Huawei Headache Returns for Britain’s Government and Carriers

(Bloomberg) -- When Britain said it would limit Huawei Technologies Co.’s role in its next-generation mobile networks, it was supposed to be the government’s last word in a debate that had drawn the ire of U.S. President Donald Trump. But it doesn’t seem to have worked.

The U.K. published the final outcomes of a painstaking 15-month review process in January, which found that the risks of giving contracts to the Shenzhen, China-based tech giant were manageable as long as Huawei’s network share was capped at 35%. The decision rebuffed a U.S.-led campaign to ban it outright.

But Britain’s ruling Tory party is taking a harder line that means the compromise may not get enough votes to pass through Parliament, according to people familiar with the matter. If the plan falls through, the country could risk severe delays to its 5G roll-out, putting it a step behind others in Europe and the U.S. and damaging the economy.

Parliamentary Plan

A telecom security bill meant to put January’s guidance into law was expected in the coming months. After Prime Minister Boris Johnson won a resounding majority in December’s general election, this should have been enough for it to sail through Parliament.

But dozens in his party preemptively moved against him during a vote on a symbolic amendment to a minor, separate telecom bill last month. The growing number of rebels, who include former party leader Iain Duncan Smith, called it a “warning shot” that harder-line policies were needed.

A route forward is unclear. Some rebels may accept a cap lower than 35%. But others are siding with Trump, arguing that security concerns and alleged Chinese government influence over the company mean that it should be banned completely. Huawei has repeatedly said such fears are unfounded.

The latter route would be expensive and convoluted: It would delay Britain’s 5G roll-out by two years and cost the U.K. economy 6.8 billion pounds ($8.5 billion), according to London-based technology analyst firm Assembly Research, harming productivity and risking the loss of key investment in 5G technology like connected factories and automated vehicles.

“It comes at an unwelcome time,” said that report’s author, Matthew Howett. “We’ve all come to realize just how important and crucial connectivity is, and anyone who’s had a poor experience will want those upgrades to happen yesterday, not in another 24 months’ time.”

Overhauling the nation’s broadband is fraught at a moment with millions of self-isolating workers relying on home connections that run over Huawei equipment. The Chinese company makes up more than two fifths of Britain’s fiber-to-the-home access equipment and about a third of its 4G antennas.

“The new 5G networks, which the U.K. government agreed we should help build out, will give the economy a huge boost and create jobs by making it easier to get online or set up a business no matter where you live,” a Huawei spokesman said by email.

‘High Risk’

The U.K. now deems Huawei a “high risk” vendor, like Chinese rival ZTE Corp, which is fully banned from the country’s networks. That label blocks Huawei from the cores of carriers’ networks -- the parts that see and sort sensitive information -- and caps its share of other components, like antennas and routers, to carrying 35% of data in 5G and fiber-to-the-home systems. It also bars it from locations like nuclear sites and military bases.

Since the government’s January decision, working out how to limit the use of Huawei’s equipment in networks has already become a major undertaking for phone companies, which had grown to rely on the company over the past decade. The company has been involved in the 5G roll-out of all the U.K.’s mobile network operators.

In February, BT Group Plc said ripping out some Huawei antennas from its 4G network, which will form the basis of its early 5G system, will cost it 500 million pounds. Cutting out Huawei completely leaves BT and rivals like Vodafone Group Plc reliant on an apparent duopoly: Ericsson AB and Nokia Oyj.

Preparing for its next round of political battles, Huawei is bolstering its connections in the British establishment. This week it appointed Mike Rake to its U.K. board. Rake was once an adviser to former Prime Minister David Cameron and chairman of Huawei customer BT for a decade. He also used to lead the Confederation of British Industry, the country’s biggest business lobby.

Huawei also added a former Tory minister to its lobbying team last month, echoing the playbook of other tech giants such as Facebook Inc., which hired Britain’s former deputy prime minister to help it surmount European regulatory battles.

In the meantime, despite the concerted U.S. campaign to lock it out of allies’ networks, Huawei’s global revenue has continued to soar, up 19% to 859 billion yuan ($121 billion) last year in annual results published last month.

©2020 Bloomberg L.P.