Geopolitical Risks in Telecoms: Evaluating the Implications of China’s Potential Exclusion of Ericsson and Nokia

The 5G equipment market has become a battleground for geopolitical tensions, with China’s regulatory and legal strategies reshaping the competitive landscape. While Ericsson and Nokia remain critical players in global telecommunications, their exposure to China’s evolving policies—and the potential for exclusion—poses significant strategic risks. This analysis evaluates the implications of these risks, the sector’s reallocation of resources, and what investors should watch for in a fragmented market.

China’s Legal Assertiveness: A New Frontier for 5G Competition

China’s courts have emerged as a dominant force in standard essential patent (SEP) disputes, challenging traditional global licensing norms. In 2023, the Chongqing court set the first global royalty rates for SEPs in the Nokia v. Oppo case, rejecting Nokia’s request for a qualitative analysis of patent essentiality and instead adopting a patent-counting approach [1]. This precedent not only signals China’s willingness to assert jurisdiction over foreign firms but also incentivizes companies to file more patents in the region to secure favorable rates.

The Supreme People’s Court (SPC) further solidified this trend in TCL v. Access Advance, affirming Chinese courts’ authority to set global FRAND (fair, reasonable, and non-discriminatory) rates for foreign patent pools [1]. For Ericsson and Nokia, this means navigating a legal environment where their traditional licensing strategies—rooted in U.S. and EU frameworks—may face higher costs and uncertainty. Ericsson, for instance, has submitted over 80,000 technical contributions to 3GPP standards, yet its ability to enforce these in China is now constrained by a system that prioritizes domestic interests [4].

Sectoral Reallocation: Diversification Amidst Geopolitical Uncertainty

The broader sector is responding to these risks with strategic reallocation. Nokia, for example, has reduced its reliance on China-based component sourcing by 63% since 2021, part of a supply chain re-consolidation strategy from 2023 to 2025 [3]. This shift reflects a growing trend among global tech firms to mitigate exposure to geopolitical volatility, particularly as U.S. pressure on allies to exclude Chinese vendors like Huawei and ZTE intensifies.

However, this reallocation is not without trade-offs. European vendors like Ericsson and Nokia face a paradox: while Western markets increasingly favor “trusted” suppliers, Huawei’s dominance in low-income countries and parts of Europe persists. In the EU, 12 of 27 member states have already imposed restrictions or bans on Huawei, yet the company’s cost advantages and technical expertise continue to lure smaller markets [2]. This dynamic leaves Ericsson and Nokia in a precarious position, as they struggle to replace Huawei in key regions while absorbing the costs of supply chain diversification.

Investment Implications: Navigating a Fragmented Market

For investors, the 5G equipment sector presents a mix of risks and opportunities. The potential exclusion of Ericsson and Nokia from China—while not explicitly detailed in recent data—cannot be ignored given the country’s aggressive legal posturing. A worst-case scenario would involve Chinese regulators leveraging their SEP dominance to impose unfavorable licensing terms or outright market restrictions, eroding margins and stifling innovation.

Conversely, companies that successfully diversify supply chains and adapt to regulatory fragmentation may gain long-term advantages. Nokia’s 63% reduction in China-based sourcing, for instance, aligns with a broader industry shift toward resilience over cost efficiency [3]. Similarly, Ericsson’s focus on 6G patent leadership could position it as a key player in the next generation of wireless standards, provided it navigates current geopolitical hurdles [4].

Conclusion: Strategic Risk in a Polarized World

The 5G equipment market is no longer just a technical race—it is a geopolitical chessboard. China’s legal and regulatory strategies, coupled with Western exclusion policies, are forcing companies like Ericsson and Nokia to recalibrate their strategies. While these firms remain pivotal to global infrastructure, their ability to thrive will depend on their agility in navigating a fragmented landscape. For investors, the key is to balance short-term risks with long-term resilience, favoring companies that prioritize adaptability in an era of strategic uncertainty.

Source:
[1] The New SEP Powerhouse: How China is Shaping Global Patent Disputes [https://www.csis.org/blogs/perspectives-innovation/new-sep-powerhouse-how-china-shaping-global-patent-disputes]
[2] Europe's love of Huawei is crushing Ericsson and Nokia [https://www.lightreading.com/5g/europe-s-love-of-huawei-is-crushing-ericsson-and-nokia]
[3] Formula 6G: Nokia In Pole Position With Strong Margins [https://seekingalpha.com/article/4771964-formula-6g-nokia-in-pole-position-strong-margins-global-reach]
[4] Ericsson's Road to 6G Patent Leadership [https://www.ericsson.com/en/patents/articles/ericssons-road-to-6g-patent-leadership]