Britain is set to toughen the rules under which Huawei Technologies Co. operates in the country while stopping short of an outright ban on the Chinese telecom equipment maker, according to people familiar with the matter.
The measures, designed to address concerns that Chinese intelligence could use Huawei's systems to spy on other countries, are expected to involve closer state oversight and may restrict the vendor from some sensitive parts of the U.K.'s telecom networks, said the people, who asked not to be identified as the discussions are confidential.
The results of a six-month review of Britain's telecom supply chain were submitted Tuesday to the National Security Council chaired by Prime Minister Theresa May. Officials will spend coming days working through the details before announcing a final decision. May's office declined to comment Wednesday on a Telegraph report that she had decided to allow Huawei to build parts of the new generation of wireless networks known as 5G.
Western allies are watching. Britain has monitored Shenzhen-based Huawei's systems closely for several years, while allowing it to become a major supplier of UK communications infrastructure.
Huawei denies that its equipment is vulnerable to state espionage.
"We welcome reports that the UK government is moving towards allowing Huawei to help build the UK's 5G networks," a Huawei spokesman said in an email. "While we await a formal government announcement, we will continue to work cooperatively with the government and the industry."
The issue has divided UK government departments, with some officials pushing for tough restrictions and others concerned this would saddle the industry with extra costs and delay infrastructure upgrades, the people said.
Speaking during a session of the Treasury Select Committee, Chancellor of the Exchequer Philip Hammond said that 'where our security experts tell us that there are ways in which we can maintain security, whether its of networks or of installations, that avoid the most economically costly outcomes, then we should look very carefully at those options.'
UK Parliament foreign affairs committee Chairman Tom Tugendhat wrote on Twitter: "Allowing Huawei into the UK's 5G infrastructure would cause allies to doubt our ability to keep data secure and erode the trust essential to Five Eyes cooperation," referring to the security alliance of Western nations. "There's a reason others have said no."
Here's what the government may do:
■ Exclude Huawei From Core Networks
The core is the brain of a network, housing control functions and private customer information. The government has been weighing whether to force all operators to adhere to security guidelines that already apply to the UK's dominant phone company, BT Group Plc, which is set to remove Huawei from the core of the EE mobile network it bought in 2016. This could exclude vendors deemed as risky from law-enforcement functions such as wiretaps or installing equipment in Westminster, the home of central government.
■ Ensure a Mix of Suppliers
Officials are considering rules to ensure equipment in a given area comes from different vendors so that operators are not reliant on a single supplier's technology, according to people familiar with the review.
■ Limit Outsourcing
Operators could be restricted from allowing vendors to manage their networks, according to one person familiar with the deliberations. Huawei has signed such "managed services" contracts with Telefonica SA's O2 and CK Hutchison's Three UK
■ More Testing and Regulation
The review may lead to new powers for communications regulator Ofcom, which is responsible for auditing and enforcing telecom security according to recent guidance from government. Ofcom is due to launch a cybersecurity attack testing system, it said in its annual plan last month.
■ Network Restrictions
Forbidding Huawei to supply equipment such as masts and antennas for upgraded mobile networks would be more drastic and is seen as unlikely. Technical experts say the radio access network is a low-risk part of the system. It also accounts for the majority of Huawei's presence and sales in the UK Phone companies say such a ban would cost them hundreds of millions of pounds and delay rollout of the fifth-generation networks by years.