The Numbers That Show It’s Hard for Britain to Ditch Huawei

(Bloomberg) -- Britain is rethinking its cautious welcome of Huawei Technologies Co. into the country's fifth-generation mobile networks. Walking away from the Chinese technology giant won't be easy, or cheap.

Growing tensions with Beijing have led Prime Minister Boris Johnson's government to seek out credible alternatives to Huawei's antennas, routers and switching gear, Bloomberg reported on Wednesday. That could win him favors from Washington, which has urged its allies to ban the company.

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Yet British carriers are already building 5G networks using Huawei. Any other supplier -- even Huawei's big European rivals Nokia Oyj and Ericsson AB -- would struggle to fill the void.

35%

Intelligence officials want the government to make Britain's networks less vulnerable to spying and sabotage of services and infrastructure. So the government has set out measures to tighten security and oversight of the four mobile networks -- BT Group Plc's EE, Vodafone Group Plc, CK Hutchison Holdings Ltd.'s Three UK and Telefonica SA's O2.

The rules are due to reach Parliament later this year for approval. However, several lawmakers from Johnson's own party have pushed back, saying Huawei must have no role in 5G.

That would send a shock wave through Britain's telecommunications supply chain. The Chinese vendor already accounts for about 35% of the antennas that transmit signals using current 4G technology. With BT, Britain's dominant phone company, it's more than half.

Those aging systems are now under strain from bandwidth-hogging applications such as mobile video, so carriers are desperate to upgrade to 5G. As that equipment must be compatible with 4G, it's far simpler if it all comes from the same supplier.

2023

Since 5G services were launched in Britain, Huawei has further tightened its grip. Most 5G antennas used by BT and Three are from Huawei and the Chinese company makes up a large proportion of Vodafone's new network too. 5G networks are far from complete, and the industry is set to install more gear from Nokia and Ericsson later. But Huawei's early advantage makes it harder and costlier to backtrack now.

It hasn't all gone Huawei's way. U.K. security officials wary of the risk that Huawei's systems could be commandeered by hackers or hostile states are making sure its gear cannot be used in the most sensitive “core” of mobile networks -- the part where data are gathered to be processed and redistributed. BT is due to switch the core of the EE network from Huawei to Ericsson before 2023. Other carriers say they don't use Huawei in the core.

Still, U.S. officials have said the idea of core and non-core is a gray area with 5G, in which much of the data are processed on the periphery. What's more, Huawei has been involved in other sensitive projects, for example working on a security gateway for O2's network. Personal profiles of some telecom engineers on LinkedIn say they are integrating a real-time payment system from Huawei with O2's core.

500 Million

BT said in January that the 35% cap on Huawei 5G and fiber broadband equipment imposed in January will cost it 500 million pounds ($624 million). That's partly the price of ripping out and replacing much of the underlying Huawei 4G gear inherited when it bought EE.

Banning Huawei from 5G entirely would see those costs multiply across the sector, and inflate procurement spending by dampening competition, effectively leaving Huawei's slice of the market to just Ericsson and Nokia, according to a study commissioned by industry group Mobile UK.

Huawei is considered the market leader and its equipment could be nine or more months ahead of the pack, technology research firm Assembly said in the report. It put the cost to the U.K. economy at between 4.5 billion and 6.8 billion pounds if Huawei is barred, and said 5G rollouts could fall behind by up to two years.

That would look bad for Prime Minister Johnson, who has pledged to upgrade the entire country to gigabit data speeds by 2025. Coronavirus has underlined the importance of Britain's communications infrastructure for millions of voters forced to work from home, and the country now faces a dramatic recession. With the economy is on its knees, it's not a good time to be ripping up and redesigning the nation's networks.