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BT to take £500m hit from Huawei decision

UK government will allow ‘high risk’ vendors to play a role in 5G, but with restrictions
January 30, 2020

The government’s decision to restrict Huawei’s involvement in UK 5G networks could set BT (BT.A) back £500m over five years. This comes after Westminster revealed that ‘high risk’ vendors (namely the Chinese firm) will be allowed to supply elements of the country’s fifth-generation mobile infrastructure, but will be excluded from the sensitive ‘core’ parts of the network. Such vendors will also be kept out of sensitive locations such as military bases – and, there will be a 35 per cent cap on access to non-sensitive parts of the network.

IC TIP: Hold at 162p

“The security of our network is paramount for BT. We therefore welcome and are supportive of the clarity provided by government around the use of certain vendors in networks across the UK […]” said BT chief executive Philip Jansen. The group noted that the new guidance issued by the National Cyber Security Centre would “have some impact on our 5G rollout plans and the equipment used in our FTTP [fibre-to-the-premises] network build going forwards”. It is currently reviewing the guidance in detail, to establish the full effect.

BT’s shares fell by 7 per cent in response to this update, as investors digested just how much it could cost for BT to have to use other suppliers. It didn’t help that the telecoms giant’s third-quarter results were below management’s expectations. Adjusted revenues dipped by 3 per cent to £5.8bn, with cash profits down 4 per cent to £2bn. Over nine months, revenues edged down 2 per cent to £17.2bn, with cash profits down 3 per cent to £5.9bn.  The group cited ongoing regulatory “headwinds”, competition and legacy product declines – as well as higher spectrum fees, investment in customers and higher operating costs within its Openreach arm.

Still, the group has maintained its full-year outlook. It anticipates free cash flow to be in the lower half of its £1.9bn-£2.1bn guidance range.