Uprooting Huawei from UK's 5G plans would lead to heavy cost increase and delays, analysts say

A full ban on the Chinese company could cost British operators £1.5bn and set back further investment in the network

In January, the UK government excluded Huawei from supplying sensitive parts of the 5G network and capped its market share to only 35 per cent in the non-sensitive areas. Reuters

Untangling Huawei from the UK's fifth-generation telecoms network would “compromise” the country's position as a global 5G leader and be a “costly” affair for the telecoms industry, according to industry analysts.

"UK operators are using Huawei equipment extensively in their networks … any effort to replace it will be a costly and arduous task," Matthew Kendall, chief telecoms analyst at the Economist Intelligence Unit, told The National.

The UK government is working on a draft to fully phase out Huawei from the country's 5G networks by 2023 over security concerns, according to the Daily Telegraph.

“The timing is also hostile … [as] operators are experiencing increased demand for data and adverse financial headwinds in relation to the coronavirus," said Mr Kendall.

Eliminating Huawei would not only compromise the UK's position as 5G leader but also erode competition from the market, according to Neil Campling, co-head of Mirabaud Securities’ Global Thematic Group.

Currently, there are four leading 5G equipment manufacturers – Swedish company Ericsson, Finnish brand Nokia and Chinese firms Huawei and ZTE.

“If you typically prefer only two companies for procuring equipment … the process of competitive tendering will be hardly competitive. By potentially removing Huawei and ZTE, you are forcing out half of the competition from the market.”

If uncertainty continues to rumble on about the involvement of Chinese firms in the UK network, then 5G investments will stall, said Mr Campling.

“Whereas, China is moving fast and has installed hundreds of thousands of 5G base stations. It is likely to have 150 million 5G subscribers by the end of this year.”

Telcos such as Vodafone and BT have already raised concerns over the potential banning of Huawei in the next three years and are reportedly lobbying against such a move.

Vodafone UK's chief technology officer Scott Petty said last week that the UK’s lead in 5G will be lost if mobile operators are forced to spend time and money replacing existing equipment.

When the UK government first limited the role of Huawei in January, BT’s chief executive Philip Jansen estimated there would be an impact of around £500 million (Dh2.3 billion) over the next five years.

Vodafone and BT together hold almost 50 per cent of the market share in the UK as of December 2018, according to research company Statista.

Vodafone has been one of the strongest critics of a potential ban on Huawei equipment as the manufacturer already provides a significant amount of its existing infrastructure. This would be very costly to replace, said Mr Campling.

“Vodafone has a point … why should it pay the UK government millions for 5G spectrum, then be held hostage and forced to overpay for equipment from a limited list of suppliers,” he said.

In February, a report from media and telecoms specialist Enders Analysis estimated a full ban on Huawei from supplying equipment could cost UK networks £1.5bn.

Even if the UK government were to compensate the operators for any losses incurred, “they don’t own a working time machine that can undo the delays”, said Michael Davies, senior lecturer at Massachusetts Institute of Technology, who also runs the New Technology Ventures programme at London Business School.

“These changes in policy will make all would-be investors more nervous, they will delay investments and in some cases may not make them at all,” said Mr Davies.

“There are real big costs involved ... and it’s more expensive to remove equipment and replace it, than it is to just get it right the first time.”

Huawei's presence in existing 4G networks makes its complete removal from 5G difficult if the UK wants to roll out the network at any time soon, according to Joao Sousa, senior partner at Delta Partners.

“Currently, 5G is deployed on a non-standalone version, where operators still use the 4G network as an anchor to launch the new fifth-generation connectivity,” said Mr Sousa.

“As operators are widely using Huawei equipment in their 4G networks so they need to upgrade or replace the entire core [that controls the network] and the antennas,” he said.

“Replacing components will cost money ... [and] also delay the 5G rollout if operators are unable to replace the equipment for any reason.”

Non-standalone and standalone are two 5G tracks that operators can opt for while transitioning from 4G to the next-generation mobile technology. Telcos start with non-standalone and once the 5G coverage is established, they implement the standalone 5G.

“Huawei can be taken out of the core by the time of the complete 5G standalone rollout but it will take five-to-eight years from now to take them completely out of the access network,” Mr Sousa said.

With mounting US pressure on the UK to oust Huawei, industry analysts see this issue becoming more difficult.

“For decision-makers in both London and Washington, the argument is largely political. They fear the possibility that China will steal a lead in the 5G race, putting it on a better footing and garnering an economic edge,” said Mr Kendall.

The UK government in January defied lobbying by the US and allowed Huawei a limited involvement in building the high-speed network. However, it excluded the firm from supplying "sensitive" parts of the 5G network and capped its market share to only 35 per cent in non-sensitive areas.

The US is clearly intensifying political pressure on the UK to reverse its policies, said Mr Davies.

“Its position is very difficult, more or less like the man in the middle. If it does change its mind it will also have a much longer, wider and deeper chilling effect on [5G] investment ... that alone demands careful consideration,” he added.

The US is exerting pressure on many countries to slow Huawei’s progress because the Chinese firm has the most advanced technology in the world and is helping China get ahead on 5G, said Mr Campling.

“There is some $12 trillion (Dh44tn) of economic gains to be had from 5G between now and 2035 so there is a lot of money to fight for. The US doesn’t want China’s first move advantage to be so significant that it becomes insurmountable.”