The UK government has warned that Huawei must be removed from Britain’s 5G phone networks by 2027, due to concerns over security risks.
Huawei is reported to have close ties to the Chinese government and military establishment, which has raised national security concerns. The move comes after US Secretary of State, Mike Pompeo’s speech last month declaring that “the tide is turning against Huawei as citizens around the world are waking up to the danger of the Chinese Communist Party’s surveillance state”. New US sanctions in May, part of a long dispute in relation to the company, reduced Huawei’s ability to manufacture and obtain semiconductor chips using American-made technology.
On 14 July 2020, Oliver Dowden, the UK culture secretary, announced that no new Huawei 5G equipment can be bought after 31 December 2020. Many Conservative backbenchers have reportedly expressed disappointment that older 2G, 3G and 4G kit can remain in use until it is no longer needed, as many Conservatives would prefer Huawei to be banned altogether.
Dowden declared that the UK will be on an “irreversible path” to eliminate “high-risk vendors” including Huawei, in 5G by the time of the next general election in 2024. Dowden said new US sanctions imposed on the company in May had “significantly changed” the telecoms landscape. He also told MPs that the changes would result in “a cumulative delay to 5G roll out of two to three years and costs of up to £2bn” costs that many believe will be passed on to consumers. Dowden also emphasised the risk of a Chinese backlash against Britain, especially amid Brexit negotiations.
The decision demonstrates a dramatic U-turn on a previous decision to allow Huawei to supply 35% of the UK’s 5G equipment, and also a compromise with BT and Vodafone, who warned there could be phone “outages” if they were forced to act sooner that the year end. The move also represents a significant move from the UK government in respect of its relations with China.
The decision follows an increasing trend in Europe of amplified foreign investment review procedures expanding the government’s power to scrutinise a broader range of transactions for national security concerns. This includes amendments in 2018 to the Enterprise Act 2002, enabling the secretary of state to intervene on public interest cases for key infrastructure and enterprises that have a national security element. For more information on this topic, please see Preiskel & Co’s Chapter for Getting the Deal Through Foreign Investment Review 2020 here.This trend has accelerated in response to the Covid-19 Coronavirus pandemic, as national governments seek to prevent research institutes being subject to foreign investment or takeovers which might see the benefit of treatment or vaccine breakthroughs taken away from their nations.
Please contact Tim Cowen if you have any questions regarding the UK or EU foreign direct investment regimes.