On Tuesday 14th July, the Digital Secretary, Oliver Dowden, announced a ban on Huawei’s role in the UK’s 5G network and indicated a similar ban could be coming for fibre. Below we consider the impact on mobile operators, fibre providers and the UK digital economy, as well as exploring what next for those involved.
The government first announced a partial ban on Huawei kit in the UK’s 5G networks back in January 2020. The limits imposed at the time restricted the use of Huawei equipment in the core part of the network, responsible for routing calls and authenticating users, but allowed Huawei kit, in a network’s periphery to a threshold of 35%, which enables mobile devices to connect to the rest of the network1. Fast forward six months and a lot has changed. The UK’s total ban is seismic and leaves many of the network operators with a set of difficult decisions.
So what have the UK government decided? The headline restriction and arguably the biggest turnaround is the complete ban of all Huawei 5G kit. This means that from January 2021 mobile providers will be banned from purchasing new 5G equipment from the Chinese tech giant. The government have also recognised that Huawei equipment forms part of some existing infrastructure, so to address this, operators have been given until 2027 to remove all Huawei 5G kit it from their networks. The new requirements will be set out in law by the Telecoms Security Bill, due to be introduced into Parliament this Autumn.
Broadband networks are also affected but the government has been less clear, advising firms to “transition away” from Huawei equipment in their full-fibre offerings. A technical consultation will be launched to determine the transition timetable, but a final decision is expected within the next two years.2
Gridlock in the digital fastlane – The bad & the good
On the surface, this decision seems like bad news for network operators, the digital economy and end consumers. The long and drawn out process of rolling out 5G across the country is well and truly underway for all four of the UK’s main operators which include BT/EE, O2, Vodafone and Three. In response to the announcement the Digital Secretary estimated that the cost of the moves when coupled with earlier restrictions against Huawei would be up to £2bn, and result in a total delay to 5G rollout of "two to three years".3 But is this decision really as bad as it seems?
Prior to the government’s recent turnaround, senior leaders from across industry warned of blackouts, potential loss of service and increased costs if the transition period for replacing Huawei equipment was any less than five years. A shorter transition period would also affect operators’ ability to meet government mobile and fibre connectivity targets as resources would have to be focussed elsewhere.
Fortunately, the government seem to have recognised these concerns by enforcing a seven-year transition period which will help to minimise disruption and cost. BT Chief Executive Phillip Jansen has estimated that the new restrictions will cost no more than the original £500m4 allocated to comply with the original 35% cap announced in January 20205. The longer transition period will allow existing Huawei equipment to naturally come to the end of its useful life before being replaced as opposed to new kit being ripped out prematurely which would have significantly added to the cost of transition. Not only will this reduce the pressure to complete the transition, but it will also help to keep the costs of doing so to a minimum.
The only operator that appears to have escaped the decision lightly is O2. As the only operator to have decided against installing Huawei equipment in their 5G network, opting for a combination of Ericsson and Nokia instead6, O2 have the enviable position of being able to focus on steaming ahead with their 5G rollout plans. Whilst the competition will have to re-focus resources and deliver significant programmes to replace Huawei equipment, O2 have a golden opportunity to strengthen their brand and establish themselves as the 5G front runner. Whether calculated or not, the competition will have to be wary of the position that O2 are now in.
As it stands, there are only a handful of viable alternative suppliers for mobile network equipment replacement in the required timescales, including Ericsson and Nokia. Both are well established in the UK and experienced network equipment providers, and as Huawei’s biggest competitors, have stated their confidence in stepping in7 however there will be challenges to scale and meet demand at the required price points.For Vodafone, EE and Three, the challenge of removing Huawei 5G equipment over the next seven years may not seem as daunting as it could have been, however there will still be issues that need to be addressed.
Another issue arises by removing Huawei from the equation – less competition. To tackle this the government are in talks to invite Samsung and Japanese supplier NEC8 to participate in a trial programme called “5G Create”, an open competition whose aim is to explore and develop new use cases and 5G technical capabilities, with the possibility of applicants entering the UK market. If successful, this would help to diversify the market and go some way to guaranteeing the UK’s 5G rollout plans and add a much needed layer of resilience to 5G equipment supply chains.
Two things are certain, 5G will cost network operators more to implement and roll out plans will be delayed. If network operators were grappling with how to monetise their new 5G networks before, the new restrictions have created an additional challenge. If operators fail in their attempts to get government to pay for replacement programmes then the bill will presumably land squarely at the feet of the consumer. It’s quite normal for initial offerings of new technologies to be expensive. Since its introduction in 2012, the cost of 4G services have declined by 31%9 and this is combined with an exponential increase in data usage so not only are consumers paying less, they’re getting more for their money. This will eventually be the case for 5G, but given that the technology requires much more up front capital than its 4G predecessor (which now looks likely to be compounded further) it may take longer for any price declines to trickle through. As well as being unattractive for consumers, this could also potentially have a negative impact on 5G uptake which is not a desirable outcome for operators looking to recoup their up-front costs.
The fibre waiting room
So far, the focus has solely been on the UK’s 5G network but what about fixed line fibre? The government haven’t been quite as direct, but the advice is mostly the same – ditch Huawei, although this may not be quite so easy to achieve.
Fibre to the premises, or FTTP, is currently available at approximately 3 million UK households11 - Huawei’s share of this market is 44%. This amount of equipment will not be easy to replace which might account for the government’s reluctance to enforce an outright ban – for now. The government have already diluted their target of delivering full-fibre broadband to all households by 202512, announcing instead a target to deliver “world-class, gigabit-capable digital infrastructure across the country”. A date for achieving this new target has not been set but the government will also be aware of the impact any ban may have on their fibre rollout targets. Openreach are currently responsible for delivering the majority of FTTP connections and a demand to remove Huawei kit would significantly slow down their rollout plans, leaving customers with inadequate connections for the foreseeable future. With this in mind, Openreach added ADTRAN, an American equipment provider, to their list of approved suppliers in May 2020.13 ADTRAN also supply kit to alternative network ISPs Zzoomm and toob in the UK.
Potential domino effect and response – The ugly
The move by the UK could act as a catalyst to encourage other undecided nations to follow suit. Canada and Germany are both under increasing pressure to act against Huawei and limit the company’s role in their telco networks. If enforced, this would probably frustrate China further and some fear that the Chinese government might enact restriction in response, that would impact the ability of competitors to provide the UK with the mobile and fibre equipment it so desperately needs.
Prepare to react
Together the increased costs and longer rollout timelines will have knock-on effects, impacting the broader UK digital economy, slowing the growth of IoT, deepening the digital divide and weakening the UK’s digital standing on the international stage. To summarise, the impacts of the government’s announcement fall broadly into three categories:
- Good – the 7 year transition period gives operators a reasonable amount of time to comply with the restrictions at little or no extra cost when compared with the government’s original announcement
- Bad – without question this decision will disrupt 5G and fibre rollout setting the UK back compared to other nations
- Ugly – China’s response to this decision is yet to be seen but there is already speculation that the UK can expect some form of response that’s likely to cause further disruption
Much of the response to the government’s announcement will and has been reactionary, but that doesn’t mean that organisations can’t take proactive steps now and, in the future, to avoid similar pitfalls. As we move forwards, we would recommend organisations take the following three steps:
- Diversify the supply chain – this decision may not have come as a surprise, but it does highlight the risk of over reliance on a single or very small group of suppliers. Network operators should continuously carry out scenario planning to identify weaknesses in their supply chain and develop mitigation plans to remedy any situations that become reality. They may also want to consider working with the industry to encourage new entrants to build further diversity and competition.
- Be more nimble – no longer can organisations expect a long drawn out consultation period before a decision is made. Although the government do seem to have listened to industry concerns in part, it would be unwise for operators to expect any lengthy consultation on future decisions. Operators will need to adapt to find new channels through which to communicate with government and influence policy. Also, a scenario planning approach will need to be adopted to anticipate updates to rules and regulations in an attempt to get on the front foot and build resilience in plans.
- Predict the unpredictable – if the last six months have taught us anything it’s that we’re living in a much less predictable world. The global pandemic has tested organisations business continuity plans the world over and the telco industry has not been exempt. The new way of working has stretched network infrastructure capacity and network rollout and repairs have been put on hold. To effectively navigate the rocky road ahead organisations will have to focus on resilience. For example, business continuity plans will need revisiting and updating against every possible scenario regardless of probability to guarantee normal operations in the event of a crisis.
Whilst no one can predict what will happen next – the UK’s telcos will have to remain flexible to meet demand and ensure customer and quality of service aren’t negatively impacted.
If you would like to get in touch to discuss the above challenges and opportunities for your organisation as we rethink and reimagine a new normal, please don’t hesitate to contact Matt Toogood or Dominic Tritton.
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