Deutsche Telekom has told supplier Nokia it must improve its products and service to win business installing the German group’s 5G wireless networks in Europe, according to internal documents and a source with direct knowledge of the matter.

Europe’s biggest telecoms operator has dropped Nokia as a provider of radio gear from all but one of its dozen markets in the region, according to the source and the documents - briefing notes for top Deutsche Telekom management reviewed by Reuters.

The documents - written by the vendor management team for internal meetings and talks with Nokia between July and November last year - also show the German group considered Nokia the worst performer among all suppliers in 5G tests and deployments.

But faced with the threat of restrictions on China’s Huawei - its dominant supplier of network equipment - Deutsche Telekom has decided to give Nokia another chance to mend their relationship, according to the documents and the source. A briefing note for a meeting between Deutsche Telekom managers and Nokia Chairman Risto Siilasmaa in mid-November said “assurances have been received” from the Finnish company, without giving details.

The clock is ticking. Deutsche Telekom team leaders are due to present an updated strategy for sourcing network gear from vendors to the board after the Mobile World Congress, an annual telecoms industry gathering in Barcelona at the end of this month, according to the documents and the source, who was not authorised to speak to the media and so requested anonymity.

Deutsche Telekom’s willingness to give Nokia another hearing shows the difficulties mobile companies face over pressure from the United States on its allies to ban Huawei from their 5G networks. Washington alleges Huawei’s equipment can be used by Beijing for spying - a charge the Chinese firm denies.

With Deutsche Telekom foreswearing new deals with Huawei, according to the documents, it is increasingly relying on the only other big telecoms supplier, Sweden’s Ericsson, which is spreading its footprint in southeastern Europe.

The documents also provide a window into the troubles facing Nokia, which issued a profit warning last October that sent its shares down by a third. Nokia mainly blamed setbacks in sourcing new chipsets for 5G radio transmission systems.

In a joint statement issued after this story was published, Deutsche Telekom and Nokia ‘noted’ its findings and highlighted the work they were undertaking to strengthen their business relationship.

“Nokia is of strategic importance to Deutsche Telekom. It is well known that Deutsche Telekom is pursuing a multi-vendor strategy so that we are not dependent on just one supplier. This is an elementary part of our security philosophy,” said Claudia Nemat, Deutsche Telekom’s head of technology and IT.

“In 2019 we have made many steps together with Nokia to make Deutsche Telekom’s networks evolve towards 5G readiness, including all network domains, from radio and fixed access to transport and core, and continue to do so in 2020 and onwards.” Federico Guillen, Nokia’s president of customer operations in EMEA and APAC, said: “We continue to work extensively with Deutsche Telekom which is one of our most significant customers, both in Europe and the U.S.”

 Deutsche Telekom once relied equally on Huawei and Nokia for radio access network equipment - antennas and base stations that account for most of the cost of a mobile network - in Germany.

But in 2017 Nokia was dropped entirely from that market segment when Ericsson was handed a 30% share of Deutsche Telekom’s spending on it, reports in the trade press said at the time. It was the first of several wins for Ericsson.

Three sources with direct knowledge of the matter said Deutsche Telekom reached an advanced stage in talks late last year to keep Huawei as its dominant supplier in Germany, with 70% of the investments in upgrading to super-fast 5G networks.

Ericsson would keep its 30% share.

Deutsche Telekom then suspended vendor talks to await the outcome of a debate in Berlin over the security of critical national networks, where senior lawmakers from Chancellor Angela Merkel’s conservative party back the US call to bar Huawei.

Were Germany and other European countries to follow Britain’s recent decision to cap Huawei’s share of network spend at 35%, Deutsche Telekom would face serious challenges, the source with direct knowledge said.

Reuters