BT: UK.gov ruling on Huawei will cost us half a billion pounds over next 5 years

And judging by today's Q3 numbers, that won't be welcome

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BT is factoring in a £500m financial cost over the next half decade in light of the UK government's decision to limit the amount of Huawei gear used in the building of the country's 5G and gigabit-capable networks.

Just days ago, Huawei was singled out by politicians and the National Cyber Security Centre as a high-risk infrastructure choice, a so-called "risky" vendor due to its HQ being in China and perceived espionage concerns.

No outright ban of Huawei network kit is proposed – although it will continue to be excluded from the core – but it will be permitted to constitute no more than 35 per cent of a local telco's non-core elements of 5G and fibre-to-the-home networks.

Chief exec Philip Jansen said in a statement accompanying its third quarter results that the safety of its network infrastructure is "paramount".

"We therefore welcome and are supportive of the clarity provided by government around the use of certain vendors in networks across the UK and agree that the priority should be the security of the UK’s communications infrastructure.

"We are in the process of reviewing the guidelines in detail to determine the full impact on our plan and at this time estimate an impact of around £500 million over the next five years," he added.

Huawei is BT biggest telco equipment supplier - it has sold network access gear to BT for well over a decade: a trading agreement kicked off in 2003 and was used to build BT's fixed and mobile networks. The pair also linked arms in 2017 to create the UK's first lab test of an end-to-end 5G network.

Telcos have three years to implement the UK directive. BT has already started to expunge Huawei from the core of EE's 4G network, but was very much involved in the non core elements of its 5G rollout. While almost every vendor would have anticipated a continuation of the policy that so-called risky vendors would need to be excluded from the core of their networks, they might not have expected to be told that Huawei kit would be limited to just a fraction of deployments.

A BT spokesperson told us that while BT does not make public the specific amount of Huawei kit used in non-core element of its 5G network, "it is more than 35 per cent, and so we will have to pare that back over time and will be compliant in the timeframe required."

O2 is the only major operator that doesn't rely on Huawei.

The EU has hit upon a similar arrangement to the UK, restricting the amount of Huawei equipment that can be used to build networks in countries across the bloc. Both the UK and EU's decision hasn't exactly pleased US politicos, a number of which have lobbied hard to get Huawei kicked out of Western comms infrastructures.

BT (and subsidiary EE), along with Vodafone and Three may breathe more easily now that the UK government has finally cast judgement on Huawei, a decision that they'd been waiting for since March 2019.

What hasn't met expectations - tenuous link, sorry about that - is BT's Q3 financial results for the quarter ended 31 December: revenue was down 3 per cent year-on-year to £5.779bn.

It was down almost across the board for BT's divisions: Consumer dropped 2 per cent to $2.701bn; Enterprise fell 6 per cent to £1.495bn; and Global Services shrank 10 per cent to £1.084bn. Openreach was the only part of BT that bucked the trend, growing 2 per cent to £1.281bn.

BT said "headwinds from regulation" and continued declines in the fixed base caused the drop in Consumer. The fall in Enterprise was due to fewer traditional fixed voice calls. And legacy portfolio declines in Global Services shaped its lower sales. Higher rental bases in fixed fibre products came good for Openreach.

Profit before tax was down 3 per cent due to the revenue slide, as well as higher spectrum fees and operating costs in Openreach.

Of course, the £500m hit from the Huawei decision won't help. Small beans in the grand scheme, maybe, but every little helps. ®

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