Reports this week suggest that government ministers are under pressure from parts of the Conservative party to remove equipment from the Chinese technology company from the UK mobile network from 2023.
Other reports suggest Downing Street might be unwilling to go this far as it would make the government’s 2025 broadband pledge impossible.
Prime Minister Boris Johnson announced in January that Huawei could be used to build out the UK’s 5G network, but capped its total share of the network at 35% from 2023.
BT has relied heavily on Huawei equipment to run its current 4G mobile network, with two-thirds of its existing network estimated to incorporate equipment from the Chinese tech group.
The government’s existing plan will have a £500mln impact on BT’s 5G mobile rollout, front-loaded over the next five years, according to boss Philip Jansen.
Analysts at UBS said on Tuesday that they “see a risk that a reduction to zero could add another £500m to capex spread over the next three years”.
With the market expecting BT to generate free cash flow of £1.5bn before pension costs per year, a total Huawei clampdown could result in a downgrade of at least 10%, all else equal, or around 4% of the group’s market cap.
As for other UK mobile networks, Huawei accounts for around a third of Vodafone PLC’s (LON:VOD) UK mobile network, though the country generates less than 10% of underlying group profits.
The Three UK network is currently using only Huawei equipment for now, the analysts pointed out, while O2 UK is using Nokia/Ericsson.
Separately, a review is also being carried out in Westminster after Washington last week banned Huawei from using US technology in its products.
The UK’s National Cyber Security Centre, part of GCHQ, is examining additional risks to Huawei products that may result from this.
UBS said this posed a risk for UK mobile network operators of higher capex in the near-to-medium term, while at the same time delaying the deployment of 5G.
“An eventual phasing out of Huawei equipment is potentially possible within current capex envelopes over time given a natural replacement cycle on existing equipment.
“However, the timetable proposed by the UK government is tight and there are a limited number of alternative vendors.”
Huawei has denied that it poses a security risk, saying it is a private company and free from Chinese state interference.