restricting free competition.

An Ericsson spokesman declined to comment further.

"This is a kind of a test of Sweden's credibility and we believe that we will be given a fair treatment in the court," said Kenneth Fredriksen, Huawei's executive vice president, Central East Europe and Nordic Region.

A potential ban of Ericsson could be a shot in the arm for Nokia, which has yet to win any 5G business in China.

"We have not yet made a breakthrough in 5G in China, but of course we are not excluding that possibility going forward," Nokia CEO Pekka Lundmark told Reuters last month.

Nokia's home country, Finland, has not banned Huawei outright, although its parliament has passed a law that allows it to ban equipment for national security reasons.

A Nokia spokesperson said the company has already completed the 5G tests in China.

China has been ahead of other countries in rolling out 5G and is a lucrative market for telecom equipment makers. It's 5G capital expenditure will amount to $223 billion between 2019 and 2025, research firm EY has estimated.