The Trump Administration’s wide-ranging tariffs will undoubtably have a negative impact on telecom providers, with most of that expected to come from an increase in equipment costs that will make network upgrades and expansions more expensive.
Impact: The tariffs on China, Vietnam, and the European Union potentially could do real damage to telecom supply chains and telecom equipment vendors for years to come. Not only did a 10% tariff go into effect nearly worldwide on April 5, many countries also face reciprocal U.S. tariffs scheduled to take effect on April 9. And those don’t address an existing 20% rate on China, which builds on tariffs implemented during the first administration, or the 25% rate imposed on Canada and Mexico. Telecom equipment vendors will feel the effects from high reciprocal tariffs, according to Fierce Network, with Vietnam looking at a 46% rate, China 34% (updated to 84% on April 8), and the EU 20%, raising the equipment costs for wireless, wireline, fiber, and cable providers, thus making it more expensive for companies across all telecom categories to extend or upgrade their networks. Fierce quoted an expert in supply chain management who said that because the U.S. is “very reliant” on imported telecom network equipment, keeping telecom systems functioning will require more capital. Though another analyst said it’s too early to tell what the overall impact of the tariffs will be, providers should be prepared for things to get worse as the tariffs go into effect and understand that how bad things will get depends on how long they stay in effect. Though suppliers worked to reduce their reliance on Chinese equipment after the first Trump Administration amid concerns about the national security implications of Chinese equipment in U.S. networks, they shifted some of those operations to elsewhere in Asia, including India, Malaysia, and Vietnam, all of which have been hit with high reciprocal tariffs.
An analysis on the tariff impact from New Street Research and analyst Jonathan Chaplin reported on by LightReading found that wireless expenses for AT&T, T-Mobile, and Verizon could increase by 7% each thanks to new tariffs on 5G equipment that will lead to a projected 20% increase in equipment costs. The analysis estimated that approximately one-third of wireless capex goes toward 5G equipment, much of which comes from South Korea (25%) and Western Europe (variable but in the 15%-25% range) through Samsung, Ericsson, and Nokia. That would require carriers to either increase their capex to counter the higher costs or slow the pace of deployments, especially if they haven’t stockpiled equipment in advance in anticipation of the tariffs. The most likely scenario sees all three carriers slow their 5G deployments, making it harder for T-
Mobile to build on its lead and for AT&T and Verizon to narrow the gap. With device costs also expected to increase, those costs could be passed onto customers. But in the rapidly tightening mobile market, it’s possible carriers will decide to eat those additional costs rather than risk losing subscribers.
On the wireline side, fiber providers fare better than cable operators in the New Street projections, which estimated fiber buildout costs will increase by 2% per location, which seems relatively minor except when deploying fiber to millions of additional locations. As a result, the ambitious fiber expansion targets outlined last year by AT&T (50 million), T-Mobile (12-15 million), and Verizon (35-40 million) likely will take longer than expected to reach and may even have to be trimmed in order for the companies to make the economics of expansion work if the tariffs linger. Unfortunately for cable operators, the tariffs will have a more significant impact on their network upgrades, possibly requiring as much a 9% increase in capex dedicated to the upgrades in order to keep pace. New Street estimated that cable operators spend approximately two-
thirds of their upgrade capital on equipment, with two-thirds of that equipment imported into the country. It’s expected that kind of increase will lead to a slowdown in network upgrade projects, meaning it will take longer to get DOCSIS 4.0 deployed, with a longer wait for cable operators to offer faster multi-gigabit speeds.
