Will Huawei decision come back to haunt Telus?

COVID-19 has put a wrench in plans for a Canadian roll-out of 5G networks but for Telus (Telus Stock Quote, Chart, News TSX:T) shareholders the pandemic-induced pause could be a moment to consider the potential impact of the telco’s relationship with Chinese tech giant Huawei.

And on that front, Scotia Wealth advisor Andrew Pyle says there’s definitely an element of risk.

“I think to certain extent the Huawei issues and the fact that Telus is looking at building out that infrastructure with that equipment has tended to over-shine everything else that we look at with respect to the company.,” said Pyle, branch manager for Scotia, who spoke about Telus on BNN Bloomberg on Monday.

“The stock has done reasonably well and we’re in a consolidative pattern right now,” he said. “Can it have an impact on the stock? Absolutely.”

The federal government is still mulling over the Huawei file, according to a recent statement from Prime Minister Justin Trudeau, who according to the Globe and Mail on Tuesday said the government is, “taking advice from our security officials” and “working closely with our allies” on Huawei.

The Chinese company has been banned from taking part in the 5G buildout in a number of countries including the United States and Australia and restricted to some degree in others like Germany and the UK, all on suspicion that Huawei’s ties with the Chinese government could represent a threat to national security.

As far as the big three Canadian telecom companies go, Telus has said it will be using Huawei components in it 5G network, whereas Rogers has chosen Ericsson as its 5G vendor and BCE has gone with Nokia.

“Telus will begin rolling out its 5G network shortly, and our initial module will be with Huawei,” said Telus CFO Doug French in February.

That decision could blow up on Telus if the federal decision ultimately goes against Huawei.

“I think it’s as fluid as when we talk about the pandemic and its impact on the economy in the markets,” says Pyle. “I would say the entire situation with respect to Western-China relations is very fluid at this point in time, and I think if you are in Telus right now, you own it or you’re buying it, you have to keep in mind that this is something that potentially could become a challenge going forward.”

“At this point, it’s extremely difficult to say,” Pyle said.

Telus, whose share price is down eight per cent year-to-date, announced earlier this month it wouldn’t be raising its dividend as per usual until at least November, citing uncertainties surrounding COVID-19.

Telus reported its first quarter 2020 results on May 7, posting quarterly revenue up 5.4 per cent to $3.69 billion with net income down to $353 million or $0.28 per share from $437 million or $0.36 per share a year earlier. Analysts had been calling for revenue of $3.68 billion and earnings of $0.35 per share.