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* Vendors to build 5G radio network on 50-50 basis - CEO
* Subject to Germany finalising security rules on vendors
* Unit of Spain's Telefonica cuts dividend to boost
investments
(Adds 5G comments by CEO Markus Haas, analyst on dividend,
shares)
By Douglas Busvine
BERLIN, Dec 11 (Reuters) - Telefonica Deutschland
picked Nokia of Finland and China's Huawei
on Wednesday to build its 5G network, seeking to get work moving
even though Germany has yet to finalise security rules governing
equipment suppliers.
The decision by the unit of Spain's Telefonica
comes amid heated debate in Germany over whether to heed U.S.
warnings that Huawei poses such a serious security threat that
it should be excluded from critical network infrastructure.
Telefonica Deutschland also said it would cut its 2019
dividend by 37% to prioritise network investments, following on
the heels of similar cuts in the payout by competitors Deutsche
Telekom and Vodafone.
The company's shares were down 2.5% at 0856 GMT in Frankfurt
at their lowest level in a month and one of the top fallers on
Europe's STOXX 600 index.
Telefonica Deutschland, which operates under the O2 brand,
is one of few European operators to have named Huawei as a 5G
vendor, following first-mover Sunrise of Switzerland,
whose Huawei-built 5G network went live earlier this year.
Berlin wants to toughen up technical certification and
scrutiny of a vendor's governance, while lawmakers are still
considering whether to introduce additional parliamentary
oversight. Calls for an outright Huawei ban have faded of late.
"We hope that this window of uncertainty will be as short as
possible - we don't yet have certification for any of our
vendors," Telefonica Deutschland CEO Markus Haas told reporters
on a conference call.
Germany's other two mobile operators - market leader
Deutsche Telekom and Vodafone - are existing customers of Huawei
but have yet to publicly confirm whether they will stick with
the Shenzhen-based networks leader for 5G.
Haas hoped that Nokia and Huawei would build the Telefonica
Deutschland 5G Radio Access Network on a 50-50 basis, but
cautioned that this would be subject to receiving the necessary
certification in Germany.
Work should start in early 2020, and Telefonica Deutschland
said it expected to have 5G up and running in Berlin, Hamburg,
Munich, Cologne and Frankfurt by the end of 2021. A year later,
30 cities with a population of 16 million would be covered.
A decision on picking suppliers of its more sensitive 'core'
network would be taken next year, Haas said.
DIVIDEND CUT
The company, which is holding an investor briefing in London
later, said it would cut its 2019 dividend to 0.17 euro ($0.19)
from 0.27 euro.
This would become a new floor over the next three years,
during which it expects cumulative revenue growth of at least
5%, while the ratio of capital investment to sales will peak at
17-18% before normalising.
"We believe the announcement is worse than anticipated,"
analysts at Citi said in a research note. "A dividend cut and a
capex increase was expected, though the magnitude is above ours
and market expectations."
Telefonica Deutschland reiterated its earnings guidance for
the full year.
(Reporting by Douglas Busvine
Editing by Tassilo Hummel and Susan Fenton)
