The consequences of ditching Huawei in the UK

It was less than six months ago that Boris Johnson decided to give Huawei a limited role in 5G wireless networks while capping its market share.

Now, the Prime Minister has accelerated efforts to reduce the Chinese telecoms company's involvement in Britain's next generation of mobile and broadband networks.

Last week the Telegraph revealed that Johnson had instructed officials to draw up plans that could reduce China’s involvement in the UK’s infrastructure to zero by 2023.

A fresh review of Huawei's technology is also being conducted by the signals arm of GCHQ - the National Cyber Security Centre.

This review comes after new US rules preventing firms from selling semiconductor chips, used in telecoms networks, or software that originates from the US without permission. Nearly all of the biggest chip firms use US technology, leaving Huawei scrambling to find alternatives or a way to avoid the ban.

The US has stressed it sees Huawei as an espionage risk and was senior officials were reportedly furious at the UK’s decision in January to allow the Chinese vendor a role in building Britain’s future networks. Huawei has always denied its technology is a security risk and described many of the attacks on it as driven by political, anti-China sentiments.

While the NCSC probe could force operators to make changes in the long-run if it decides the US rules make using Huawei more risky, demands being championed by a group of rebel Conservative backbenchers to strip out Huawei entirely could force networks, such as BT, to spend billions rebuilding the UK’s telecoms infrastructure.

“O2 and Vodafone have fairly minimal exposure to Huawei, it is BT and Three that have the most,” says Kester Mann, an analyst at CCS Insight.

In January BT estimated that new rules for the telecoms sector, that force it to limit Huawei’s presence in its network to 35pc, will cost it around £500m over five years.

A report from Enders Analysis, a media and telecoms specialist, estimated a full 5G ban on Huawei would cost £1.5bn to UK networks. This would almost certainly cause delays to the UK’s 5G and full fibre plans.

Huawei kit already makes up large parts of the UK’s 4G mobile networks. Even if the ban only extended to 5G, much of the technology is built on top of older 4G Huawei kit. This older technology may not work with kit made by other manufacturers.

“5G depends heavily on 4G infrastructure,” says Matthew Howett, of Assembly Research. “Switching out Huawei for 5G will mean replacing some 4G equipment which would need to be added to that cost.” Assembly estimated the total economic cost would be £7bn.

Operators have also been heavily reliant on Huawei in fixed line technology. Around 50pc of BT’s fibre equipment is so far being supplied by Huawei, for example. Roadside cabinets that link up buildings and houses locally are also made by Huawei.

“It would take Openreach most, if not all, of the next three years to do this, and they would not be able to launch new parts of the network,” says James Barford, of Enders Analysis. He estimates 40,000 cabinets would need replacing should the UK introduce a full ban, although he describes that as a “doomsday” scenario.

Sources at telecoms operators believe that a full strip-out is unlikely, and reports on Tuesday claimed a ban could stop at blocking new purchases of kit from 2023, rather than forcing networks to remove all existing equipment, or might only stop Huawei from supplying new 5G gear. A source said demands to strip out all kit within three years were “frankly not realistic”.

The UK has set out ambitious targets for everyone to have access to “gigabit capable” network speeds, which means fibre and 5G connections in practice, by 2025. A sudden u-turn could push this target into the distance.

Even if Huawei avoids a ban demanded by the Tory rebels, in the longer term, the prospect of more US sanctions could speed operator decisions to ditch Huawei and pick rival vendors.

Patrick Moorhead, an analyst at Moor Insights and Strategy, notes the latest ban threat may just be “another skirmish” in the trade war, but would be hugely damaging for Huawei and its customers if it comes to pass. While older customer kit would not be affected, new gear being developed by Huawei would not be able to use many US parts. This could force it to turn to other suppliers and less tested technology, which would create new risks for customers.

Victor Zhang, Huawei’s UK boss, said: “We are happy to discuss with NCSC any concerns they may have and hope to continue the close working relationship we have enjoyed for the last ten years. Our priority remains to continue the rollout of a reliable and secure 5G networks across Britain.”

BT has already signed a deal with Adtran, a US firm, to build more fibre technology for its Openreach division. It also signed a major deal with Ericsson to provide the bulk of its 5G core equipment.

The UK’s operators believe they have the supplies for Britain’s launch of 5G, based on the current 35pc cap. An abrupt change of policy is the last thing they had been hoping for as we emerge from lockdown.