What will the UK’s rejection of Huawei cost?

REUTERS/Toby Melville
REUTERS/Toby Melville
Image: REUTERS/Toby Melville
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The British government has banned Chinese telecom giant Huawei from its 5G network.

Culture secretary Oliver Dowden told the House of Commons that UK mobile providers will be prevented from buying Huawei 5G equipment after December 31 under a revised telecommunications bill that the government will table for a vote in the fall. Dowden also announced that providers with Huawei kit in their networks must remove it by 2027.

This decision has been weeks in the making, and will likely further damage the relationship between London and Beijing, although Washington is likely celebrating it. Acknowledging the geopolitical nature of this decision, Dowden said that the UK wants “a modern and mature relationship with China based on mutual respect.” (The UK also seeks a post-Brexit trade deal with the US.)

Initial responses from anti-Huawei British lawmakers have been critical, and Beijing is likely to retaliate.

Why did the UK ban Huawei?

Huawei has been active in the UK since 2001, and is a major part of the country’s telecommunications infrastructure. But US intelligence officials claim that Huawei is connected to the Chinese Communist Party and military, and that its equipment carries risks of spying and sabotage. The company strongly denies these accusations: Ren Zhengfei, Huawei’s founder, has said that he would “rather shut Huawei down than do anything that would damage the interests of our customers.”

In spite of US pressure to ban Huawei from the UK, prime minister Boris Johnson decided in January to allow Huawei partial access to the non-sensitive parts of his country’s 5G network. The UK already considered Huawei a “high-risk vendor,” and scrutinizes its products more than any other in the industry, through a special body called the Huawei Cyber Security Evaluation Centre (HCSEC) Oversight Board. In its yearly reports (pdf), HCSEC has warned of significant security risks, but always stopped short of recommending that the company be banned from the UK’s network entirely.

The situation took a major turn in May, when the US barred companies that use American technology or software from selling essential semiconductors (Quartz member exclusive) to Huawei. In response, Downing Street launched an emergency review to see how this ban would affect the security of Huawei equipment in the UK. At the same time, some lawmakers from Johnson’s Conservative Party threatened to hold up all government bills if he did not commit to banning future Huawei kit and stripping existing Huawei kit from the UK’s network by 2023, when the current parliament automatically dissolves in preparation for a general election. And Beijing’s decision to unilaterally impose a restrictive security law in Hong Kong, a former British colony, has further soured Sino-British relations.

Now, the National Cyber Security Centre has revised its assessment of Huawei technology and found it to be unsafe as a result of the US ban. Members of the Commons’ Huawei Interest Group have already criticized the government for setting a date that is seven years away for the complete phase-out of Huawei kit.

Huawei wrote in a statement that the government’s “disappointing decision is bad news for anyone in the UK with a mobile phone. It threatens to move Britain into the digital slow lane, push up bills and deepen the digital divide. Instead of ‘leveling up’ the government is leveling down and we urge them to reconsider. We remain confident that the new US restrictions would not have affected the resilience or security of the products we supply to the UK.”

How much will the UK’s Huawei decision cost and how long will it take?

In his statement, Dowden said that the decision to ban Huawei by 2027 would delay the UK’s 5G rollout by two to three year and cost up to £2 billion ($2.5 billion) more.

In recent weeks, some UK operators have gone into overdrive to convince government officials that banning Huawei would be too costly, take too long, and hold the country back in the race for the kinds of innovations 5G technology could enable. BT’s CEO Philip Jansen told the BBC yesterday that it would take five to seven years to phase Huawei kit out of the UK’s 5G infrastructure, and at least a decade to get it out of the country’s telecoms infrastructure entirely. Speaking to the House of Commons last week, Andrea Dona, Vodafone’s head of networks in the UK, said the change would cost “single-figure billions.”

Some experts in the 5G space disagree that the change would be so costly or onerous. Iain Morris, news editor for the 5G-focused publication Light Reading, recently wrote that operators were overstating the costs of getting rid of Huawei gear, and performing “the ultimate form of vendor lock-in: a bill so monstrous you can never leave.”

John Strand, founder of the industry research group Strand Consult, argues that 4G radio access networks (RAN) equipment is not upgradeable to 5G, which means that UK providers who use Huawei must upgrade their equipment anyway, incurring “a sunk cost…which must be subtracted from the total cost of using Huawei.”

The true costs of phasing out Huawei are hard to predict and will vary across regions and providers. According to Strand Consult research in 2019, roughly 40% of the UK’s 4G RAN equipment was made by Huawei, the only Chinese vendor in Britain’s telecommunication network. That is much less than in Austria or Belgium, where 100% of 4G RAN equipment was made by Chinese vendors.

Individual UK operators also don’t all have the same level of reliance on Huawei equipment. O2 uses only Ericsson and Nokia equipment in its UK 5G network, while Vodafone and BT’s EE use mostly Huawei equipment.

“Vodafone and BT took a calculated risk to buy Huawei,” Strand told Quartz in an email, “and it backfired. It appears increasingly that the companies must live with the consequences of their decisions.”

Andre Pienaar, founder of C5 Capital, an investment group focused on technology, argues there are also economic benefits attached to switching suppliers, such as “new opportunities for British innovation and jobs as Huawei’s old-fashioned hardware products are replaced with innovative and open software solutions.”

“The new risk mitigation measures announced this week by the Government are in the interest of consumers who deserve the best cybersecurity standards to protect their privacy and safety,” he said.