Vodafone reveals €200m cost, two-year 5G roll-out delay to strip Huawei from core network

True cost of government order mounts up as Vodafone joins BT in taking hit worth hundreds of millions of pounds from requirement to remove Chinese technology from core infrastructure

Further ramifications have emerged of the UK government’s decision to ban technology from so-called high-risk suppliers from use in the nation’s core communications networks, with Vodafone revealing the huge price it will pay to comply with the new guidelines.

As Vodafone was announcing its trading update for the quarter ended 31 December 2019, chief executive Nick Read revealed that the company had calculated that it would cost as much as €200m over the next five years to remove Huawei equipment that exists already in its core networks across Europe, to follow the instruction by the UK government.

The government has decreed that suppliers such as Huawei should be excluded from all safety-related and safety-critical networks in critical national infrastructure; excluded from security-critical “core” functions, the sensitive part of the network; excluded from sensitive geographic locations, such as nuclear sites and military bases; and limited to a minority presence of no more than 35% in the periphery of the network, that is the access network.

Adhering to the 35% limit, said Vodafone, would likely see its planned development of 5G across the UK and the rest of Europe held back by at least two years. At present, the company has launched 5G services in seven European markets, and in the UK recently announced that it would offer free 5G roaming in the Republic of Ireland and extended its domestic network to major metropolitan areas in the north of England, Scotland and Northern Ireland.

Vodafone’s cost calculation comes on the back of similar warnings by rival BT, whose chief executive Philip Jansen said on 31 January that the company was in the process of reviewing the government’s guidance in detail to determine the full effect on BT’s plans, but estimated that the decision had a potential impact of around £500m over the next five years.

The warning came as Vodafone reported solid performance in the third quarter of its fiscal year. For the three-month period to 31 December 2019, the operator reported total group revenue of €11.750bn, up 6.8% on an annual basis.

The company said regional growth was positively impacted by the contribution from acquired Liberty Global assets. Organic service revenue, which excludes the acquired Liberty Global assets, declined by 1.4%, with growth in the UK and other European business being offset by declines in Italy and Spain.

While European third-quarter revenues grew strongly, 10.1% year-on-year to €8.97bn, revenues for the rest of the world shrank by 2.7% annually to €2.75bn. Organic growth was offset by the disposal of Vodafone New Zealand, and the company revealed a 1.0 percentage point drag from foreign exchange movements, particularly with regard to the Egyptian pound. Organic service revenue increased by 9.1%, supported by customer base and data revenue growth.

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