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Analysts: Potential Huawei ban could hurt UK 5G rollout


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Analysts: Potential Huawei ban could hurt UK 5G rollout

U.K. operators' exposure to Huawei Technologies Co. Ltd. was brought into sharp focus by the recent arrest of a top executive at the Chinese telecom giant. However, cutting commercial ties with the vendor could be difficult, especially as operators build out their 5G networks.

Driven by fears that Huawei's technology could be used by the Chinese government for espionage, the U.S. moved to ban federal agencies from purchasing the company's services in 2018. New Zealand and Australia followed by blacklisting all use of the telecom's equipment firm in the rollout of next-generation 5G infrastructure. Japan is also reportedly eyeing a government ban.

While the U.K. government has not imposed any restrictions on Huawei, it identified national security risks associated with its equipment earlier in 2018. Alex Younger, head of the U.K.'s secret intelligence service, MI6, recently issued warnings about Chinese technology companies' involvement in the U.K.'s communications infrastructure.

Regulatory tensions aside, years of slowing revenue streams across the European telecom industry, in particular, have seen many telcos turn to lower-priced Chinese suppliers such as Huawei and ZTE Corp., leaving rival vendors including Nokia Corp. and Ericsson scrambling to gain ground. Huawei made most of its 2017 earnings in China, but Europe, the Middle East and Africa generated US$24.29 billion in revenue – the second highest by region.

Britain is one of the largest markets outside of China that helped kick-start Huawei's international expansion —and those with close ties to the vendor will be impacted by any government restrictions, according to independent industry analyst Dean Bubley.

All four of Britain's network providers – Telefónica SA's O2, BT Group-owned EE, Vodafone Group PLC and Three – have reportedly said that Huawei equipment will not be used in their core 5G infrastructure, but the Chinese vendor's technology will be used in other parts of their networks.

"Operators need a multi-vendor strategy to hedge their bets. At the same time, there is no other network vendor that comes close to serving as many carriers globally as Huawei does at a reasonable price," said independent analyst Paolo Pescatore, who has 20 years of tech, media and telecom research experience.

Affordability is not the only reason carriers choose Huawei. "[Huawei's] products have improved considerably in quality, and state-owned Chinese banks have [offered] Huawei and its customers with favorable terms," according to John Strand, CEO of telecom consultancy Strand Consult.

More crucially, blacklisting Huawei is likely to be challenging for telcos that already use Huawei for their 4G network. "Changing to a different supplier will be difficult, particularly for the early 5G deployments which will require 4G and 5G networks to work in tandem," according to William Webb, former director at Ofcom and CEO of internet of things organization Weightless SIG.

As a major vendor of networking equipment to mobile network operators, as well as the second-largest smartphone manufacturer worldwide, Huawei is already closely involved with all of the main U.K. service providers, according to independent analyst Alex DeGroote. U.K. restrictions on Huawei's equipment could therefore have unintended consequences for the European rollout of 5G, said the owner of DeGroote Consulting, which specializes in sectors including media and internet.

"The fact that 5G may not be backward compatible with other formats and the fact that network changes take a long time to implement [makes] Huawei very hard to usurp," DeGroote said.

Huawei has dismissed the backlash as a temporary setback. In a Dec. 27 blog post, Huawei's rotating chairman Guo Ping wrote, "Huawei has never and will never present a security threat."

Huawei's annual sales revenue is expected to reach US$108.5 billion in 2018, up 21% year over year. The company has signed 26 commercial 5G contracts with carriers and has shipped more than 10,000 5G base stations to markets globally.

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