NHS National Programme for IT – Will 5G learn those lessons or sleepwalk into the same?

Undermasthead Shape

Following the US’s sanctions against Huawei, the UK Government have decided to drop Huawei from the 5G infrastructure project, indeed the sanctions mean Huawei will no longer have the means necessary to financially support such a capital intensive and nationwide project. We talked about this in the previous article but now turn our attention to the impact on the wider supplier base and draw comparisons with the National Programme for IT (NPFIT) over a decade ago now. It is now more important than ever for those involved to learn lessons and avoid waste of state resources and funding. This is particularly brought into focus during the COVID-19 crisis and pressure that the state will under to try to recoup, divert, reduce and reprioritise spending.

Throughout the process of removing Huawei from the UK supply chains, at both macro and micro levels, there will be various impacts felt across the sector:

  • Reduced competition – high barrier market entry and market consolidation across the technology sector has kept competition to a relatively small group of big players for 3 consecutive decades (despite steps to dilute this amongst SMEs). Taking Huawei out of the supply chain means there are even fewer suppliers to maintain healthy competition. Huawei is a huge player in the technology communications industry and pushing them out means one less competitor and reduced incentive for other huge companies to compete.
  • Higher costs for consumers – reduced competition will likely lead to higher costs. Telecom companies who could provide 5G infrastructure in place of Huawei are companies who need to be profitable to satisfy shareholders and to fund innovation, research, learning and development. Basic economics implies that products which cost a lot to deliver will cost customers more. With Huawei leading on price, effectively pinning price lower than it would otherwise be, their removal from the marketplace means there will likely be immediate price hikes.
  • Loss of jobs – Huawei is an extremely large international company and, therefore, it stands to a reason a loss of contracts will have a wide far reaching economic impact. In 2018 Huawei claimed to have supported around 26,000 indirect jobs around the world, some of which are within the UK, US, New Zealand and Australia. Not all jobs will be directly impacted by the recent changes however, there will no doubt be some job losses in these countries.
  • Backwards compatibility – This will allow 5G interoperability with old 4G systems, however, this means technology companies across the supply chain will be spending large amounts of money on 4G equipment in preparation for the deployment of 5G.
  • ‘Rip and replace’ – 5G replacing the old and complex 4G system with a modern, flexible and fully functional 5G network which is responsive to new needs. This will undo years of 4G investment making previous capital expenditure redundant. This was a known issue, but now without the world’s market leader taking part it is surely a greater risk to bear.

Consequentially, UK companies will need to reconfigure their supply chains and conduct an effective change management strategy to ensure access to technologies which they rely on. This will be difficult as the UK has not yet found an alternative vendor that offers the same package as Huawei and this, coupled with the economic impacts of the COVID-19 pandemic, may hinder the abilities of the technology and telecommunications sector to move quickly to adapt.

Not using Huawei will cause delays to the UK’s digitalisation ambitions. Huawei technologies are embedded in Three, BT, EE, Vodaphone and Openreach networks. All these companies will suffer huge costs in their obligation to reduce exposure to Huawei under new legislations and guidelines that exclaim they are ‘high risk’ vendors until they sever ties with Huawei.

The Chartered Institute of Procurement and Supply (CIPS) stated that the removal will cost over £2bn. By phasing out Huawei, the UK has seriously hampered its technology supply chains and requiring operators to remove Huawei equipment alone will add hundreds of millions of pounds to the costs of the 5G project.

Lessons learned from the past – avoiding disasters

Will the UK government be in danger of repeating history and walking into a programme of change that is doomed from the beginning? By interfering with the supply chain and market forces, albeit for apparent reasons of state security, will there be a revolving door of exiting suppliers and Government left carrying the can?

The National Programme for IT in the NHS was the largest public sector program ever attempted in the UK at the time with the purpose of bringing the NHS’s use of IT into the 21st century. With original budgets estimated to be £6billion with various large contracts being awarded to some of the UK’s biggest technology organisations at the time including Accenture, CSC, Atos Origin, Fujitsu and BT.

However, the project was dismantled by subsequent governments as it became clear the majority of services contracted for were not being delivered and the government was continuing to incur significant costs for the programme. The project became a mess and transition and exit costs totalled to more than £10billion.

The Culture Secretary Oliver Dowden has exclaimed that the UK’s decision to phase out Huawei will delay the project by two to three years with added costs of up to £2billion (as predicted also by CIPS). This situation will have also threatened to move Britain into a digital slow lane, push up bills and deepen the digital divide. Under pressure from the ongoing demands of the 5G project whilst also navigating and funding exit from Europe and the hoped economic recovery from the pandemic, it may be very difficult for the Government to juggle all these balls at once.

Is the government unwittingly walking into another NPFIT disaster, at the risk of incurring billions of unnecessary costs just at the time we need to tighten the purse strings and try to claw back the emergency funding spent to try to mitigate the COVID-19 impact?

Or, will alternative suppliers step up and provide a suitable alternative, capable of pushing the UK into the next digital generation?