BT to take half-billion pound hit on Huawei kit replacement

While the nation’s telcos collectively welcomed Huawei’s continued – albeit restricted – right to supply essential technology for their networks, the cost implications of the UK government’s decision to restrict access to such kit has been shown clearly by BT’s warning that it could have a potential impact of around £500m.

Concluding its Telecoms supply chain review, the UK government announced on 28 January that new restrictions are to be placed on the use of “high-risk” suppliers, such as Huawei, in the UK’s 5G and gigabit-capable networks.

The advice was that such suppliers should be excluded from all safety-related and safety-critical networks in critical national infrastructure; excluded from security-critical “core” functions, the sensitive part of the network; excluded from sensitive geographic locations, such as nuclear sites and military bases; and limited to a minority presence of no more than 35% in the periphery of the network, known as the access network, which connect devices and equipment to mobile phone masts.

Huawei’s 5G-enabling technology, along with non-4G kit, has long been present on the operators’ networks. If forced to remove Huawei from the network, such as in the many base stations, the operators calculated that the cost would run into hundreds of millions of pounds and would dramatically affect their 5G business case, effectively meaning a refresh of 4G networks to overlay new 5G technology.

Yet, as shown by BT as it announced its third-quarter results, while the government’s decision was not the nightmare scenario that had been feared, there was still a big price to pay.

Commenting on the results, which were somewhat below expectations, BT chief executive Philip Jansen revealed that the company is in the process of reviewing the government’s guidance in detail to determine the full effect on BT’s plans. The company estimated the decision had a potential impact of around £500m over the next five years, he added.

Huawei has been a key supplier of 5G and 4G equipment to not only BT, but to the acquired EE mobile business line. BT’s 5G network is active in 50 locations in the UK, and the company has already successfully demonstrated use cases for the next-generation network in manufacturing sites and health facilities around the UK, among other deployments.

Accepting the general direction of the new guidelines, Jansen remarked: “The security of our network is paramount for BT. We therefore welcome and are supportive of the clarity provided by government around the use of certain suppliers in networks across the UK, and we agree that the priority should be the security of the UK’s communications infrastructure.”

For the third quarter of 2019, BT reported revenue of £17.2bn, down 2% compared with the third quarter of 2018, due primarily to what BT said were ongoing headwinds from regulation, competition and legacy product declines.

Reported profit before tax was £1.9bn, and adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) was £5.9m, down 3% on an annual basis due to the fall in revenue, higher spectrum fees, investment in customer experience and higher operating costs in its Openreach broadband network provision division.

Since the back end of 2019, Openreach has accelerated its plan to roll out full-fibre broadband across the UK, especially to traditionally hard-to-reach places.