Huawei scandal could cost Canadian telcos billions, this investor says

The Huawei scandal continues to reverberate both politically and economically around the world, with the latest being revelations that telecom companies like BCE and Telus could be stiffed with up to a billion dollars in costs if Canada decides to ban Huawei equipment from its next generation networks, a move already taken by its allies the United States, Australia and New Zealand.

News broke on Wednesday that Meng Wanzhou, the detained CFO of Chinese telecommunications and electronics giant Huawei, would be released on bail after being arrested in Vancouver on December 1 at the request on the United States and in connection with fraud charges related to Huawei’s dealings with Iran.

The case has further strained relations between the US and China, whose trade disputes have intensified over the past year, but now, the arrest and extradition request have wedged Canada into the mix, with political and economic repercussions expected to follow.

The arrest comes after much debate in the West over Huawei’s ties to the Chinese government and potential security risks stemming from adoption of the company’s 5G technology. This past February, top intelligence officials in the US warned a Senate committee that Huawei’s smartphones posed a security threat to the US, with US officials in turn urging its allies to ban Huawei technology.

It’s against that background that the Meng Wanzhou case should be viewed, says Mike Newton, portfolio manager and director of wealth management at Scotia Wealth Management, who reiterates that Canada’s telecom companies could be regretting their partnerships with Huawei.

“[Prime Minister Justin Trudeau] has reiterated that this was not politically motivated, that this was an arrest basically on fraud charges which is obviously debatable,” says Newton, in conversation with BNN Bloomberg. “It’s also very suspect with the timing and I don’t think it helps in resolving talks between China and the United States.”

“The other problem is the extent to which Canadian telecom companies have been really getting into bed with Huawei on their technology,” he says. “[They] have a lot of money invested in the equipment and it could cost billions of dollars to rip out in order to stay compliant with so-called international law with respect to safety and privacy.”

This past week, the Globe and Mail reported that executives at Telus Corp and BCE had compiled the financial costs of a ban on Huawei equipment in its 5G build-out at between $500 million and $1 billion for Telus and “hundreds of millions” for BCE.

“It’s amazing how a little thing like this can snowball into a major event with issues for Bell Canada and Telus, for example,” he says. “That’s what they call systemic risk.”