Punishing BT for minor Huawei breach would be dumb

Many drivers have been there. You find a rare parking spot in a crowded neighborhood, perform the most arduous maneuver to fit your car into the restricted space and are later fined by some mean-spirited official because one of your front wheels kissed a prohibited yellow line. It's the letter of the law and BT could now be a victim of similarly uncompromising treatment.

The UK telco's crime is its failure to have completely removed products supplied by Huawei, the out-of-favor Chinese company, from the core of its mobile network. After a previous extension, it had until December 31 to finish the job. But on January 2 BT revealed that 1% of its network traffic was still in the prohibited Huawei zone. Cue lots of newspaper headlines drawing attention to BT's miss and talking up the prospect of a fine.

It would be a dumb and counterproductive move – which is not to say it won't happen. As prime minister, David Cameron, now the UK's foreign secretary, courted Xi Jinping, China's president, and had no objection to Huawei's involvement in UK telecom. British authorities changed their minds only when Americans began to hype 5G. The new mobile technology would connect everything from robot surgeons to fighter jets, they said (it hasn't). The Chinese could use Huawei to infiltrate and bring down critical systems.

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Even if you go along with this doomsday scenario, the 1% of BT traffic still supported by Huawei does not use 5G. It does not even use 4G, its popular predecessor. Huawei's ongoing role is instead limited to the much older 2G and 3G standards, both of which cling on miserably despite efforts to euthanize them.

Networks based on 2G survive largely because they are needed for international roaming and still connect a few knackered vending machines. As for 3G, it has already been killed off in numerous other countries. BT plans to phase out the power-hungry technology this year and might already have finished the job – with knock-on environmental benefits – were it not for government concern about depriving a handful of pensioners who last upgraded their phones in the pre-4G noughties.

Hurting BT

Big companies should obviously suffer penalties when they flagrantly breach competition and other longstanding laws. This hardly qualifies. Having had the Huawei core ever since buying EE in early 2016, BT would see no financial or operational upside in retaining it alongside and surplus to its newer Ericsson core. Nobody wants to switch it off more than BT.

Why, then, has the job taken so long? Under the original deadline, BT was supposed to have removed Huawei by January last year. It has proceeded cautiously because any disruption to the network control center of the core, as opposed to an individual site, could result in blackouts for millions of customers. Something like this was seen a few years ago when a software problem at Ericsson led to outages for O2 smartphone customers across the UK. As the national incumbent, still bound to universal service obligations, BT is under closer scrutiny than its rivals.

According to rules, BT could be fined as much as £100,000 (US$126,546) for each day of non-compliance or 10% of sales. Based on last year's results, the former would equate to less than 0.2% of BT's daily revenues. But the latter is not the sort of pathetic charge normally imposed on telcos for marketing or other consumer-related violations.

Nor is BT in the best financial health. On the London Stock Exchange, its share price currently trades at one quarter its level in January 2016. Its annual revenues fell by £3.4 billion ($4.3 billion), or 14%, between 2016 and 2022. Net debts came to £19.7 billion ($24.9 billion) last November, about 2.5 times what BT made in adjusted earnings (before interest, tax, depreciation and amortization) for the previous fiscal year.

Under government pressure, BT is also spending a colossal amount to equip the UK with a high-speed, full-fiber network. It has done a commendable job on rollout so far, having passed around 12 million of a planned 25 million homes by late 2023. But the effort has pushed up capital intensity – expenditure as a percentage of revenues – to about 22% for the first half of the current fiscal year, from just 14% in 2016. Fining BT 10% of revenues would obviously hinder its ability to perform a role the government deems economically essential.

If UK authorities want to show that big organizations and the people who run them are not above the law, they might want to think about their treatment of Paula Vennells, who ran the Post Office between 2012 and 2019. It was a period that saw hundreds of employees wrongly prosecuted and even jailed for accounting fraud when the sole culprit was subsequently proven to be a malfunctioning software system built by Japan's Fujitsu, a company that authorities now court as a telecom vendor alternative to Ericsson and Nokia.

Despite presiding over this outrage, Vennells left her job with a £400,000 ($506,182) bonus and even made it onto the UK's increasingly tarnished honors list, receiving a CBE in 2019. In the wake of a new ITV drama about the whole sorry affair, a petition demanding she be stripped of the award has reportedly attracted more than 350,000 signatures so far. It would be a good starting point.