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An engineer from mobile services provider EE, owned by telecommunications carrier BT Group, checks Huawei Technologies’ 5G equipment, bottom centre, during network trials in London on March 15, 2019. Photo: Bloomberg

Telecoms carrier BT sees US$650 million hit from Britain’s new limits on Huawei

  • Britain decided on Tuesday to ban Huawei telecoms gear from the core of new mobile networks
  • The country’s telecoms carriers have three years to make the needed changes

BT Group is expecting a £500 million (US$650 million) hit over the next five years from the Britain’s decision to restrict Huawei Technologies in the nation’s mobile broadband infrastructure.

Chief executive Philip Jansen said on Thursday the telecommunications company is reviewing the government’s guidance to determine the full impact on its plans. Huawei is one of BT’s biggest suppliers of telecoms network equipment, and in Britain, has a 44 per cent market share in full optical fibre components.

BT shares fell 6.3 per cent at 9:37am in London after the company reported third-quarter profit that missed analyst estimates. The impact on BT of the new rules on telecoms equipment suppliers was “worse than expected”, said analysts led by Carl Murdock-Smith at Berenberg.

Britain decided on Tuesday to ban the Shenzhen-based company’s gear from the core of new wireless networks and cap its market share in next-generation 5G technology and fibre-to-the-home at 35 per cent.

Britain approves Huawei’s limited use in 5G networks

Carriers have three years to make the needed changes. Though BT had already begun efforts to remove Huawei from the core of the EE mobile network it acquired in 2016, it will now need to lean more on other suppliers such as Nokia for the rest.

The bulk of the cost to meet the new guidelines will come from the need to switch some Huawei 4G kit to gear made by a different supplier, in order for new 5G equipment to be layered on top of the older antennas, Jansen said on a call with reporters.

“Targets stay the same, costs go up, and there’s a lot of operational upheaval. But we can manage it,” Jansen said. As for the time limits, Jansen said that three years is “one of the options we considered, and what we said today is we can do that, no problem”.

His initial assessment is the first from one of the nation’s top telecoms carriers. For BT, the matter is not the only regulatory issue that could weigh on its future.
BT Group has already initiated efforts to remove Huawei Technologies equipment from the core of the EE mobile network, which the British telecommunications carrier acquired in 2016. Photo: Bloomberg

BT also called for more clarity on Britain’s push to roll out fibre-optic broadband across the country, pointing to the need for a fair return on further investment, and lower property taxes. A step-up in construction could need an extra £400 million to £600 million pounds per year, which may need to be funded from a cut to the dividend or additional borrowing.

“Boris’s objective of full fibre to the whole country by 2025 is possible. It’s just very, very hard. And we have no time to waste,” Jansen said on the call with reporters. “My sadness is I don’t think those things will get resolved quickly and therefore he may well miss” the target.

BT reported adjusted earnings before interest, tax, depreciation and amortisation of £1.98 billion, versus a company-compiled consensus of £2 billion. The miss was because of underperformance at the company’s information technology services division.

Prospects for a marked improvement in profitability any time soon are dim: Rivals have undercut BT on prices for new 5G mobile services, Vodafone Group has poached key enterprise customer Liberty Global, while watchdog Ofcom is introducing rules that make it easier for customers to find lower tariffs and switch providers.

EU spares Huawei, Chinese suppliers from blanket 5G ban, defying Trump

“A cut to BT’s dividend from fiscal 2021 now looks almost inevitable, in our view, as higher 5G and full-fibre network buildout costs add to an enduring squeeze on profit from regulation and rivalry,” said Matthew Bloxham, telecoms analyst at Bloomberg Intelligence.

Jansen said the company’s profit result was “slightly” below expectations, adding that the firm remains “on track to meet our outlook for the full year”.

But James Ratzer and Ben Rickett, analysts at New Street Research, questioned the company’s ability to achieve profit growth by next year. They said the costs from the government’s Huawei decision could be a precursor to a reduction in free cash flow expectations.

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