BT warned that the UK cap on the use of Huawei equipment in the telecoms network would cost it £500m over the next five years, the first clear signal of the financial impact of the new rules.
Boris Johnson’s government will place a 35 per cent market share limit on Huawei equipment in the UK’s new 5G and full-fibre telecoms infrastructure, having rebuffed pressure from Washington to ban the Chinese company from the network.
The cap is expected to take effect in 2023, a much earlier date than many in the telecoms industry anticipated, meaning companies will have to scramble to place orders with alternative suppliers such as Ericsson and Nokia.
BT shares fell 7 per cent on the news on Thursday. They have more than halved in the past three years amid deteriorating financial performance, an accounting scandal at its Italian business and concerns over heavy spending on pensions, sports rights and broadband investment.
Philip Jansen, BT chief executive, said he welcomed the government’s proposal and that “the priority should be the security of the UK’s communications infrastructure”.
But he added that the company was working closely with government cyber security and intelligence organisations NCSC and GCHQ to assess Huawei equipment, saying “there are no facts or evidence of any sabotage backdoor whatsoever”.
“We obviously take security extremely seriously but the whole cyber world is very complicated and there are many efforts by nation states and criminals to breach systems,” Mr Jansen said. “If certain nation states want to attack [the UK] there are other ways that are much more straightforward.”
BT, which owns EE and Openreach, runs two-thirds of its existing 4G network over radio equipment made by Huawei. It will now have to diversify the range of suppliers for its 5G network, which will initially be laid over the 4G grid, to comply with the new rule.
Mr Jansen, who took the helm of the FTSE 100 group early last year, said the single biggest cost would be the “eradication” of some Huawei 4G boxes, because the fifth-generation grid would have to come from the same manufacturer as the system on which it is overlaid.
Analysts at Deutsche Bank said the £500m hit would put pressure on BT’s cash flow, adding that it “remains unsolved” how the company would pay for its plans to extend the UK’s fibre network, with the government being “far from supportive”.
Mr Jansen said the prime minister’s pledge to have full-fibre broadband coverage across the UK by 2025 would require “Herculean collaborative efforts”, with the government tweaking regulation to support industry. “My sadness is that those things won’t get resolved quickly enough and that he might miss.”
Openreach, which is responsible for BT’s fixed-line infrastructure, has relied on Huawei equipment for much of the early construction of its full-fibre network and is now preparing to use more Nokia equipment, as well as issuing a tender for a third supplier.
The telecoms group said on Thursday that “headwinds from regulation” and increased competition had pushed revenues down 2 per cent to £17.3bn in the nine months ending December 2019 against the same period a year earlier.
While BT said it would meet the lower range of its profit guidance for the full year, pre-tax profits in the first nine months were down 3 per cent to £1.9bn because of higher spectrum fees, new investments and higher costs in operating its fixed-line infrastructure.
Are you interested in the latest company news? Every morning our City reporter Cat Rutter Pooley covers the biggest business stories and delivers them straight to your inbox.
Get alerts on BT Group Plc when a new story is published