Britain

BT faces double whammy from further Huawei 5G restrictions – analyst

If the government further restricts use of Huawei equipment in the UK telecoms network it could double BT Group PLC's (LON:BT.A) spending on its 5G mobile roll-out, according to analysts.

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 governments 2025 broadband pledge impossible.

Prime Minister Boris Johnson announced in January that Huawei could be used to build out the UKs 5G network, but capped its total share of the network at 35% from 2023.

READ: BT cancels dividend for two years to fund investment and coronavirus consequences

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 governments existing plan will have a £500mln impact on BTs 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 groups market cap.

As for other UK mobile networks, Huawei accounts for around a third of Vodafone PLCs (LON:VOD) UK mobile network, though the country generates less than 10% of underlying group profits.

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