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UPDATE 6-Defying Trump, UK's Johnson refuses to ban Huawei from 5G

Paul Sandle and Jack Stubbs

* UK frustrates U.S. campaign to block Huawei

* Washington "disappointed"

* China's Huawei welcomes British 5G decision

* UK says intelligence cooperation is safe (Adds further details on market share, competitors)

LONDON, Jan 28 (Reuters) - Prime Minister Boris Johnson granted Huawei a limited role in Britain's 5G mobile network on Tuesday, frustrating a global attempt by the United States to exclude the Chinese telecoms giant from the West's next generation communications.

Defying Britain's closest ally in favor of China on the eve of Brexit, Johnson ruled that "high-risk vendors" such as Huawei would be allowed into the non-sensitive parts of the 5G network.

Yet such high-risk companies' involvement will be capped at 35%, they will be excluded from the sensitive core, where data is processed, and they will be banned from all critical networks and locations such as nuclear sites and military bases.

Such an explicit rejection of U.S. concerns that Huawei could be used to steal Western secrets dismayed President Donald Trump's administration but was welcomed by the Chinese firm, founded in 1987 by a former People's Liberation Army engineer.

"There is no safe option for untrusted vendors to control any part of a 5G network," a Trump administration official said.

"We look forward to working with the UK on a way forward that results in the exclusion of untrusted vendor components from 5G networks."

5G's much faster data speeds and increased capacity will make it the foundation stone of many industries and a driver of economic growth.

In what some have compared to the Cold War antagonism with the Soviet Union, the United States is worried that 5G dominance is a milestone towards Chinese technological supremacy that could define the geopolitics of the 21st century.

But as a critical center for Chinese investment, trading and banking in Europe, Britain sided with Beijing, in one of the biggest public breaks with Washington in decades.

"I fear London has freed itself from Brussels only to cede sovereignty to Beijing," said Senator Tom Cotton, an Arkansas Republican, adding there should be a review of intelligence sharing with Britain.

"Allowing Huawei to build the UK's 5G networks today is like allowing the KGB to build its telephone network during the Cold War. The CCP (Chinese Communist Party) will now have a foothold to conduct pervasive espionage... and has increased economic and political leverage over the United Kingdom."

CHINA VS USA

The United States had repeatedly warned London against allowing Huawei into 5G, arguing that the distinction between "edge" and "core" will blur as data is processed throughout 5G networks, making it difficult to contain any security risks.

Huawei, the world's biggest producer of telecoms equipment, has said the United States wants to frustrate its growth because no U.S. company could offer the same range of technology at a competitive price.

"This evidence-based decision will result in a more advanced, more secure and more cost-effective telecoms infrastructure that's fit for the future," Huawei's vice president Victor Zhang told reporters.

"It gives the UK access to the world's leading technology and ensures a competitive market," Zhang said.

The only other large-scale telecoms equipment suppliers are Sweden's Ericsson and Finland's Nokia.

Huawei has invested heavily to achieve market leadership, despite being excluded from U.S. networks. Zhang said it spent $15 billion last year on research.

In 2018, it committed to invest 3 billion pounds in Britain, a country Huawei views as a global innovation hub and strategic location, Zhang said.

Huawei UK vice president Jeremy Thompson said the 35% cap was "pretty much in line with its expectations."

"We welcome the diversity element and that's what I'm sure our customers will be looking for as well," he told reporters.

Huawei has around a 35% share of the non-core 4G mobile network in Britain, a government document said last July.

INTELLIGENCE

Britain said the decision protected national security while delivering world-class connectivity. It said intelligence-sharing, including with the U.S.-led 'Five Eyes' alliance, would not be jeopardized.

"How we construct our 5G and full fiber public telecoms networks has nothing to do with how we will share classified data," Foreign Secretary Dominic Raab told lawmakers after a meeting of the National Security Council chaired by Johnson.

"Intelligence-sharing will not be put at risk..."

British cyber security officials said they had put special measures in place to mitigate risks.

"We've never 'trusted' Huawei and the (measures) you can see exist because we treat them differently to other vendors," Britain National Cyber Security Centre (NCSC), part of the GCHQ signals intelligence agency, said in a technical post.

The NCSC said the notion that there was no way to separate core and edge parts of the 5G network "remained untrue."

A British official, speaking on condition of anonymity, said excluding Huawei would have delayed 5G and cost consumers more, echoing warnings from the telecoms industry.

Huawei's equipment is already used by Britain's biggest telecoms companies such as BT and Vodafone, but it has been largely deployed at the edge of the network.

Sources told Reuters last week that senior British officials had proposed granting Huawei a limited 5G role, a "calculated compromise" which could be presented to Washington as a tough restriction, while accepted by British operators.

(Reporting by Jack Stubbs, Kylie MacLellan, Kate Holton and Paul Sandle; Writing by Paul Sandle and Guy Faulconbridge; Editing by Jon Boyle, Alexander Smith and Gareth Jones)