The authorization decision is entrusted to the Prime Minister of Romania and the Supreme Council of National Defense („BUCKLE”), Based on the criteria mentioned in the Draft Law, which represents a reproduction of those provided in the US-Romania Memorandum, and of some general definitions regarding risks, threats and vulnerabilities to national security. The Bill also applies to 3G and 4G equipment already purchased, which should be replaced within 5 years, without any compensation being paid to Mobile Network Operators. At the same time, the authorizations granted may be subsequently withdrawn, in which case the equipment of the respective manufacturers should be replaced within the same 5 – year period.

Last but not least, in addition to the visible intention in the public statements to exclude Chinese producers, the criterion of the history of corporate ethical practices provided by the Bill (and which is not present in the EU’s Common 5G Instrument Kit) could also lead to the exclusion of some producers in Europe who have been sanctioned in the past by US authorities for corrupt practices.

Moreover, if adopted in this form, the Bill could distort competition in both the radio access network equipment market (“RAN”) For mobile communications, as well as on the downstream markets related to electronic communications services.

At this time, according to publicly available information and studies, the main players in the RAN equipment market are Huawei, Ericsson, Nokia and ZTE. Although Samsung and other marginal competitors are also active in the market, given their considerably smaller market shares, as well as their smaller portfolio and services, they are unlikely to be in a position to to cover, as appropriate, in the short and medium term, the additional demand that will be generated by a possible exclusion of Chinese producers from the RAN market. Cisco would be in the same situation, which (according to the EU Coordinated Risk Assessment Report) provides no products other than virtual RAN, so it will not be able to replace the equipment produced by the excluded actors.

Thus, if the Bill will be applied in the sense of excluding Chinese manufacturers (respectively, Huawei and ZTE) from the market of all equipment related to 5G networks, Romania will completely exclude not only two of the four market players, but also the one that is considered to be one of the most powerful innovators (Huawei) and the main market challenger (ZTE). This should raise significant concerns about potential negative effects on competition, necessitating in-depth competitive analyzes based on detailed market information.

These aspects, together with other factors, such as the existence of barriers to entry (for example, the major costs of developing new products), the weakening of the bargaining power of buyers (resulting from the massive reduction in the number of suppliers and the fragmentation of markets due to regulatory differences between states regarding the authorization of 5G equipment manufacturers) and the current technical incompatibility between 3-4G and 5G equipment of the various suppliers, signals the major risk that the remaining suppliers will gain market power, which would lead to possible abuses and respectively to price increases, slowdown of innovation, decrease of quality, etc. At the same time, reducing the number of suppliers would significantly increase the risks of anti-competitive collusion between them.

Also, the potential exclusion of Chinese producers (and possible other producers) as a result of the Bill could affect downstream electronic communications markets, leading to price increases and delays in the implementation of 5G networks.

Last but not least, it is possible that delays in the implementation of 5G networks will deprive Romanian companies present in different markets of the competitive advantages that other such companies from other EU countries could enjoy, in which the authorization procedure of 5G technology would not prevent rapid and / or lower cost implementation of 5G services and related applications.

For a detailed analysis of the above see the published article here.

Article supported by HUAWEI