Avoiding the Huawei 5G pitstop is starting to look like a smart move by O2. Dependent to varying degrees on the Chinese vendor non grata, Britain's three other mobile network operators are like racing-car drivers whose part-Chinese engines could stall at any moment if conditions change. As government officials debate the merits and pitfalls of a Huawei ban, O2 is cruising ahead on non-Chinese parts. A 5G leadership position beckons.
Despite launching a 5G service about four months after BT last year, O2 seems to have been catching up on its rollout. At the end of 2019, BT's EE-branded mobile business had a 5G service in 51 locations, while O2's was available in 21, according to market research by Omdia, a sister company to Light Reading. After BT boasted a live service in 80 cities and towns at the start of June, O2 today said it was up to 60. The gap has narrowed.
Of course, this data reveals little about actual population coverage. A single mast in a city center is very different from a city-wide service, and yet either would allow an operator to boast some kind of availability. Nevertheless, Vodafone and Three, the UK's other mobile network operators, have been even less transparent about 5G coverage, and neither responded to Light Reading when pressed for an update. Vodafone had services in 34 locations at the end of 2019, according to Omdia, while Three was focused on using 5G as a broadband substitute in London.
Table 1: UK mobile operators and their suppliers
|EE||Ericsson, Huawei||Huawei, Nokia||Replacing Huawei with Ericsson in mobile core; thought to use Huawei at two thirds of mobile sites and Nokia for rest|
|O2||Ericsson||Ericsson, Nokia||Uses Ericsson for two UK regions and Nokia for another two|
|Three||Nokia||Huawei, Nokia, Samsung||Used Nokia for 3G, Samsung for 4G and picked Huawei as its 5G vendor|
|Vodafone||Cisco||Ericsson, Huawei, Nokia||Last year said 56% of sites were Ericsson, 32% Huawei and 12% Nokia, although Nokia is being phased out by Ericsson|
|Source: Companies, Light Reading.|
Reliance on Huawei kit is a problem for all of O2's rivals as the government considers a ban. BT is cutting Huawei out of its mobile "core," the control center of the network, and replacing it with Sweden's Ericsson, but it does not expect to complete this operation until 2023. Before January, when the government slapped a 35% cap on Huawei in the 5G radio access network (RAN), about two thirds of BT's 4G RAN was thought to come from the Chinese vendor. Compliance with government rules means ditching a lot of that equipment, says BT: Using a different 5G vendor from the 4G one is problematic with the current version of the technology.
The same constraint affects Vodafone. It has relied mainly on Cisco in the core but used Huawei at 32% of its RAN sites in March last year, according to Scott Petty, the chief technology officer of the UK business. Ripping this out would cost "hundreds of millions," he has repeatedly warned, and endanger the UK's 5G leadership position in Europe. Omdia currently puts the UK sixth in world rankings of 5G progress, and second only to Switzerland in Europe.
As for Three, it previously took a risky decision to name Huawei its sole supplier of 5G RAN equipment, relying on Nokia in the core. Under its arrangement with the Chinese vendor, its plan was to phase out South Korea's Samsung, the provider of its 4G RAN. Since the 35% cap was announced, Three has had little to say about 5G alternatives to Huawei. Whether facing a 35% cap on the Chinese supplier or a full ban, it will need another vendor to complete its network.
The current uncertainty leaves every UK operator bar O2 in a quandary. Press ahead with 5G rollout and they face having to rip out even more equipment in future. Hold back and they could see O2 streak ahead. Dividing the UK into four network regions, the Telefónica-owned telco uses Sweden's Ericsson and Finland's Nokia as RAN providers in two regions apiece, Light Reading has learned. If Huawei figures in the RAN network at all, as it was rumored to last year, it is to a very small extent.
While inertia is bad enough, a decision against Huawei might conceivably help O2 pull off a similar feat to EE's in the nascent 4G market several years ago. After regulators controversially allowed it to use existing spectrum with 4G services, EE established a massive lead while rivals were left stuck on the starting line. In the all-important post-paid market, that lead has endured. In March 2018, before it stopped disclosing details of customer numbers, BT had 17.6 million contract subscribers on its EE mobile network. Vodafone had 12.7 million at the end of its last fiscal year in March, while O2 finished 2019 with 12.3 million. Three, the smallest player, counted 7.3 million on the same date.
O2 now looks dangerous. Well ahead of its targets for network rollout, it is offering 5G services at no premium to 4G and spending about £2 million ($2.2 million) a day on mobile network upgrades. Announced in May, a £31.4 billion ($34.9 billion) merger with Virgin Media, BT's main fixed-line competitor, will give it the opportunity to offer bundles of mobile, broadband and TV services. Virgin Media's cables will also provide an alternative to BT for "backhaul," the important connection between basestations and the core network. The risk, perhaps, is that merger activities distract it from its 5G deployment.
Much depends on the government's next move, but opinion has swung heavily against China and Chinese companies in the era of COVID-19. Few would be a surprised if Boris Johnson, the UK's prime minister, decides to ban Huawei in the coming weeks, and a misjudged publicity campaign by the Chinese vendor is unlikely to make a difference. If BT, Three and Vodafone have to refit their engines, O2 could have the 5G track mainly to itself.
- BT 5G turns one year old with not much to celebrate
- Vodafone UK Frets Over Huawei Swap-Out Costs, Urges Testing of All Vendors
- O2 and Virgin Media to merge in £31.4B deal
- Goodbye Huawei, hello Ericsson: Swap-out gathers pace
- Ericsson beats Cisco and Nokia to replace Huawei in BT core
— Iain Morris, International Editor, Light Reading