By Supantha Mukherjee
(Reuters) - Ericsson (ST:ERICb) shares hit a high for the year after the Swedish telecom equipment maker increased its footprint in Canada by winning a 5G contract from Bell Canada, beating out China's Huawei.
Bell Canada, part of BCE Corp (TO:BCE), had relied on Huawei for deploying 4G infrastructure but went with Ericsson as Canada was deliberating whether to allow Huawei to sell 5G equipment in the country.
The United States has raised security concerns about Huawei and has warned that allies that use its equipment in their networks risked being cut off from valuable intelligence sharing. Huawei has repeatedly denied the U.S. allegations.
The contract win, Ericsson's 93rd for the next generation equipment, will significantly expand the company's market share with Bell compared to 4G, an Ericsson spokesman said. He declined to give the value of the contract.
Ericsson had earlier signed one of Canada's largest wireless carriers, Rogers Communications (TO:RCIb), as a 5G customer.
Chief Executive Borje Ekholm has driven a turnaround at Ericsson during his three years at the helm, improving profit margins amid growing demand 5G upgrades.
While choosing Ericsson removes vendor uncertainty over deploying 5G, it might increase Bell Canada's operating costs as switching vendors and swapping out equipment takes several years to finalise.
Bell Canada, Canada's second-largest cellphone provider by wireless revenue, would have to spend about $200 million over the next few years to swap out Huawei gear, Scotiabank analyst Jeff Fan said.
Ericsson, along with Nordic rival Nokia (HE:NOKIA), also secured a contract from Telus Corp (TO:T) to sell 5G core products.
Telus, another Huawei 4G customer, is yet to choose a vendor for 5G radio access network (RAN).
"Size and scale of RAN components are much bigger in any network, so it will be more costly to replace RAN," Credit Suisse (SIX:CSGN) analyst Achal Sultania said.
Ericsson shares were trading at 89.02 Swedish krona by 1045 GMT, off earlier highs but up by 1.8%.