US to use financial incentives to muscle Huawei out of Brazil

The US Ambassador to Brazil has confirmed talks between the two nations for 5G financing under the condition that Huawei is excluded from networks.

Jamie Davies

June 15, 2020

3 Min Read
US to use financial incentives to muscle Huawei out of Brazil

The US Ambassador to Brazil has confirmed talks between the two nations for 5G financing under the condition that Huawei is excluded from networks.

Speaking to local press, US Ambassador to Brazil Toby Chapman has said the country would be willing to finance the country’s 5G mission assuming the money would only be used to purchase equipment from Ericsson or Nokia.

“DFC [Development Finance Corporation] is a fantastic organisation, with capital of $60 billion,” Chapman said during the interview.

“Before it could only finance projects for American [US] companies, but the law has changed, and now it finances projects of national interest in the USA. This opens up the possibilities for companies in other countries that the US wants to help. This makes it possible for Ericsson and Nokia to receive financing in 5G projects, including here in Brazil.”

Ericsson and Nokia have been mentioned directly here, though we suspect OpenRAN alternatives gathering momentum in the US would also be considered. Perhaps this is an oversight from the Ambassador, who is not a telecommunications expert.

What is much clearer is this is a move to combat the growing influence of China and its telecoms champion in a market which would be considered price sensitive. Mobile ARPU in Brazil is roughly $4.35, a value which would certainly place financial pressure on telcos eyeing the expensive path to 5G. This is a region where left alone Huawei may flourish.

The financial influence of the US is certainly coming to the forefront here as the Development Finance Corporation (DFC) could potentially make a dent in LATAM.

Founded as part of the Better Utilization of Investments Leading to Development (BUILD) Act of 2018, the DFC is an organisation designed to combat China’s Belt and Road initiative. Both of these funds intend to offer financial assistance to projects outside of the domestic markets, but also acts as a bridge for favoured companies to gain a foothold in new markets.

The DFC has already made financial contributions to projects around the world including Connect Africa and Advancing a Free and Open Indo-Pacific. The Indo-Pacific initiative is focused on countering ‘debt trap’ investments from certain Governments in the region, though it does tie the interests of the recipients to the US. No names are mentioned, but it isn’t difficult to imagine where this has been directed.

Interestingly enough, the Brazilian Government and regulatory authorities have largely ignored coercion from the US to date.

“A good partner always understands the needs of the other,” said Marcos Pontes, Minister of Science, Technology and Innovation in January. “Just as Brazil makes no claim over what business the US does with China and whether or not this effects our agribusiness.”

Huawei looked to be safe in the region as warnings over the security and integrity of Brazilian mobile networks were dismissed, though ignoring an attractive cheque is another matter entirely. The question which might remain is who has the biggest bank account.

Last August, Huawei said it would commit $800 million to build a smartphone manufacturing site in Sao Paolo. Not only would the factory employ 1,000 people, it would act as a catalyst for knock-on economic development and the creation of local supply chains.

Another consideration for the Brazilian Government is the existing manufacturing site in the country. This factory, which employs 2,000 people, produces components for telecoms infrastructure equipment, both mobile and broadband. Should the Brazilian Government elect for the US cash at the expense of Huawei’s role in the 5G rollout, there could be some very interesting consequences.

Who will win the RAN battle in Latin America?

  • Huawei (59%, 362 Votes)

  • Ericsson (20%, 124 Votes)

  • Nokia (10%, 60 Votes)

  • OpenRAN (6%, 38 Votes)

  • Samsung (4%, 23 Votes)

  • ZTE (1%, 6 Votes)

Total Voters: 613

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