(Bloomberg) -- The U.K.’s decision to clip the wings of China’s Huawei Technologies Co. will force a redrawing of Britain’s telecom supply chain as phone carriers upgrade their broadband networks.
The government, worried that Huawei’s share of the mobile equipment market would almost double to 65% in three years, imposed a limit of 35% on the tech giant for next-generation networks. Huawei and other so-called high-risk vendors were also barred from sensitive “core” components, as well as nuclear sites and military bases, on Tuesday.
Prime Minister Boris Johnson’s government is trying to open the market to alternative suppliers to Huawei, and not just its existing main rivals from the Nordics, Nokia Oyj and Ericsson AB. Analysts say that’s now likely to happen.
Bloomberg Intelligence pointed to opportunities for U.S. vendors Cisco Systems Inc., Ciena Corp. and Juniper Networks Inc., in a note by analyst Woo Jin Ho, while New Street Research analyst James Ratzer said South Korea’s Samsung Electronics Co. could win work.
“There is now the chance Samsung come in here,” Ratzer said, arguing that the company’s expanding presence in the U.K. could help keep any price increases sought by Nokia and Ericsson in check.
The policy move was largely expected after months of leaks and public discussion. And it’s far from the outright ban sought by the U.S. -- the worst-case scenario for U.K. operators like BT Group Plc, Vodafone Group Plc and CK Hutchison Holdings Ltd.’s Three U.K. But it will mean those companies have to tweak their 5G roll-out plans, with Three U.K. the most affected.
Three Impact
Three U.K. had contracted Huawei to be the sole vendor for its 5G radio-access network -- now in the early stages of construction -- and will now have to share the work with another supplier. The company’s 5G roll-out was already behind schedule. Dave Dyson, chief executive officer, said in a statement that the company is “reviewing the detail” of the new rules.
“They took a calculated risk, because they knew there was a risk that the government would not allow 100% usage of Huawei,” said John Strand, a consultant for mobile carriers.
BT and Vodafone, which both rely heavily on Huawei for 4G and for the 5G radio-access networks being built, said they were reviewing the detail of the decision. A BT spokesman said it was too early to comment on potential costs and impacts, and a spokesman for Vodafone said the company aimed to limit any disruption to customers.
While the U.K. ruling will create some headaches for phone carriers, it was designed to ensure there won’t be delays upgrading Britain’s telecom networks to the latest technology, by still allowing Huawei to play an extensive role. BT’s EE, the biggest mobile carrier, is expected to face little disruption from the new rules, said Bloomberg Intelligence analyst Matthew Bloxham.
RAN Spending
In the U.K., Huawei will still be allowed to supply the radio-access network gear that will account for the bulk of investment in new mobile networks. RAN equipment will account for about 80% of 5G mobile spending by carriers in most markets in the later stages of 5G, according to industry lobby group GSMA.
Huawei executives, while relieved about the decision to keep the U.K. market open to the firm, said it was too early to comment on any financial impact. They said the company could lose some of its work with the four main U.K. carriers in order to comply with the market share cap.
“We have probably higher than 35% in two, and lower in another two,” said Huawei Vice-President Jeremy Thompson said on a call with reporters. There is no guarantee it can win more business with the other two, he said.
Huawei currently supplies about 44% of the market for full-fiber components -- exceeding the cap -- but Thompson said the market is at a very early stage, “so there is plenty of scope for continued growth” over time, while still complying with the rules. BT’s fixed network division Openreach had anticipated headwinds around the Shenzhen-based manufacturer and started looking for more vendors in recent months to diversify its supply chain.
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