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MarketScreener Homepage  >  Equities  >  London Stock Exchange  >  BT Group plc    BT.A   GB0030913577


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BT : U.K. to Ban Huawei From Its 5G Network -- 3rd Update

07/14/2020 | 02:47pm EST

By Stephen Fidler and Max Colchester

LONDON -- The British government said it would bar telecom companies from purchasing new equipment made by China's Huawei Technologies Co. for their 5G networks in a further sign of the deteriorating relations between Beijing and the West.

The sharp about-face by the U.K. -- only six months ago it said it could manage the risks of Huawei's presence in 5G -- was a direct consequence of new U.S. restrictions on the sale of Huawei computer chips, the government said. It marks a significant victory for the U.S. policy and is likely to increase pressure on other countries to follow suit.

The decision follows British condemnation of China's imposition of a new security law over the former British territory of Hong Kong. A growing body of British lawmakers from the ruling Conservative Party have been pressing the government to take tougher action against China and recognize it as an adversary.

Tensions between Beijing and the West have heightened since the new coronavirus broke out in China late last year, and what western officials see as an increasingly assertive Chinese foreign policy. This week, U.S. Secretary of State Mike Pompeo condemned China's pursuit of territorial claims to islands in the South China Sea that he described as "completely unlawful."

The U.S. has also positioned warships, including two aircraft carriers, on exercises to the region, heightening tensions between the two sides that have seen rounds of tit-for-tat sanctions in recent weeks over other issues that also include trade, technology, human rights and U.S. defense aid for Taiwan.

The U.K. decision will make purchases of Huawei equipment for the country's 5G networks illegal from the end of this year and give carriers until the end of 2027 to strip out existing Huawei gear from 5G networks.

China's ambassador to the U.K. called the Huawei decision "disappointing and wrong." He tweeted "It has become questionable whether the UK can provide an open, fair and non-discriminatory business environment for companies from other countries."

The move comes as U.S. pressure builds on European governments to shut Huawei out of their networks. Senior U.S. officials, led by national security adviser Robert O'Brien, and counterparts from Italy, Germany, France and the U.K. are meeting in Paris to discuss the issue this week.

The Trump administration ratcheted up its pressure on Huawei in May with restrictions that stop foreign semiconductor manufacturers whose operations use U.S. software and technology from shipping chips to Huawei without first getting a license from U.S. officials. British officials said this restriction raised questions about the quality of Huawei equipment in the future.

U.S. officials have long said Beijing could direct Huawei to sabotage or spy through 5G networks, which promise to provide superfast wireless speeds for coming technologies such as self-driving cars. Huawei and the Chinese government reject the charges.

Oliver Dowden, the British minister in charge of digital issues, said the move, which would be written into law in the fall, would delay the development of 5G by two to three years and cost up to GBP2 billion ($2.5 billion).

He said the U.S. measure was "a significant material change" in the risk associated with using Huawei technology. He said the sector suffered from "a global market failure" and was "dangerously reliant on too few vendors."

The U.K. is also launching a consultation over banning the purchase of Huawei equipment for the country's fiber-optic network. This would, if necessary, be followed by a transition period that isn't expected to exceed two years.

The U-turn followed a new review by the U.K.'s National Cyber Security Centre, part of the nation's GCHQ electronic intelligence agency, triggered by the U.S. export bans in May. U.K. cyber officials said the U.S. left the U.K. with little choice. Their analysis suggested that even if Huawei were to find workarounds, the U.S. would modify the rules again to meet its goals, rather than back down.

Ed Brewster, a spokesman for Huawei UK, said the decision "threatens to move Britain into the digital slow lane." Urging the government to reconsider, he said the new U.S. restrictions wouldn't have affected the security of the products supplied to the UK.

He said Huawei, whose equipment will remain in 2G, 3G and 4G networks in the U.K., would conduct a detailed review of its business in the U.K. Hours before the announcement, John Browne, chairman of Huawei's U.K. board, resigned.

The long phaseout of Huawei gear suggests the government has listened to British telecom executives who argued that imposing a rapid deadline to tear out Huawei gear from their networks would lead to coverage blackouts for customers.

However, several Conservative lawmakers complained Tuesday that the seven-year phaseout of Huawei was too slow and questioned why its technology would remain in non-5G networks.

The decision is expected to fuel broader discussions about how the U.K., U.S. and other allies can wean themselves off Chinese technology and production, an issue underscored during the coronavirus pandemic by reliance on Chinese-made medical supplies for hospitals and caregivers.

U.K. officials are talking about ways to diversify 5G suppliers in the U.K. and Europe, both domestically and alongside allies. The government could roll out government-supported testing programs to help smooth entry for new players, saving wireless operators from some of the financial risk, officials said.

The U.K.'s decision barring Huawei is expected to accelerate work toward an international alliance to bolster non-Chinese competitors, something U.S. officials have discussed. Part of the idea is to incentivize companies long daunted by Huawei's strength to expand and diversify.

The U.K. joins Australia and the U.S. in barring Huawei equipment from its 5G network. Among the countries in the Five Eyes intelligence alliance, Canada has yet to decide whether Huawei equipment can be used in its 5G network after beginning a review in the fall of 2018. While the New Zealand government hasn't made a formal call, wireless carriers so far have awarded 5G contracts to other companies.

In Europe, increasing U.S. pressure is likely to focus on Germany where the government of Chancellor Angela Merkel opposes banning Huawei but faces pushback from a group of cross-party legislators who want to exclude the Chinese company on security grounds. A law that will set the criteria for all vendors bidding to participate in building the 5G network has been delayed due to the standoff.

The French authorities are planning to restrict where operators can use Huawei's 5G equipment, keeping the gear out of sensitive areas around Paris or near French military installations, among other locations. France also plans to deliver time-limited authorizations for Huawei gear already on the network that would expire after three to eight years.

Italy also appears to be growing cooler toward Huawei. Under U.S. pressure, the Italian government has increased its powers to review and veto 5G supply deals, and people across the political spectrum are becoming increasingly vocal about the risk of interference by Beijing.

The Italian government so far hasn't blocked Huawei from any part of its 5G network. Italian intelligence and security officials have said the government should consider doing so for security reasons.

--Jenny Strasburg and Margherita Stancati contributed to this article.

Write to Stephen Fidler at stephen.fidler@wsj.com and Max Colchester at max.colchester@wsj.com


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