Huawei loses business from U.K. firm as scrutiny intensifies

BT removing firm’s equipment from network’s core in a financial and a symbolic blow

LONDON—China’s Huawei Technologies Co. is losing a chunk of business from one of its biggest and oldest Western customers, as the U.S. pushes allies to avoid the telecom-equipment maker and governments around the world ratchet up scrutiny.

BT Group PLC, Britain’s largest wireless carrier by number of subscribers, is removing Huawei equipment from its network’s core—the backbone of a carrier’s system that transfers calls and internet traffic. It said the move was part of a network-updating process that started two years ago, when it acquired a rival wireless network that used some 10year-old technology.

The company didn’t say why it was only disclosing the move now. Earlier this week, the head of Britain’s Secret Intelligence Service said the U.K. faced a tough call deciding whether it was comfortable using Chinese-made equipment in its telecom networks.

BT said it would continue to buy Huawei equipment for parts of its network outside the core. That would include electronics in cellular towers and sidewalk cabinets.

Huawei remains “an important equipment provider,” BT said.

BT’s decision is both a financial and symbolic blow to Huawei, which focused on the domestic Chinese market until the U.K. became its first major foreign partner almost

15 years ago.

Britain has courted the company in the past. In February,

Prime Minister Theresa May met Huawei’s chairwoman in Beijing. Days later, Huawei announced it would invest £3 billion ($3.8 billion (U.S.)) in the U.K. over the next five years.

The U.S., meanwhile, has long considered Huawei a security threat, saying the Chinese government could compel the company to tap into the electronics it makes to spy, disable communications or launch other cyberattacks.

Huawei denies this, saying it is an employee-owned company that has never conducted espionage or sabotage on behalf of any government, and that it represents no greater threat than competitors because they share a common supply chain.

A Huawei spokesman said BT has long used several equipment suppliers and was simply seeking to upgrade dated technology.

“This is a normal and expected activity, which we understand and fully support,” the Huawei spokesman said.

He added that Huawei has “never had a cybersecurity related incident.”

Huawei is the world’s biggest maker of the equipment that goes into cellular towers, internet networks and related telecom infrastructure, with 22% of the global market in 2017, according to research-firm IHS Markit Ltd.

Finland’s Nokia Corp. was No. 2 with 13%, while Sweden’s Ericsson AB was third with 11%. Analysts say those Nordic suppliers, as well as an upstart telecom-equipment business from South Korea’s Samsung Electronics Co., could benefit from Huawei’s challenges.

BT is one of Huawei’s biggest customers outside China. BT hasn’t disclosed how much it buys from Huawei and declined to say how much stripping Huawei gear from its core network would cost. Industry experts said the costs might not be too significant. It would cost far more to replace equipment on the “edge” of the network, which includes cellular towers.

Over the past year, Washington has embarked on a multipronged push to keep Huawei off American soil.

The Wall Street Journal reported in November that the U.S. government had recently launched an outreach campaign to urge allies in Europe and elsewhere to enact similar bans.

“The U.S. advocates for secure telecoms networks and supply chains that are free from suppliers that are subject to foreign government control or undue influence, in order to reduce the risks of unauthorized access and malicious cyber activity,” a spokesman for the U.S. Embassy in London said Wednesday.

“We routinely urge allies and friends to consider such risks and exercise similar vigilance in ensuring the security of their own telecoms networks and supply chains,” he added.

U.S. officials say the effort is urgent because wireless carriers world-wide are about to upgrade to 5G, which would allow many more objects—factory parts, self-driving cars and everyday devices like heart monitors—to be connected to the internet.

BT said Wednesday it wouldn’t purchase Huawei gear for the core of its 5G network when it started rolling that out.

In a rare public warning, Alex Younger, the head of Britain’s MI6 intelligence service, said banning suspicious telecom equipment from only the core might not be sufficient to protect a network’s security. That is because the imminent arrival of 5G means noncore equipment, such as that in cellular towers, will handle tasks that the core currently handles.

In October, the British government launched a review of its telecom-equipment market that executives said was aimed at Huawei. It is aiming to finish the review by the spring.

In July, the U.K. government found “shortcomings” with a lab that vets Huawei equipment. Huawei funds and operates the lab, which is overseen by a board that includes British government officials.

In August, Australia banned Huawei and smaller Chinese rival ZTE Corp. from 5G networks, citing security concerns. Last week, New Zealand cited similar concerns in blocking a major wireless carrier from using Huawei for a 5G network. ZTE declined to comment at the time.