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Summary
- The UK is the second-largest market for Huawei outside China.
- Billions of pounds will be spent on removing and replacing Huawei equipment from UK telecommunication sector.
- Stock market likely to become unstable as Huawei exits from the UK.
- Companies like Apple, Cisco, Ciena, and Nokia could gain market share in this scenario.
The United Kingdom has banned telecommunication giant Huawei as the government took a U-turn in the policy. This ban has given a considerable blow to Chinese telco, as the UK is the second-largest market for Huawei outside China. The orders directly come from UK Prime Minister Mr. Boris Johnson citing security fears. The Huawei telecommunication equipment will be removed entirely from the country's 5G high-speed wireless network. The announcement is coming during an ensuing battle over critical technology between Western powers and China.
In the month of January this year, Britain had said that the country could use Huawei's equipment on a limited basis for its 5G network. Since then, Prime Minister Boris Johnson has faced increased political pressure to tighten the policies against Beijing. In May 2020, the United States implemented new restrictions to obstruct Shenzhen-based Huawei's access for telecommunication components after which the Chinese company marked significant losses.
The United States has urged all the companies to steer clear of Huawei, the leader in fifth-generation internet provider, accusing them of being China's arm. Britain is now amongst other countries to harden its grip on China. Since last month, Beijing has adopted strict restrictions over Hong Kong, after which the determination to deal with China firmly, has grown.
After US sanctions blocked Huawei's access to US chips, British Prime Minister government agreed to ban Huawei. US Secretary of State, Mike Pompeo, denied the UK taking this decision under the USA' pressure. He said that Mr Johnson "got the complete right end of the stick" on Huawei. He also mentioned that Britain's security teams are in terms of US security. The government believes that usage of these untrusted networks will ultimately land up in the hands of the Chinese government.
Did you read: Are the tides turning against Chinese tech companies?
Though Huawei has vigorously disputed the claim of being associated with the Chinese government, the critics claim the company to be using equipment for espionage or to disrupt telecommunications. With the change in policy, the British government plans not just to terminate the purchase with Huawei but also intends to remove existing equipment by the year 2027.
On Tuesday, Robert O'Brien, US National Security Adviser, met with counterparts from Britain, France, Germany, and Italy in Paris regarding China. He said, the country fears of "data breach and telco's threat to data privacy". He also mentioned about finding a piece of "strong evidence" regarding the link between the Chinese government and Huawei, a company founded by a former Chinese army engineer. China's Ministry of Foreign Affairs spokeswoman, Hua Chunying, reacted on the ban on Wednesday saying that "China will view this seriously and comprehensively." She further that all essential measures to preserve its interests shall be taken by the country.
What it looks like for Mobile Network Operators in the UK
In 2005, the UK was the first country to welcome Huawei in Europe. However, as scenarios have changed, the UK's Department of Digital, Culture Media and Sport (DCMS) will now revise its proposals. Followed by this, by the end of 2027, the Mobile Network Operators (MNO) have been asked to remove all Huawei equipment from their 5G networks. It will also be banned from buying new 5G network components from Huawei after the end of 2021. Huawei is too deep-rooted in the country's fixed-line broadband and telecommunications sector; hence DCMS is also required to consider this side.
The industry experts warn on the ban of Huawei as it will lose the country hundreds of millions of pounds. Besides, the UK may also end up losing its leadership status in Europe on the 5G network. The UK's biggest telco, BT, acknowledged losing nearly £500 million, with this decision. Vodafone UK's head of networks, Andrea Dona also admitted that the company needs to spend "single figure billions" to remove and replace Huawei equipment from its networks. Three and O2, two other mobile network operators, have also worked closely with Huawei.
Stock markets unstable as Huawei exits from the UK
Huawei Technology is the world's largest provider of telecommunication infrastructure. After coming under global scrutiny, the telecom industry may get affected in the global share market. Shares of Vodafone in the London Stock Exchange (LSE) opened 1% lower on 15 July 2020. They could fall further this week, with the stock closing at 127.94p per share on 16 July 2020. BT is underperforming for the last five years with the prices of BT shares falling as much as 75%, despite significant investment in its 4G and 5G products.
This tense situation does create opportunities for other companies in handsets, 5G networking hardware, optical networking, and routers and switches. Countries like France, India and now the UK have actively carried out restrictions on Huawei. These restrictions could lead to significant gains to other players in the market. In the March quarter, behind Samsung Electronics (ticker: 005930.Korea) at 21%, Huawei held about 18% of the global market, with Apple in the third position at 11%. Companies like Apple, Cisco, Ciena, and Nokia could gain market share in this scenario.
Way Forward
In the past, the United Kingdom has faced challenges owing to the US-China Rift. China is the UK's largest and fastest-growing trading partner. It is almost sure that in moving towards the ban, the UK may face retaliation from China. Currently, as the UK exits from the European Union, it is trying to draft an open trade policy. It will be interesting to see how the free trade policy and the ban on the telecommunication giant Huawei impact the UK markets. For sure, it opens up avenues for the other vital players in the market such as Apple, Cisco, Ciena, and Nokia.
