The cost to rid the UK of Huawei's presence seems to be growing like the national debt. "Hundreds of millions" was the figure Vodafone faced about a year ago. Enders Analysis, a market-research firm, previously estimated a fee of £1.5 billion (US$1.9 billion). On July 9, British politicians were presented with numbers in the "billions" and warned a swap-out would take five to seven years if the UK were to avoid a return to the Dark Ages. It sounds like the ultimate form of vendor lock-in: a bill so monstrous you can never leave.
Figures communicated to a parliamentary committee this week raise questions that were not satisfactorily addressed. Why has Vodafone's estimate apparently more than doubled in the last year? Why are its estimates so much higher than BT's when the national incumbent is more heavily reliant on Huawei? Why have operators replacing Huawei in other countries not warned of a looming mobile apocalypse?
Vodafone certainly appears to have been struck with a nasty case of Huawei hyperinflation. In March 2019, Scott Petty, the chief technology officer of the UK business, told reporters a ban would cost his business "hundreds of millions," implying less than £1 billion ($1.3 billion). Quizzed by UK officials, Andrea Donà, who works for Petty as head of UK networks, reckoned on expenses in the low single-digit "billions," meaning at least £2 billion ($2.5 billion).
Now, it could be that each man has simply tossed out an alarmingly big number to convey the impact of a Huawei ban. But imprecision is unlikely to help their case as UK officials weigh a decision. In the future, it might even backfire.
BT, moreover, has been far less vague. Restricting Huawei to 35% of any 5G radio access or fiber broadband network, and excluding it from the 5G core, will cost £500 million ($631 million), it warned investors in early 2020. A ban would add "tens to a hundred" to this amount, said Howard Watson, its chief technology officer, during his own parliamentary grilling. The full cost, in other words, would be somewhere between £520 million ($656 million) and £600 million ($757 million).
The huge disparity between this estimate and Donà's also makes little sense. BT currently maintains about 19,000 mobile sites in the UK, using Huawei equipment at about two-thirds of these, or 12,500 sites. While Vodafone's network is of similar size, comprising roughly 18,000 sites, Huawei supplies products for only 6,000.
Even assuming that Watson's estimate does not cover a Huawei swap-out in the core and fiber broadband networks (which is unclear), it implies a fee of £48,000 ($60,500) per Huawei site, at most. Vodafone, according to Donà's numbers, is facing a unit cost of at least £330,000 ($416,000).
Some of the difference might be explained if Vodafone has included normal upgrade expenses in its estimate, while BT has not. If so, that is misleading. Explaining his math to UK officials, Watson said the original swap-out bill (to comply with the 35% cap) would not double with a ban because some 4G equipment is due for replacement anyway in the next few years.
John Strand, the CEO of Danish advisory firm Strand Consult, has done extensive analysis on this topic. "Operators must upgrade their networks if they want 5G, regardless of whether they use Huawei. That is to say that there is a sunk cost to network upgrades which must be subtracted from the total cost of using Huawei," he said in a widely distributed email this week. "Most of Europe's networks are already three to five years old and are ready to be replaced."
Vodafone's bill might also be higher because it uses Huawei at those 6,000 sites for 2G, 3G and 4G technologies, according to Donà. With a 5G ban, the 4G network would also need replacing, say operators, because Huawei's 4G equipment would be incompatible with a new 5G supplier and the two systems need to communicate. If, as seems likely, Vodafone has used single RAN technology, supporting all the different generations on one platform, then the 2G and 3G networks would also need to change, inflating the bill. BT, by contrast, takes 2G and 4G services from Huawei but uses Finland's Nokia for 3G.
The doubt here is that Vodafone plans to switch off its 3G network in the next year or two anyway, judging by comments Donà made in June last year. The rationale is that spectrum can be freed up for use with other technology generations, including 5G. For data services, 4G coverage is now widespread, and most customers have 4G-compatible phones. For voice calls, roaming, and older machine-based connectivity, 2G will suffice. The point is that Vodafone will not be paying any vendor for a 3G upgrade.
Add together the rough estimates provided this week by Vodafone and BT and the total bill is at least £2.6 billion ($3.3 billion). This is wildly out of kilter with the £1.5 billion estimate reportedly generated by Enders Analysis, and it does not even consider the fees Three, the smallest of the UK's four network operators, would incur. It has used Nokia as a 3G vendor and Samsung for its 4G network but had intended on moving entirely to Huawei with the 5G transition. The status of its rollout is currently unknown.
Back to carrier pigeons
Perhaps more alarming than the amounts was the suggestion by Donà and Watson that a hasty swap-out would lead to service outages, or blackouts, for customers. Hasty, in this instance, means less than five years, and Watson told officials that a seven-year transition would be more appropriate.
Seven years? That is almost the length of time it takes for a new generation of mobile technology to appear. The UK's first 3G network was launched in March 2003, despite the absence of handsets. Its first 4G service appeared in October 2012, and BT switched on the country's first 5G service last year. If by mid-2027 operators are not feverishly anticipating a 6G upgrade, something will have gone seriously amiss in the usual hype and investment cycle.
What's more, it took EE, BT's mobile business, only about one year after launching 4G to have built a network covering 60% of the UK population. And yet BT is arguing it ideally needs seven years to phase out new 5G equipment that relatively few Brits are using, along with older equipment that is already approaching the end of its shelf life?
Strand is not buying it. "BT said bans would result in blackouts with switching equipment. However, mobile operators around the world switch out equipment every day without blackouts," he wrote in his email. "Why is BT the only operator with this problem? Apparently, it needs to improve its technical staff."
While Strand is an outspoken critic of Huawei, and someone who has repeatedly urged tougher action against the Chinese firm, operators have clearly switched vendors in the past without major disruption. The surge in Huawei's European market share in the 4G era necessarily meant operators were substituting its single RAN products for European suppliers. And yet carrier pigeons did not make a comeback.
Outside the UK, several operators are now swapping from Huawei to Ericsson, including TDC in Denmark and the Norwegian subsidiaries of Telenor and Telia. KPN in the Netherlands, meanwhile, is transferring from Ericsson to Huawei. While all of these are obviously much smaller markets than the UK, BCE and Telus are also shifting from Huawei to other suppliers in Canada, a country that is much vaster albeit less populous than the UK.
Whether one agrees with a Huawei ban or thinks it would be entirely unjustified, the doomsday scenarios outlined by the mobile operator executives this week need further explanation.
- BT, Vodafone warn of blackouts if not given five years to be Huawei-free
- Huawei still has no fix to being cut off from TSMC
- Huawei ban in UK is surely just a matter of time
- Vodafone silent on Huawei as it values 5G at £158B to UK economy
- A £1.5B bill should not stop a UK ban on Huawei
- UK in search of Huawei 5G replacements – report
— Iain Morris, International Editor, Light Reading