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MarketScreener Homepage  >  Equities  >  London Stock Exchange  >  Vodafone Group Plc    VOD   GB00BH4HKS39

VODAFONE GROUP PLC

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U.K. to Ban Huawei From Its 5G Network--Update

07/14/2020 | 08:56am 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. and gave them until 2027 to remove its technology from their 5G networks, a sharp about-face that marks a significant victory for the U.S.

The decision follows new U.S. restrictions on the sale of Huawei computer chips and comes amid a broader deterioration of relations between the U.K. and China, most recently relating to China's imposition of a new security law over the former British colony of Hong Kong.

Oliver Dowden, the British minister in charge of digital issues, told the House of Commons on Tuesday that new purchases of Huawei 5G equipment would be barred from the end of this year and that the Chinese company's gear would have to be stripped out of British networks by the end of 2027. As recently as January, the U.K. said it could mitigate the risk of Huawei equipment in its networks.

The U.K is also launching a consultation on when to ban the purchase of Huawei kit from the country's fiber optic network. This will be followed by a transition period that isn't expected to exceed two years.

The move comes as U.S. pressure builds on European governments to shut Huawei out of their 5G networks. Senior U.S. officials, led by U.S. national security adviser, Robert O'Brien, and his counterparts from Italy, Germany, France and the U.K. are meeting in Paris this week.

The Trump administration ratcheted up its pressure on Huawei in May, using export rules to bar global suppliers from selling the company's chips produced using U.S. tools. British officials said this raised questions about the quality of Huawei kit 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.

Mr. Dowden 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. He said the U.S. measure was "a significant material change" in the risk associated with using Huawei technology. The sector suffered from "a globalmarket failure," he said, and was "dangerously reliant on too few vendors."

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. The swift policy reversal played out during the coronavirus pandemic.

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.

Mr. Brewster 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.

Victor Zhang, head of Huawei's U.K. operations, said in June that the company had a proven record and was happy to work with the British government regarding "any concerns they may have and to continue the working relationship we have had for the last 10 years." Huawei has secured a significant U.K. market share, resulting from telecom providers' views of the company's equipment as high-quality and inexpensive.

British relations with China have rapidly soured since Prime Minister Boris Johnson gave Huawei the green light to build part of its 5G network in January this year. At the time, government officials said the risks related to Huawei could be mitigated, with the equipment maker permitted to only have a maximum 35% market share of the 5G network and to be excluded from its "core," where much of the information on the network is processed.

The U.K.'s National Cyber Security Centre, part of the nation's GCHQ electronic intelligence agency, launched a new review of Huawei triggered by the U.S. export bans in May. The swift policy reversal played out during the coronavirus pandemic.

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 in recent months by reliance on Chinese-made medical supplies for hospitals and caregivers.

Canada remains the lone country in the Five Eyes intelligence alliance -- which also includes the U.S., U.K. Australia and New Zealand -- that has yet to decide whether Huawei equipment can be used in the domestic 5G network.

The long phase-out of Huawei gear suggests the government has listened to British telecoms executives who argued that imposing a rapid deadline to tear out Huawei gear from their networks would lead to coverage blackouts for customers, cost billions of pounds and delay the introduction of 5G.

Senior executives from Vodafone Group PLC and BT Group PLC told a parliamentary committee last week that a five-to-seven-year time frame would be needed to remove Huawei equipment to avoid disruption. Share prices of both companies rose after the announcement. A group of Conservative lawmakers has been pressing the government to remove the equipment at a faster pace.

The providers also use equipment from Huawei's two biggest competitors, Sweden's Ericsson AB and Finland's Nokia Corp. The void left by Huawei's could be filled by smaller industry players, including South Korea's Samsung Electronics Co. and Japan's NEC Corp.

--Jenny Strasburg and Stu Woo contributed to this article.

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

 

Stocks mentioned in the article
ChangeLast1st jan.
BT GROUP PLC 2.89% 123.9 Delayed Quote.-37.51%
ERICSSON AB -1.24% 104.05 Delayed Quote.27.08%
NEC CORPORATION -1.26% 5480 End-of-day quote.21.24%
NOKIA OYJ -0.02% 3.3675 Delayed Quote.0.29%
SAMSUNG ELECTRONICS CO., LTD. 4.33% 67500 End-of-day quote.20.97%
VODAFONE GROUP PLC 2.05% 123.82 Delayed Quote.-16.88%
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Financials
Sales 2021 43 397 M 51 483 M 51 483 M
Net income 2021 2 084 M 2 472 M 2 472 M
Net Debt 2021 42 805 M 50 780 M 50 780 M
P/E ratio 2021 19,2x
Yield 2021 6,55%
Capitalization 36 828 M 43 497 M 43 690 M
EV / Sales 2021 1,83x
EV / Sales 2022 1,78x
Nbr of Employees 104 000
Free-Float 92,7%
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Number of Analysts 22
Average target price 1,90 €
Last Close Price 1,37 €
Spread / Highest target 86,7%
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Nicholas Jonathan Read Group Chief Executive Officer & Executive Director
Jean-François M. L. van Boxmeer Chairman
Margherita Della Valle Group Chief Financial Officer & Director
Pierre Klotz Finance Director
Johan Wibergh Group Chief Technology Officer
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