Samsung breaks into US 5G market by signing supply contract with Verizon amid Huawei sanctions

Posted on : 2020-09-08 17:17 KST Modified on : 2020-09-08 17:17 KST
Deal is biggest export contract for telecom equipment ever signed by Korean company
Graphic by Kim Seung-mi
Graphic by Kim Seung-mi

As the US government places tougher sanctions on Huawei, a Chinese tech firm, Samsung Electronics has become the first South Korean company to sign a major equipment supply contract in the American mobile market. Analysts say this gives Samsung a springboard for expanding its influence in the global market for 5G telecommunications equipment.

Samsung announced on Monday morning that it had signed a long-term contract with Verizon to supply network equipment worth 7.9 trillion won (US$6.64 billion). Version is the US’ number one telecom and the world’s telecom with the highest sales.

Under the contract, Samsung will provide Verizon with 5G telecommunications and other network solutions and handle installation, maintenance, and repairs for five and a half years, through December 2025. This is regarded as the biggest single export contract for supplying telecom equipment ever signed by a South Korean company.

The contract helps Samsung gain recognition as a major equipment supplier in the US, which is the world’s largest telecom market, accounting for 20-25% of global investment in base stations. That recognition is likely to serve as a stepping stone for Samsung to expand its share of the global market in telecommunications equipment.

With Huawei banned from the US market because of security risks, Samsung managed to pass technical and security vetting by the US’ top telecom, kindling hopes that the South Korean firm can serve as an alternative to Huawei in markets around the world seeking to build their own 5G networks.

Current 5G equipment market dominated by Huawei, Ericsson, Nokia

Samsung, which has been supplying telecommunications equipment for more than three decades now, has played a leading role in setting technical standards since it began developing 5G technology and equipment in 2009. But as of the first quarter of 2020, it only ranked fourth worldwide, with a 13.2% share of the global market.

Building telecommunications networks requires not only the individual parts but also the sweeping ability to operate those networks, which spans connectivity with existing networks, technical support, and stability. That has made the market a challenging environment for Samsung, which hasn’t had abundant experience with network building. That’s also why the top three makers of telecommunications equipment — Huawei, Ericsson, and Nokia — represent an oligopoly controlling nearly 80% of the market.

One of the main reasons that LG Uplus used Huawei equipment in some areas of its 5G network of South Korea, despite the controversy that ensued, was that the LTE network in those areas had been built with Huawei equipment.

US, Canada, India, Australia all announce plans to include Huawei from 5G investment

But this market structure is being challenged by US sanctions on Huawei. One after another, the UK, Canada, India, and Australia have announced plans to exclude Huawei from investment in 5G networks. That’s why Samsung’s successful bid is expected to give it an advantage as it seeks to fill the vacuum left by Huawei in the global market, a vacuum that’s likely to grow in years to come.

Beginning with Sprint in 2018, Samsung has gradually filled out its roster of American buyers of 5G equipment, including Verizon and AT&T. This year, it also gained network building experience in a wider range of countries, working with KDDI in Japan, Telus in Canada, and Spark in New Zealand.

But unlike those previous examples, the contract with Verizon is notable as a large-scale, long-term contract that includes network construction, maintenance, and repairs.

“Winning this big contract with Verizon is expected to help Samsung Electronics achieve its goal of becoming a major player with a bigger share in the global 5G equipment market,” said Lee Seung-woong, an analyst with Hi Investment and Securities.

“We work with 86 small companies here in South Korea that supply us with parts needed for manufacturing 5G network equipment. As we win more bids, we expect to see those suppliers hiring more workers and boosting their sales,” said a spokesperson for Samsung. Between 40-60% of parts that Samsung uses in 5G network equipment are manufactured domestically.

By Koo Bon-kwon, senior staff writer

Please direct comments or questions to [english@hani.co.kr]

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