LONDON (Reuters) - Britain’s decision to cap Huawei’s role in 5G will cost BT (BT.L) 500 million pounds, the telecoms company said, as it will need to remove some of the Chinese group’s gear from its network and tap pricier rivals.
The bill adds to the pressure on Chief Executive Philip Jansen, who wants to build nationwide gigabit fixed and mobile networks for the future while trying to shore up revenue and earnings in the short term.
Britain’s biggest telecoms group has already spent billions of pounds on sports rights and network upgrades to revive its fortunes and the financial impact of the Huawei ruling added to investor concerns about its financial performance.
BT’s shares, down 25% in the last 12 months, were 7.5% lower in early afternoon trade after the company’s assessment of the Huawei impact and a weaker-than-expected 3% drop in third-quarter revenue which it blamed on regulation, tough competition and declines in legacy products.
Core earnings fell 4% to 1.98 billion pounds, also slightly below expectations, although BT stuck to its full-year guidance.
The cost for BT to comply with the Huawei cap lays bare the financial stakes for other European countries and operators deciding whether to restrict the Chinese company.
Britain on Tuesday said it would allow high risk vendors - in practice Huawei - into the non-sensitive parts of next-generation networks, defying U.S. appeals to block the company on security grounds.
But London limited Huawei’s market share of the 5G network at 35%, excluded it from the sensitive core, where data is processed, and banned it from critical networks and locations like nuclear sites.
Jansen welcomed the decision on Huawei, a long-standing BT partner, and said the security of the UK’s communications infrastructure should be the priority.
“Inevitably, because of the way that the network works on 4G and 5G, there will be some 4G boxes that are Huawei that will have to be eradicated,” he told reporters. “And then there’s also an assumption around what the pricing scenarios might be with alternative providers.”
He said 5G roll-out targets would stay the same but there would be a lot of operational upheaval.
BT is rolling out 5G using the Chinese company’s radio equipment, although it is not using it in the core and is removing its gear from the core of its 4G network.
Jansen said Huawei’s presence in its 4G network, which is the foundation for 5G, was already slightly above 35%.
Huawei’s role in its fibre-to-the-premise (FTTP) broadband network was also currently just over 35%, he said, but the speed of expansion meant it would quickly fall under the limit.
Jansen said BT was ready to play its role in upgrading Britain’s communications infrastructure to gigabit speeds with nationwide full-fibre broadband and 5G mobile.
It is rolling out FTTP to 4 million properties by March 2021 and plans 15 million connections by the mid-2020s if the conditions are right.
Prime Minister Boris Johnson wants to go further, with all of the country fibre connected by 2025. BT will have to play the biggest part in realising his ambition.
“To make this happen is going to take a Herculean collaborative effort,” Jansen said.
BT needed clarity on the rate of return it could make on its multi-billion pound investment, he said, along with an exemption on business rates for new fibre networks and the ability to sign long-term deals with other providers.
“Fibring up the UK will require us all to move fast and we are running out of time if the industry is going to meet the government’s ambition,” he said.
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Editing by James Davey and Carmel Crimmins