Huawei decision 'may delay 5G by three years and cost UK £7bn'

Small towns and rural areas across the UK will be hardest hit by delays of up to three years in the rollout of 5G mobile technology, experts have said after ministers announced that Huawei will be stripped from networks by 2027.

The total cost to the economy could exceed £7bn, according to research analysing the potential cost of eliminating the Chinese equipment supplier in response to US sanctions and pressure from about 60 rebel Tory MPs.

Related: The Huawei dispute is only one part of a wider UK-China struggle

Oliver Dowden, the culture secretary, announced a U-turn on the role of Huawei in 5G networks on Tuesday, earning criticism from China and praise from the US, who said the company poses a threat to national security.

China’s ambassador to the UK branded the decision “disappointing and wrong”. Liu Xiaoming tweeted: “It has become questionable whether the UK can provide an open, fair and non-discriminatory business environment for companies from other countries.”

The US secretary of state, Mike Pompeo, said the move “advances transatlantic security in the 5G era while protecting citizens’ privacy, national security, and free-world values”.

Earlier, Dowden surprised MPs when he announced that the decision to remove Huawei would mean “a cumulative delay to 5G rollout of two to three years”.

Some believe his remarks were a warning shot at Conservative rebels who said they were still dissatisfied and wanted Boris Johnson to go further by stripping out all Huawei kit, including from old 2G, 3G and 4G networks.

Matthew Howett, the founder of the research firm Assembly, said: “Mobile phone operators have so far cherry-picked the major urban areas to deploy 5G, but changing the rules now will mean delays for the rest of the country.”

Previous research conducted by Assembly on behalf of the telecoms firms BT, Vodafone, O2 and Three, concluded the UK would suffer an economic hit of £6.8bn from not deploying 5G and risk falling behind continental Europe.

“We also thought it would set the UK back 18 to 24 months, but Dowden went further and said it would be three years,” Howett said. “Anywhere where coverage is already poor is now going to have to wait longer.”

However, BT said that despite “logistical and cost implications”, it thought it could continue “without a significant impact on the timescales we’ve previously announced”.

After Dowden said it would cost mobile phone companies an extra £2bn, a source at one of the major operators said that would inevitably have a knock-on impact on the already fragile economics of rural communications.

Dowden was responding to a decision made by the Trump administration in May to ban Huawei from using US microchips, which meant the UK could no longer be confident the Chinese company’s technology did not pose a security risk.

One Whitehall official described the US sanctions as “a game changer”, while another said Britain had been surprised by how draconian they were. “This was at the harder end of expectations,” they said.

The prime minister has become embroiled in an intense geopolitical row over Huawei, in which Trump has demanded the Chinese company be kicked out of the UK, claiming it poses a long-term security risk.

Huawei denies it has ever been asked to engage in spying on behalf of the Chinese state, while Beijing says Johnson’s decision will be an acid test of Sino-British relations developed under David Cameron.

Huawei has long been seen as a potential security risk because of its Chinese origins, although the company itself says it is a business owned by its employees, and independent of the Chinese government. Until now, Britain’s spy agencies had concluded there was nothing to be seriously concerned about.

The decision represents a U-turn on the previous policy to allow Huawei to supply 35% of the UK’s 5G equipment, and a compromise with BT and Vodafone, who warned there could be phone “outages” if they were forced to act even sooner.

But a group of Conservative rebels who say they number around 60 – theoretically enough to defeat the government – want the Chinese company eliminated more comprehensively and by 2026 at the latest. Huawei is already banned in the US and Australia for 5G equipment.

Iain Duncan Smith said there were contradictions in Dowden’s statement. “So if there are risks in 5G why are they not a risk to us generally,” the former party leader told the Commons, and called on the minister “to ban Huawei altogether”.

In reply, the culture secretary said “the reality of the 5G network is that it is fundamentally different” and added that “in turn, 5G will be replaced by 6G and in all of that Huawei will be absent”.

In the same debate, the minister said the UK would be on an “irreversible path” to eliminating “high-risk vendors”, such as Huawei, in 5G by the time of the next general election in 2024, in an attempt to placate some MPs.

However, the rebels said they would seek to amend legislation to enforce the Huawei 5G ban when it comes before parliament next autumn – and consider attaching amendments to other related bills to try to achieve the same result.

A rebel source said: “The fight is back on. The telecoms infrastructure bill will face amendments to ban 3G and 4G on the same basis as 5G, and to bring forward the end date for equipment. We are confident that they will be successful.”

Downing Street had asked the National Cyber Security Centre, part of the spy agency GCHQ, to review Huawei’s security. The experts concluded that its equipment could not be considered safe if it had to rely on non-US components.

Huawei UK urged the government to reconsider, and said the UK would be economically damaged if it pressed ahead.

Ed Brewster, a spokesperson for the company, said: “This disappointing decision is bad news for anyone in the UK with a mobile phone. It threatens to move Britain into the digital slow lane, push up bills and deepen the digital divide.”

Officials also want Huawei to be removed from high-speed, full-fibre connections following a two-year transition period, working with companies to find a way of eliminating its equipment.

No compensation is expected to be paid to BT, Vodafone or Huawei.

A few minutes before Tuesday’s announcement, Huawei said the former BP boss John Browne would be stepping down as chairman of its board of directors from September. Lord Browne, who had held the post for five years, did not say he was quitting but the company thanked him for “his valuable contribution”.