Russian telecoms giant MegaFon eyes Chinese 5G equipment after Western suppliers pull out amid war in Ukraine

CEO says Russian telecoms operators have faced a ‘difficult situation’ when trying to source equipment to upgrade and build new 5G networks
Retreat of European firms has left Huawei and ZTE as the only top global providers of 5G networks with operations in Russia

Jiaxing Li

Published: 10:00pm, 12 Jul, 2022

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MegaFon, the second largest telecoms company in Russia, plans to purchase 5G equipment from Chinese, Indian and Israeli suppliers amid a supply crunch as Western tech companies retreat from the country, the company’s CEO was quoted as saying by local media.

Russian telecoms operators have faced a “difficult situation” when trying to source equipment to upgrade and build new 5G networks since the Ukraine War began, Khachatur Pombukhchan, CEO of MegaFon, said in an interview with Russian business newspaper Kommersant this week.

As a result, the company is now looking to Chinese, Indian and Israeli manufacturers for future purchases, he said.

“The supply chain has become more complex and expensive … and there are sanction risks for both sides, but that does not mean it is impossible to build and develop,” said Pombukhchan, without elaborating.

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After Russia invaded Ukraine in late February, international mobile infrastructure giants Nokia and Ericsson both curtailed their business activity in the country to comply with sanctions and restrictions.

Ericsson’s cooperation agreement with MTS, the largest telecoms operator in Russia, to build a national 5G network was also scrapped after the Swedish company quit the market.

The retreat of the two European firms left China’s Huawei Technologies Co and ZTE as the only top global providers of 5G networks with operations in the country. However, Huawei has also furloughed some local employees and suspended new contracts with operators due to sanction risks.

Despite the growing barriers, it has been reported that local operators in Russia are still managing to source some Chinese equipment.

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Russian telecoms operator Beeline, owned by Dutch company Veon, said in May that it had received a batch of telecoms equipment from Huawei in March, and claimed that the import was in full compliance with all applicable laws and regulations, according to a Wall Street Journal report last month.

MegaFon is also focusing on direct imports from China to maintain the supply of retail equipment, such as smartphones, the company’s CEO said.

Unlike many Western businesses, only a few Chinese companies have announced cuts in their Russian operations since the Ukraine war began, partly because the Chinese government has opposed international sanctions against Moscow.

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Nevertheless, Chinese companies are wary of the escalated risk of doing business with Russia.

Semiconductor Manufacturing International Corp (SMIC), China’s top chip maker, said it has never had any customers in Russia, assuaging investor concerns that the Chinese contract chip maker could be punished by Washington over potential violations of US economic sanctions on the country.

“SMIC has always been operating in compliance. The company has never had any Russian customers,” the firm said in response to an investor’s question on an online information platform run by the Shanghai Stock Exchange last week.