Limiting the use of Huawei equipment in BT’s EE 5G mobile and full-fibre broadband networks will cost the telecoms group £500m over the next five years.

BT uses more Huawei equipment in the masts and towers of its mobile network than is allowed under new government rules, meaning it will now have to be stripped out and replaced with hardware from other manufacturers.

Earlier this week, the government said it would allow Huawei to be involved in the non-core parts of the UK’s 5G network, the masts and towers, but with a 35% cap on use of the Chinese company’s equipment. Huawei equipment is banned from use in the core of 5G mobile networks, where data is processed, and from locations such as nuclear sites and military bases.

The same 35% cap applies to the gigabit-speed full-fibre broadband infrastructure, which is less problematic as the slow rollout to date means it has reached only 10% of UK homes.

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BT shares fell 7% as investors digested the financial cost of stripping out Huawei, as well as softer-than-expected third quarter results from the telecoms company.

The company reported a 3% drop in revenue to £5.8bn in the three months to the end of December, as profits fell 4% to £1.97bn.

“The way it works at the moment is when you put a 5G box on a mast it has to be on top of a 4G box from the same supplier,” said Philip Jansen, the chief executive of BT. “More than 35% of [our] 4G boxes are Huawei. We are going to have to take out some Huawei 4G boxes and not use them again. That is probably the single biggest cost. In order to make 5G work we are going to have to use other manufacturers’ equipment.”

Jansen hinted that the total cost could end up more than £500m as the 35% cap also applied to how much 5G data traffic was allowed to flow through Huawei equipment, not just the proportion of equipment. This could require additional replacement of Huawei equipment where it is being used in highly populated, high-traffic areas such as London and Manchester.

“It is an estimate, but we are pretty comfortable,” said Jansen. “[The cap] is not just number of masts, it is traffic as well. The mechanism for defining traffic has not [yet] been agreed.”

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BT-owned Openreach is rolling out full-fibre broadband across the UK with a target of reaching 4m homes by 2021. Jansen said meeting the 35% Huawei cap in the broadband network would not be a problem.

Boris Johnson is aiming to get gigabit speed broadband to every UK home by 2025. Jansen said that target might not be achieved unless issues such as the cost of supplying broadband to remote areas could be resolved.

“It is possible, it is just very, very hard and we don’t have time to waste”, he said. “My sadness is I don’t think these things will get resolved quickly and it may get missed. We cannot allow bureaucracy to get in the way of progress. We need full fibre, not red tape.”