Canada is signaling it might not compensate major telecommunications providers if the federal government bans equipment made by China's Huawei from 5G networks, setting up a potential fight over a bill that could hit C$1 billion ($758 million).

Canada, under pressure from the United States to ban Huawei Technologies Co Ltd gear on security grounds, is studying whether to allow the firm into the country's next-generation 5G networks.

If Ottawa does announce a formal ban, the affected companies have made clear they want compensation for tearing out their existing Huawei gear, said two sources close to the matter.

But the Liberal government, already pressing wireless providers to cut what it says are excessively high bills, seems less convinced.

"I'm not sure there is a solid legal case that we would have to compensate for making a proper national security decision," said a government source who requested anonymity given the sensitivity of the situation. Federal politicians, said the source, also had to worry about "the public perception of handing over a billion dollars or more to very large companies."

Ottawa has spent almost two years studying whether to allow Huawei into 5G networks and in June, with no sign of a decision coming any time soon, impatient Canadian providers took matters into their own hands.

Bell Canada and Telus Corp said they would partner with Ericsson and Nokia Oyj , even though they use Huawei in their 4G networks.

Technical experts say it is hard to marry one company's 5G equipment with 4G gear from another provider. This effectively means the decision to go with Ericsson would eventually force Telus and Bell to remove the Chinese firm's 4G equipment.

Bell and Telus do not have to act immediately, since a crucial auction of spectrum needed for 5G networks will not happen until June 2021.

In a February 2019 filing, Telus said a ban without compensation could increase the cost of its 5G network deployment and make services more expensive for consumers.

Telus did not respond to a query as to whether it still felt the same way about compensation. Bell did not respond to a request for comment.

Scotiabank analysts said on June 2 it would cost Bell a total of between C$300 million and $350 million over three to five years to strip out Huawei gear. At the same time, BMO estimated Telus had roughly double the exposure than that of Bell.

In March, U.S. President Donald Trump signed a bill to provide $1 billion to help small providers replace equipment made by Huawei and Chinese firm ZTE.

Canada's government is on track to run up the highest budget deficit since World War Two as it tackles the coronavirus outbreak and Prime Minister Justin Trudeau will on Sept 23 outline major measures to revive the economy.

"We obviously want to spend money on things we feel are going to grow the economy rather than on something like that (compensation)," said the government source.

One person directly familiar with the file took a more jaundiced view, noting that while Britain had told firms to remove their Huawei equipment, it had given them until 2027.

The person said this also happened to be the time when the gear would become obsolete and require replacement.

"I don't think the thinking in the Canadian government is dissimilar with respect to that question," said the person.

The office of Canada Innovation Minister Navdeep Bains - which will announce the decision on Huawei and 5G - said it would be premature to discuss future actions.

 

(Reporting by David Ljunggren; Editing by Denny Thomas and Nick Zieminski)