Operators fear domino effect across Europe of UK’s anti-Huawei decision
The UK’s mobile operators have taken calmly yesterday’s announcement that it will be illegal to buy Huawei for 5G services after the end of the year.
The government abandoned its previous ruling, in late January, that Huawei was limited to 35% of the network. Instead all kit from the Chinese vendor will have to be removed from 5G systems by 2027 by law – giving operators plenty of time to adjust.
But they had already seen the way the tide was turning against Huawei, ever since the US changed its rules in May. Previously no US companies could supply chips to Huawei. Now, no chip makers, even outside the US, using US design software can supply Huawei.
This was the fatal blow to the company’s plans to supply most UK operators with 5G equipment.
However, one source within the mobile industry, talking to Capacity on the understanding they would not be named, said: “There is an existential fear that this is a contagion that will spread across Europe – that it will be replicated. There could be a domino effect.”
BT, which owns the EE mobile network, said it thought yesterday’s announcement will mean no increase in costs over what it expected after the January decision. In a note to investors, the company said: “Now we have clarity on the timing, it is estimated that these costs can be absorbed within BT’s initial estimated implementation cost of £500 million, as announced by BT on 30 January 2020 in order to comply with the previous proposal.”
BT will benefit from a prescient decision taken by EE some years ago, to diversify its supply chain by adding Nokia into what was previously an all-Huawei network.
BT CEO Philip Jansen said: “We believe the timescales outlined will allow us to make these changes without impacting on the coverage or resilience of our existing networks. It will also allow us to continue to roll out our 5G and full fibre networks without a significant impact on the timescales we’ve previously announced.”
Telefónica’s O2 UK is hardly affected at all by the decision. Capacity understands that the company uses Nokia and Ericsson for its 5G infrastructure, with no Huawei kit in the core network. In the RAN, O2 is replacing any Huawei kit, which anyway amounts to only 0.3% of the total, according to Capacity’s sources.
O2 UK took a strategic decision several years ago not to use Huawei – a decision that is notably different from the rest of Telefónica, which is heavily reliant on the Chinese company.
However, in December 2019 Telefónica said it would drastically reduce its dependence on Huawei in Spain and Germany. Reuters quoted the company’s chief technology and information officer Enrique Blanco saying this was “a purely technical decision”.
Huawei will disappear from core networks by 2024, said the Reuters report. Blanco turned down Capacity’s request for comment yesterday, passing on our question to the group’s corporate information office.
According to Bloomberg in December 2019, Telefónica will source some of its 5G kit from Huawei for its O2 network in Germany – though that decision is subject to any new security rules from the German government, which might be influenced by the UK decision.
Earlier this week TIM, the Italian operator that used to be Telecom Italia, said it would not accept tenders from Huawei for its 5G equipment in Italy, perhaps reinforcing fears that the UK decision – taken as a result of pressure from the Trump administration – would be followed by operators in other parts of Europe. TIM’s decision also applies to Brazil, where the government, headed by Jair Bolsonaro, is fiercely pro-Trump.
Three UK, owned by Hong Kong’s CK Hutchison, said: “We note the announcement and will fully comply with the government’s decision. We are working through the NCSC [National Cyber Security Centre] guidance to understand what it means for our network investment plans.”
Capacity understands that Three had already chosen Nokia to provide its core 5G network. Huawei supplies less than 25% of Three’s radio access network (RAN) – elements the company will have years to replace.
Last year Scott Petty, CTO of Vodafone UK, said the company already uses some Huawei technology in part of its 4G RAN and it currently planned to upgrade those base stations to 5G using the same vendor. Helen Lamprell, the Vodafone UK’s general counsel and external affairs director, said in the same briefing that if an embargo on Huawei left only two vendors for main parts of 5G infrastructure – Ericsson and Nokia – that would remove “their incentive to improve”.
Petty said in March 2019 the company’s 18,000 4G base stations in the UK are split between Huawei, with 32%, Nokia, with 12%, and Ericsson, with all the rest, about 56% – though the Nokia kit is about to be replaced with Ericsson, he said. Huawei is “low risk” in the RAN, he said then. Now Vodafone will have to change its policy for its 5G roll out in the UK.
Other European networks of Vodafone and perhaps other operators will find it harder to replace Huawei. Last month Capacity exclusively revealed details of a report from Copenhagen-based Strand Consult that said Vodafone Czech Republic, Greece, Hungary and Romania relied 100% on Huawei.
Yesterday’s UK government decision will not affect 2G, 3G and 4G installations, as well as 5G kit installed by 31 December 2020, which is why the industry as a whole is relieved at the extended timeline for the removal of Huawei from 5G by 2027.
By then it’s likely that there will be a vestigial 2G service, with little or no 3G, and continuing 4G alongside new 5G. The main purposes of 2G and 3G will be for international roamers and for internet of things (IoT) services, many of which are on 10-year contracts signed only a few years ago.
Vodafone UK said: “We acknowledge the government’s understanding of the complexity of this issue and the desire to minimise disruption to consumers, businesses and public services through an adequate timeframe for implementation.”
Vodafone UK is “disappointed because this … will add delay to the roll out of 5G in the UK and will result in additional costs for the industry. We will work with the government to address the implications of this decision, including the cost and the need to increase vendor diversity through Open RAN.”
However, executives agreed that the chances of winning compensation from the UK government were slight, even though, as one said “we followed all the rules” that were in place until yesterday.
O2 UK will be able to point to its decision not to use Huawei in its core or in almost all of its RAN. “They will say, ‘You should have done what we did,’” said a competitor.
The UK decision, announced in the House of Commons in Westminster by Oliver Dowden, the secretary of state for digital, culture, media and sport (DCMS), was the result of changing guidance from the UK’s NCSC, which analysed the impact of changing US regulations.
NCSC technical director Ian Levy said in a blog published yesterday that the new US rules say that “no one, anywhere in the world, can send Huawei-designed chips to Huawei if US technology was used in the design tools or manufacture processes”.
That doesn’t just mean that Huawei can’t use design tools that contain US technology, said Levy. “It also means no one else can take a Huawei design and turn it into chip manufacture instructions … using tools that contain US technology.” US technology is “pretty pervasive” in chip foundries, noted Levy drily.
The alternative, to use chips designed and made without US technology, “is a big task”, said Levy. “Assuming you can find someone to design a chip that’s near enough to the original, the integration into the wider product is a very complex job.”
He warned: “This can’t be a direct replacement for a Huawei-designed chip, because then at least some of the design will be Huawei’s, and so likely caught by the rule. This is a really complex engineering task.”
The alternative, wrote Levy: “Someone makes new design tools and manufacturing processes for chips that don’t use any US technology and so can provide Huawei what they need. Good luck doing that quickly.”
And there’s a third choice: break the law. “Any organisation buying the equipment would be taking a significant risk.”
He said that UK telcos can continue using existing Huawei equipment in the UK, subject to the NCSC’s existing mitigation strategy, but “operators need to procure enough spares to maintain the equipment for the expected lifetime”.
However, “operators should seek to cease procuring and deploying Huawei 5G access equipment, all transport equipment, and other miscellany to manage the long-term risks of the newly designed products”, he wrote.
He also said operators should seek to cease procuring and deploying fibre-to-the-premises (FTTP) access equipment from Huawei. “It may take a bit longer for rollouts to cease in this case, so DCMS are going to work with industry to establish a manageable timeframe.”