Banning Huawei From UK Could Drive Up Consumer Prices, Warns Three CEO

Three CEO Dave Dyson has issued a stark warning that any government move to ban China's Huawei from UK telecom networks could lead to more expensive mobile phone services for consumers.

Senior executives from the UK mobile operator said restricting the choice of suppliers could drive up the cost of network equipment. The risk then is that operators pass the increase on to their customers in the form of higher prices for smartphone services.

"That wouldn't be something the government would want as a consequence and so we need to make sure this is managed in a sensible way," said Dyson at a press briefing in London earlier today.

The remarks came just a day after reports that government figures have written to UK operators urging them to exercise caution when choosing network suppliers and indicating that some restrictions might come into effect following a review that started in July. (See UK Govt Warns Telcos on Choice of 5G Vendors.)

Paolo Pescatore, the senior vice president of consumer services at MIDiA Research, said the government review "does seem to be directed at Huawei," which is already barred from selling products in the US and Australian markets on security grounds.

Regulators in those countries say they are worried that Chinese authorities could use Huawei's next-generation 5G network gear to spy on citizens and government affairs.

Any decision to ban Huawei Technologies Co. Ltd. from the UK market would have troubling implications for Three, which has signed a deal with the Chinese vendor for the rollout of a 5G radio access network.

Wind Tre, a Three UK sister company in Italy, recently blamed customer losses and a sales decline on delays to a network project with China's ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) caused by US sanctions against the equipment vendor. The situation has forced Wind Tre to introduce Ericsson AB (Nasdaq: ERIC) as a second supplier. (See ZTE ban and Iliad entry blow Wind Tre of course.)

Phil Sheppard, Three's director of network strategy, declined to comment on the precise cost impact of a Huawei ban but said the UK market would suffer without it.

"Competition is valuable and having a range of vendors is healthy from a commercial point of view," he said. "There is technology leadership as well, and if you start to remove vendors from the pool you have a smaller selection to choose from."

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Sheppard rejected the security concerns about Huawei. "We have spent a long time … to ensure the security picture is fully covered," he said. "We've done more than we've done for any other vendor in terms of ensuring security."

He also flagged the existence of a government validation center in the town of Banbury and said this had been operational for several years because BT Group plc (NYSE: BT; London: BTA), the UK telecom incumbent, also relies on Huawei products.

However, the Huawei Cyber Security Evaluation Center (HCSEC), as that facility is called, rang alarm bells in July when it said that shortcomings in Huawei's engineering processes had exposed new risks. (See Huawei Poses Security Threat, Says UK Watchdog.)

The HCSEC went to say it could provide "only limited assurance that all risks to UK national security from Huawei's involvement in the UK's critical networks have been sufficiently mitigated."

Three previously worked with Nokia Corp. (NYSE: NOK) and Samsung Electronics Co. Ltd. (Korea: SEC) on the rollout of its 3G and 4G networks but revealed in August it would be switching to Huawei for its 5G deployment. (See Nokia, Samsung Miss Out as Three UK Gives 5G Job to Huawei.)

While Nokia remains the operator's main vendor of core network systems and equipment, Three will also rely on Huawei to upgrade parts of its 4G radio access network in future. The 3G network is likely to be switched off entirely by 2023, said Dyson, as customers are moved onto 4G and 5G services.

— Iain Morris, International Editor, Light Reading

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