Excluding Chinese telecommunications firm Huawei Technologies risks driving up the cost of building a 5G mobile network and undermining competition in its development, according to a draft mobile market study. 

Spark New Zealand had planned to use Huawei kit for part of its 5G network, but its application was rejected by the Government Communications Security Bureau on national security grounds. 

It uses Huawei for its radio access network – essentially the cell towers – but not its core network, which directs services over that infrastructure. Spark’s core network was built by Cisco and Ericsson, with the telco keeping different vendors on its books for commercial reasons.

Spark has played down fears that removing Huawei from the equation will change its plans, and managing director Simon Moutter has said the company prepared for that possibility as risks around the Chinese company heightened last year. 

In its draft report on the mobile market, the Commerce Commission today noted that the GCSB process is ongoing and that Spark has the opportunity to mitigate concerns raised. If it can’t do that, the decision will rest with the minister responsible for GCSB, Andrew Little, who must take into account the impact of the network operator meeting the cost of the decision, potential consequences on competition and innovation in the market, and the anticipated benefits of improving network security risk. 

“The consequences of any decision that has the effect of excluding or restricting the involvement of Huawei, or any equipment supplier, in the roll-out of 5G networks could potentially affect the development of competition and the costs of deploying 5G networks in New Zealand,” the report said. 

The commission was largely happy with the state of New Zealand’s mobile market, with the three carriers – Spark, Vodafone New Zealand 2Degrees – performing well on most measures. It also found growing competition for wholesale mobile services to the likes of Vocus and Warehouse was a step in the right direction and didn’t need regulation. 

Telecommunications Commissioner Stephen Gale said the key issue for future competition will be in spectrum allocation, with the upcoming renewals of 2,100 megahertz and 1,800 MHz bands for 3G and 4G services, and next year’s 5G auction. 

“Spectrum is a key cost for the three network operators: Vodafone, Spark, and 2Degrees. Imbalances in spectrum holdings between operators – across all bands – can affect competition,” he said in a statement.

“Our view is that, in its design of future spectrum allocation processes, MBIE (Ministry of Business, Innovation and Employment) should have wholesale and retail competition matters at the forefront of decisions.”

Gale told a briefing in Wellington that spectrum is critical to the cost of providing capacity, and that the commission’s view is that a prime focus of spectrum allocations and caps should be overall holdings of bands that are interchangeable. 

The draft report notes the upcoming spectrum allocations will largely dictate the timing of any 5G build, an issue Spark has been vocal about as it seeks to have the next generation of mobile technology up by July next year. 

Gale said the upcoming auctions should also leave room for a new entrant to the market, but he doesn’t think special inducements are needed. 

The report said the 5G roll-out will benefit network operators (MNOs) in giving them scope to provide multiple services over the same infrastructure, particularly fixed wireless, mobile services and ‘internet of things’. 

“While there is a lot of industry and media interest about innovation and new applications using 5G technology in areas such as production, smart devices, agriculture and entertainment, the initial focus from MNOs in New Zealand appears to be in the enhanced capacity for mobile and fixed wireless broadband,” the report said. 

Both Spark and Vodafone have stated their intentions to switch more broadband customers on to fixed wireless products, which cuts their cost for wholesale access Chorus’s fixed-line network. 

The commission’s report said accelerating data use could spur on the need for additional cell sites and may lift the cost of 5G deployment, compared to the initial phase. It could also increase the complexity, site sourcing and access, and environmental consents. 

The regulator noted that infrastructure sharing could create efficiencies for the network operators and cut the cost of deployment. But it also raised competition concerns. 

“Whether this enhances or suppresses competition will depend on how the arrangements are structured. We would expect to see infrastructure sharing proposals that raise potential competition concerns come to us for authorisation,” it said. 

Infrastructure sharing came to the fore this week when Infratil and Brookfield Asset Management agreed to buy Vodafone New Zealand for $3.4 billion, subject to various regulatory approvals, and identified it as an area to generate better returns by rationalising spending on new technology through sharing and cooperation arrangements. 

Spark and Vodafone – with roughly 80 percent of the mobile market – welcomed the preliminary findings.

Vocus, which is a reseller of mobile services, said the findings were “disgraceful” and urged the commission to regulate wholesale services so mobile virtual network operators (MVNOs) such as itself can become more competitive. It has operated as an MVNO for 10 years and is New Zealand’s largest with 26,000 customers. 

“Quite frankly they have missed the mark by a long, long way here,” Vocus New Zealand chief executive Mark Callander said.

About 99 percent of the country’s 5.5 million mobile connections are with Spark, Vodafone or 2Degrees. 

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