Government Huawei ruling will cost £500m over five years, claims BT

BT claims that it will need to remove Huawei equipment from the EE mobile network to comply with the government's ruling

BT claims that the government's ruling on Huawei this week could cost it as much as £500 million over the next five years. The ruling, which bars Chinese networking equipment giant Huawei from core parts of 5G and fibre networks, on top of a cap on its non-core involvement at 35 per cent, will mean that BT will need to rip-out some Huawei kit and replacement it with rival hardware.

Part of the reason for this is that 5G mast antennas need to be married with 4G antennas from the same vendors - the two are not interoperable. With BT-owned EE having gone with Huawei for its 4G boxes, BT will need to remove a certain amount in order to comply with the government's edict, according to BT Group CEO Philip Jansen.

We are going to have to take out some Huawei 4G boxes and not use them again

"The way it works at the moment is when you put a 5G box on a mast it has to be on top of a 4G box from the same supplier," Jansen told The Guardian today, as the company unveiled its third quarter results.

"More than 35 per cent of [BT's] 4G boxes are Huawei. We are going to have to take out some Huawei 4G boxes and not use them again. That is probably the single biggest cost. In order to make 5G work we are going to have to use other manufacturers' equipment."

Huawei is also price-competitive, which means that the alternatives will almost certainly cost a significant amount more.

However, Jansen added, the mechanism for calculating the 35 per cent cap had not yet been agreed or defined.

Mobile operators had broadly expected Huawei to be barred from core mobile networks and used hardware from Nokia and Ericsson instead. The 35 per cent cap in other areas, though, appears to have come as a surprise and may affect Three, O2 and Vodafone, too.

The 35 per cent cap will also apply to fibre networks

The 35 per cent cap will also apply to fibre networks, with BT obliged to achieve a full-fibre roll-out covering substantially all of the UK by 2025 under Prime Minister Boris Johnson's General Election 2019 pledge.

Currently, fibre to the home reaches fewer than 10 per cent of UK households, but the Huawei broadband cap would not be a problem for BT's fibre roll-out, Jansen said. A bigger issue, he suggested, would be the cost of rolling out fibre to remote areas, which will require government support.

Jansen was speaking as he unveiled BT's latest results - a decline of two per cent in revenues to £17.25 billion in the third quarter, with pre-tax profits also down, from £2.1 billion to £1.9 billion.

Free cash flow dropped by 42 per cent to £1 billion, while net debt, appears to have ballooned from £11.1 billion to £18.2 billion, despite an increase in capital expenditure of just two per cent, to £2.9 billion.

The increase in net debt, the company claimed in its accounts, was down to a change in the way that lease liabilities are recognised following a transition to the IFRS 16 accounting standard.