Huawei 5G Ban May Cost UK £7B, Say Telcos in Panicky Report

Iain Morris
News Analysis
Iain Morris, International Editor

It is no secret that Europe's operators would not welcome moves to ban Huawei from the 5G market. The Chinese vendor, seen as a security threat by its detractors, provides some of the best and most affordable equipment in the business, and is firmly entrenched in networks across the region. Banning it would cost network operator customers a significant amount of money and seriously hinder Europe's rollout of 5G technology, say Huawei's supporters.

Exactly how much are we talking about? Well, in a report that was published Friday morning, the UK's mobile network operators have attempted to put a figure on the overall cost to the UK economy. And the number they have come up with is not small. In a worst-case scenario, the UK would be looking at a £6.8 billion ($8.9 billion) hit, according to the report from Mobile UK, a trade association that represents BT, O2, Three and Vodafone.

The impact would be twofold: First, the cost to the operators of replacing equipment and losing a supplier; and second, the cost to the overall economy of a delay to the introduction of 5G networks. In both cases, Mobile UK seems to err on the side of panic.

Swap shop
The argument that replacing Huawei would cost a service provider "hundreds of millions" should be swallowed only with a generous dollop of skepticism.

For a start, the UK government's ongoing "supply chain review" was triggered by international concern about Chinese vendors' presence in future 5G networks, and not other infrastructure. The worst-case scenario is likely to mean a complete ban on Huawei in the 5G network, not a complete ban on Huawei per se. The fact that Mobile UK's report is entirely about 5G is a tacit acknowledgement of this important detail, even if the association does not spell it out. Australia appeared to address US concern about Huawei by excluding Chinese vendors from 5G, not cutting them out of all mobile infrastructure.

Huawei's UK headquarters in Reading.
Huawei's UK headquarters in Reading.

Second, Huawei's biggest UK customers have already decided not to use it in the most sensitive parts of the network. Vodafone relies on Cisco in the core as well as Ciena and Nokia in the transmission network. BT also counts Ciena as the main transport network supplier. It found itself using Huawei in the core when it bought EE in 2016 but immediately informed the Chinese vendor it would be switching to another supplier. That switch is now underway.

Whether Three has a similar internal policy is unclear, but the smallest of the UK's mobile network operators has picked Nokia as its core network vendor. O2, meanwhile, is even less dependent on Huawei.

Where Huawei does figure prominently is on the radio side. BT (through its EE subsidiary), Three and Vodafone have all built or started building radio access networks (RAN) in partnership with Huawei. And the RAN is certainly the most expensive part of the mobile network. Ripping out 5G basestations and replacing them with another vendor's gear could be a costly and time-consuming activity.

But UK operators have probably not deployed that many Huawei 5G basestations so far. At the end of March, the Chinese vendor claimed to have shipped 40,000 globally. One quarter of those are in South Korea, whose operators launched commercial 5G services today. That leaves 30,000 across the 29 5G deals it has signed in other markets. To build 5G on its 4G network "grid," Vodafone would need to cover about 18,000 mobile sites.

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The sticking point is that a 5G ban would force operators to rip out Huawei's 4G equipment as well, they say. Why, if a government ban does not extend to 4G? In trying to provide an explanation, Mobile UK writes: "A restriction or ban of Huawei would be problematic for two reasons. Firstly, the initial wave of 5G technology will largely be an upgrade of 4G; and secondly, there is little interoperability between vendors, which means it is difficult to deploy non-Huawei 5G equipment alongside existing Huawei 4G equipment."

That "initial wave" refers to the non-standalone (NSA) version of 5G, which relies on the use of a 4G core network. And no less an authority than Ian Levy, the technical director of the UK's National Cyber Security Centre, has recently weighed into the same issue. "Despite the standards existing for interoperability, it's much easier to stick with your 4G vendor for your initial 5G rollout for NSA deployments," he wrote in a blog several weeks ago.

But this all seems rather odd. While interoperability is recognized as a big hurdle in some parts of the telecom network, it has not previously been cited as an issue when deploying different generations of mobile technology in the RAN. Three UK, for instance, uses Nokia as a 3G RAN supplier and Samsung as a 4G one. More importantly, it has chosen Huawei, and not Samsung, to build its 5G network. Presumably, then, it does not think interoperability is an insurmountable problem, despite putting its name to Mobile UK's report.

Nokia, one of Huawei's chief rivals, has also recently insisted that deploying its 5G radio systems on top of a competitor's 4G ones would be "simple." While acknowledging that an interface between 4G and 5G called X2 is problematic, it claims to have come up with a nifty workaround that basically entails using a Nokia "overlay" on the 4G side, with minimal support from the incumbent vendor.

This is not to suggest a problem does not exist, and it shows why the work of standards groups like the 3GPP is so important. But the issue appears to have been overstated by UK operators. Even one of Huawei's own spokespeople plays down any suggestion that an operator would have to stick with its 4G RAN vendor when building a 5G network.

Next page: Economic scaremongering

Economic scaremongering
UK operators have a vested interest in scaremongering. After waves of industry consolidation, very few large companies now make the infrastructure for mobile networks. A ban on Huawei would further reduce competition, removing a vendor that many operators today regard as the world's most advanced infrastructure player. In the long term, that could drive up costs and slow down innovation.

For that reason, any decision to exclude Chinese vendors from the UK's 5G market could be a big mistake. But in the short term, a ban seems unlikely to have a serious impact on the UK's economic prospects. Even if the country's operators did face a costly swap-out of network equipment, and a delay to the introduction of 5G, the game-changing services that Mobile UK describes in today's report will not arrive for several years -- and perhaps even longer.

Take the somewhat cliched example of the connected car, which -- predictably enough -- is discussed in Mobile UK's report. "Without 5G, connected and autonomous vehicles are unlikely to unleash their full potential," say the authors. But a Huawei ban that hinders 5G rollout by a maximum of two years, as Mobile UK argues, is not going to hold up the arrival of self-driving cars on UK streets. Nor is there any certainty that 5G will play an important role in connected cars when (if?) they do eventually appear. Parts of the car industry are understood to favor alternative technologies.

Reaching for other examples, Mobile UK grasps hold of smart lighting and smart refuse collections in urban areas. These could save councils about £2.8 billion ($3.7 billion) per year, it says. But why is the bandwidth and short signaling delay that 5G brings needed for these services? Cities could make (and are making, in some countries) investments in smart lighting and smart refuse collections using existing low-power, wide area network technologies, such as NB-IoT, in the cellular world, or LoRa and Sigfox, for those who prefer unlicensed spectrum.

In time, 5G just might fuel all manner of sophisticated new services. There is no shortage of excitement about "the edge" -- not the famous guitarist for an Irish rock band, but a reference to a more distributed cloud network, where network functions and IT resources are hosted in small data centers close to end users. By cutting the signaling delay, this overhaul should allow operators to support whizzy applications -- like virtual reality gaming on mobile devices -- that are not currently possible.

Not a Compelling 5G Application
Beanie-wearing U2 guitarist 'The Edge' performs in concert.
Beanie-wearing U2 guitarist "The Edge" performs in concert.

But the "Release 16" 5G standard that will support this overhaul will not be finalized for about a year, and Release 16 equipment seems unlikely to arrive in commercial networks until much later. Scott Petty, the chief technology officer of Vodafone UK, doubts commercial "edge" applications will arrive before 2023, citing the operational complexity of building a distributed cloud network. A 5G ban on Huawei that slows down the rollout of faster broadband services is unlikely to have much bearing.

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For others, the main concern is the lack of a compelling investment case for that "edge" overhaul. Mobile UK's report, with its paucity of examples, is evidence of the lack of "use cases" for 5G technology beyond enhanced mobile broadband. That explains why Huawei and other vendors have been so focused on promoting 5G as an "efficiency" tool that will help to lower network costs.

Far from costing the UK economy billions, a delay to 5G rollout caused by a Huawei ban might be no bad thing, says Angus Ward, the CEO of digital platform solutions for BearingPoint, a software and consulting company in the telecom sector. "Delaying 5G's launch is often presented as bad news for consumers, but 5G is primarily an enterprise market play, which according to some estimates is where two thirds of market demand will be," he says. "Most operators are not ready to sell 5G services to their enterprise customers. Equally important, many enterprise customers are not ready to buy 5G, as they haven't yet created the new use cases that require 5G's low latency and super speeds."

In his view, a 5G delay could even provide valuable "breathing space" for operators to come up with new business models for the technology. That could mean building partner ecosystems and trying to work in a more collaborative way with enterprise customers. "If operators make these changes, they'll be in a much better position to make a commercial success of 5G when it does finally launch." First-mover advantage can sometimes be an oxymoron.

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— Iain Morris, International Editor, Light Reading

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