Huawei has been the subject of much scrutiny these last four months since the company found itself on the US Entity List and under the watchful eye of the US Government. Huawei’s fortunes in Latin America have taken a turn for the worse in recent months, so the company is partnering with China Mobile to buy struggling Latin American Brazil carrier Oi. Oi SA has been struggling to get from under its massive debt since 2016. Oi, seeing no way out, is deciding to sell rather than go bankrupt.
Huawei’s interest in Oi and Latin America
Brazilian carrier Oi will be one of the battlegrounds for 5G when the next-generation network deployment gets underway, and with Huawei’s own massive 5G patent portfolio, the company certainly sees another way into Latin America.
Oi is a struggling Latin American carrier, and with the acquisition of a carrier, Huawei would have an easy footprint in the region. With a carrier, Huawei could sell its own phones there and have more of a mobile presence than it does currently, negotiating with carriers to sell in stores that aren’t its own. With a carrier, Huawei’s troubles would subside somewhat, as it would inherit a list of customers who would consider buying its carrier’s phones before anyone else’s.
Huawei’s move is eerily similar to that of Google, who wants to partner with Dish Network to grow the new Sprint prepaid brands Dish acquired in its deal with T-Mobile. T-Mobile was forced to sell its Sprint prepaid brands in order to acquire Sprint itself and have the acquisition approved by both the FCC and DoJ. Google’s desire to co-own Sprint is for profit — so that Google need not pay spectrum leasing fees to Sprint or T-Mobile anymore. Dish also inherited some T-Mobile spectrum that it gets to lease for 7 years.
Huawei’s Latin American misfortunes
Huawei has another reason to buy Brazilian carrier Oi with China Mobile, apart from its desire to play a global role in 5G networks: the company is struggling to sell smartphones in Latin America.
When launching its flagship Mate 30 Pro this past week, rival Samsung Electronics took the time and effort to mock Huawei in a misfortune marketing email sent to Latin American customers. The email mentioned how the Galaxy Note 10 lets you “enjoy Google apps and services from the Play Store,” with Samsung and Google apps side by side. Of course, this move strikes at the heart of Huawei’s launch because the Mate 30 and Mate 30 Pro do not have Google apps and services, nor Play Store access.
Samsung’s email comes as the South Korean juggernaut has, along with Motorola, surpassed Huawei in Latin America. In Q2 2019 alone, Samsung regained in all four Latin American regions, as did Motorola, and Huawei saw loss in all four regions due to the American ban. With Huawei losing out in Latin America due to the ban and its financial consequences, purchasing a Latin American carrier would help tip the scales some.
And yet, it’s not entirely smart to invest in such an acquisition when you’re already set to lose $30 billion over the next two years because of the ban. Is it really worth buying a small carrier to gain a stronger foothold in Latin America? Perhaps playing a role in 5G network deployment there would make up for the loss in smartphone sales, as it seems Huawei’s 5G network clients have only grown, not diminished, in the last four months since the Trump Ban was issued.
Since Huawei is now under the Trump Ban and on the US Entity List, perceived as a “threat to national security,” Google is under the duress of the Federal Government to have nothing to do with Huawei. Mountain View placed Huawei on its Android license revocation list back in mid-May, with the revocation taking full effect on November 19th. Huawei is allowed to continue updating its current Android devices (such as the P30 Pro that will get Android 10), but the company is prevented from placing Android on any new mobile devices.
Smartphone makers and wireless carriers: a new acquisitional trend?
With Google and its desire to own a wireless carrier network (Google Fi is its best effort for now), Apple’s desire to own a wireless carrier, and now Huawei’s desire to co-own a wireless carrier, it appears as though smartphone makers and wireless carrier acquisitions are becoming a new trend.
Why would smartphone makers want to acquire wireless carriers? The answers are simple. First, with their own wireless carriers, smartphone makers would avoid paying leasing fees for spectrum from current carriers like Sprint, T-Mobile, AT&T, and Verizon. Next, smartphone makers could not only market their own phones but also offer promotions and trade-ins on their phones as they see fit. Simply put, wireless carriers would let smartphone makers control more of the wireless business and process; currently, smartphone makers have to play by wireless carrier rules to sell their phones in-store and online.
Smartphone makers with wireless carrier acquisitions would be in the driver’s seat in more ways than one, with a possible benefit for customers who would have other options for wireless service. And yet, wireless carrier acquisitions are more influenced by their benefit for smartphone makers than anything else.