Vodafone CEO Nick Reed said a network infrastructure quota placed on the use of Huawei equipment will impact current services and delay the roll out of its 5G network by up to five years.

Reed told investors as part of Vodafone’s latest earnings update that the United Kingdom-based telecom giant will comply with recently instituted regulations that ban the use of Huawei equipment in sensitive parts of 5G networks. However, Reed explained that replacing the Huawei equipment that is already installed across its European footprint to comply with a new U.K. quota will disrupt its 4G LTE network and cause a 5G deployment delay.

“RAN quotas, which will require us to swap out our modern 4G network, would disrupt our customers, could drive higher prices given the costs involved, and most importantly would delay the roll out of 5G by two to five years given the industry’s limited operational and financial resources,” Reed said during his presentation. “This would hold back individual member states and Europe’s global competitiveness in a digital society.”

The quotas that Reed referenced were part of a U.K. government decision released last week. The government will allow operators to use Huawei equipment to construct radio access network (RAN) elements. However, it’s capping that usage at 35% of the total construct that “allows for effective cybersecurity risk management.” This would also seem to leave a fair share of business for other equipment vendors like Ericsson, Nokia, and Cisco. The Huawei usage also has geographical limitations tied to the location of sensitive, military, or government locations.

The U.K. government and its National Cyber Security Centre (NCSC) decreed that Huawei is a “high risk vendor” (HRV), which means it poses a “greater security and resilience risks to U.K. telecoms networks.” As such, equipment from HRVs must be “excluded from sensitive ‘core’ parts of 5G and gigabit-capable networks.”

Vodafone noted in a slide presentation that it has “no exposure” to HRVs like Huawei in its U.K. network core, and less than the 35% quota for its RAN. Across its European Union footprint, Vodafone indicated that it would take five years and cost about $220 million to remove its limited exposure to HRVs from core network operations.

More Broadly, Reed said that the carrier approved of the security screening process and that it resulted in a “clear distinction” between sensitive aspects of the network like the core and non-sensitive areas like the RAN. However, it did not like the quota system, and Reed thought a better solution was the build out of a more diverse vendor base, which “will take time.”

“But we are already leading long-term efforts in this direction by supporting initiatives such as Open RAN (O-RAN),” Reed said. Vodafone has been working with United States-based vendor Mavenir on its O-RAN plans.

Reed also said Vodafone has made some progress on a network sharing agreement it reached with Deutsche Telekom (DT) and Telefónica Deutschland late last year. That agreement focuses on meeting German network coverage requirements in rural areas, roads, rail, and inland waterway transportation routes. The group at that time said the effort will involve the installation and operation of 6,000 new cell sites.

The Vodafone CEO said the carrier was in detailed talks to cover so-called "gray spots," which are areas that are covered by one carrier but not another, and "white spots," which are areas with no coverage. However, he noted that network sharing in more urban areas where operators already have coverage is more complicated due to competitive concerns between the operators and more stringent siting requirements in German cities.

Telefónica’s German 5G efforts did receive a boost this week as the carrier scored a $495 million loan from the European Investment Bank. The loan will be used to fund the roll out of its 5G network and consolidate its 4G LTE operations.

Telefónica late last year said it will increase its wireless network investment to bolster its operations in current coverage areas and expand into areas where it lacks coverage. The EIB is focused on lending money to projects that “meet high environmental and social standards.”

Nokia in mid-2018 picked up a $567 million EIB loan to help fund its 5G research and development efforts.