BT, Three and Vodafone Logos

Britain’s leading telecoms companies will be forced to redraw their planned investments in fifth-generation mobile phone networks after Boris Johnson’s government proposed a cap on the amount of kit they can buy from China’s Huawei.

BT, Vodafone and Three face having to buy more equipment from Huawei’s rivals — notably Ericsson and Nokia — because of the cap that is expected to take effect in 2023.

The deadline for compliance with the cap was sooner than many in the telecoms industry expected, meaning companies will have to react quickly and place orders with alternative suppliers to Huawei to adhere to the rule.

The government on Tuesday said it would place a 35 per cent market share cap on Huawei equipment both in 5G networks and full-fibre fixed-line infrastructure. Some industry executives are concerned the cap could lead to higher costs as they increase their range of suppliers.

One said that based on the prices that telecoms companies are charged for kit in the US — where Huawei is banned — UK groups could end up paying as much as 20 per cent more for equipment.

BT said on Thursday that the government’s recent statement about the use of “certain vendors” — a thinly veiled reference to Huawei — would increase its costs by £500m.

The telecoms industry, however, has broadly welcomed Mr Johnson’s decision not to cede to US pressure and ban Huawei from supplying any kit for 5G networks.

Instead, the government barred Huawei from providing equipment for the sensitive “core” of 5G networks, where customer information is stored and processed.

Huawei will be able to supply “non-core” equipment — such as antennas and base stations found on mobile masts — up to the market share cap of 35 per cent.

Derek McManus, UK chief operating officer of Telefónica, which owns O2, said the government’s Huawei decision provided clarity, and the industry could now invest in 5G networks. “This is a positive but it is early days in 5G’s network evolution,” he said. “There is a long way to go.”

Britain’s four mobile network operators — EE, O2, Three and Vodafone — have launched 5G services in the past six months, all using Huawei kit.

The cap on Huawei use will be of most concern to BT, owner of EE, which will have to diversify its range of suppliers when installing 5G equipment over the next three years in order to comply with the rule.

About two-thirds of EE’s 4G network runs over Huawei antennas and base stations, and BT said it was reviewing the potential cost of complying with the cap. BT’s Openreach division, which is responsible for its fixed-line infrastructure, has relied on Huawei equipment for much of the early build of its full-fibre network.

SHANGHAI, CHINA - JUNE 26: A Huawei logo and 5G sign at the Huawei stand on day one of the Mobile World Congress (MWC) Shanghai 2019 at the Shanghai New International Expo Center on June 26, 2019 in Shanghai, China. The Mobile World Congress (MWC) Shanghai 2019 themed on 'Intelligent Connectivity' will last for three days. (Photo by Gao Yuwen/Visual China Group via Getty Images)
Huawei will be able to supply 'non-core' equipment — such as antennas and base stations found on mobile masts — up to the market share cap of 35 per cent © VCG/Getty Images

Openreach is at risk of being in breach of the cap in three years' time and it is preparing to use more Nokia equipment, as well as issuing a tender for a third supplier.

Vodafone has also been a big user of Huawei’s equipment outside of the core of its 5G network, but a spokesman said it expects to be compliant with the cap by autumn.

Vodafone and EE could be forced to diversify their suppliers in towns and cities in particular.

The government will apply the 35 per cent market share cap on Huawei to 5G data traffic flows, meaning that mobile network operators that planned to use the Chinese company’s kit predominantly in highly populated areas such as London and Manchester may have to use more Ericsson and Nokia equipment.

Three had picked Huawei as sole supplier of radio equipment — such as antennas and base stations — for its 5G network. The company, which is owned by CK Hutchison, will need to sign a contract with a second supplier to comply with the Huawei cap as it rolls out its 5G network.

O2 has said it will use kit from Ericsson and Nokia for the roll out of its 5G network.

Virgin Media said it would consult with the National Cyber Security Centre, a branch of the signals intelligence agency GCHQ, about whether it needs to replace certain Huawei systems used for its mobile services.

Matt Howett, an analyst with Assembly, said that although the Huawei decision is important for the UK industry, it could have a negative effect on the economy if telecoms companies end up having to delay the roll out of 5G networks in order to comply with the cap. “This will cost the economy if there is a material delay on 5G rollouts,” he said.

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