LONDON (Reuters Breakingviews) - British consumers could end up paying for the government’s Huawei Technologies red card. If Prime Minister Boris Johnson imposes a total ban on the Chinese company’s equipment from superfast 5G networks, mobile operators BT and Vodafone may have to spend over a billion pounds ripping out and replacing existing Huawei kit. The bill for the sudden change will land with taxpayers.
Two things have changed since January, when Johnson said Huawei could have up to a 35% share of the less-sensitive parts of Britain’s next-generation mobile networks. Chinese relations with the United Kingdom have nosedived over Beijing’s crackdown on Hong Kong. And U.S. sanctions targeting Huawei’s access to cutting-edge microchips have placed a question mark over the company’s long-term future.
The latter gives Johnson a technical excuse to revisit a tricky political decision. If Huawei starts making its own chips to replace those based off U.S. technology, it’s hard to say if they’ll be up to scratch. That also makes life harder for British intelligence services trying to work out whether Beijing could co-opt the company’s equipment for espionage – something Huawei has consistently denied.
But banning Huawei from 5G networks carries significant direct costs. Operators using the manufacturer’s existing 4G kit will have to replace it, as new equipment from rivals Nokia and Ericsson won’t work on Huawei mobile masts. After the government imposed its 35% cap in January, BT set aside 500 million pounds to reduce its 12,000 Huawei-equipped 4G towers to the permitted 6,600 over the next five years. Pro rata, that implies removing all Huawei equipment will cost an extra 620 million pounds. On the same basis, rival Vodafone faces a 560 million pound bill – equivalent to nearly a third of the 34 billion pound operator’s forecast net income next year.
If the government executes a U-turn, the companies have a strong case for demanding compensation. One option would be to recoup the cost by paying less for 5G spectrum in upcoming auctions – reducing the government’s revenue. Alternatively, Johnson could lower the cost by extending the deadline, perhaps to 2029, by which point most existing Huawei kit would already be obsolete. But that would undermine the notion that the Chinese group poses a threat to national security. It’s more likely that the public will pay.
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