Russia might be winning the cyberwars, but it’s China that is emerging to challenge the United States for Global 5G dominance.
This issue has crystalized in days pre- and post- the 5G-themed Mobile World Congress. Huawei continues to be blocked from competing in the U.S wireless infrastructure market, and the major U.S. operators were pressured to not sell its phones. Earlier this week, the Committee on Foreign Investment in the United States (CFIUS) stepped in to review Broadcomm’s purchase of Qualcomm, over concerns about Broadcomm’s relationships with foreign entities, and the possibility that it would sell of piece parts of Qualcomm to…China.
Much of this revolves around concerns about threats to national security, and it looks like 5G is going to be an important battleground. While Europe led the 3G revolution and the U.S. led 4G LTE development and deployment, China is emerging as a major force in the nascent 5G market. Huawei gained significant global share during the 4G era, mainly due to aggressive pricing that made it difficult for companies such as Ericsson and Nokia to compete in many markets outside the U.S. Now, Huawei is seen as an innovator, and offers a 5G kit that is competitive with, and in some respects exceeds, that of its other global competitors. It is also doing leading edge work in nearly every other telco/Internet infrastructure segment you can think of, from IoT to NFV and cloud.
Second, the Chinese government is playing an active role, investing in infrastructure, and promoting the 3.5 GHz spectrum as a global 5G band. In fact, the pressure being exerted on the FCC to allocate more mid-band spectrum is largely the result of what’s happening in China. And while we dither over issues such as small cell siting and can’t find a way to invest in infrastructure projects, the Chinese are running laps around us with initiatives such as ‘One Belt One Road’. You can bet that all those road and rail projects will pave the way (or lay the track) for lots of telecom infrastructure deals.
Third, the sheer size of China’s market and workforce has become an incontrovertible force. It is the world’s largest wireless market, by far. And the country’s growing wealth is allowing Chinese students to come study at leading U.S. universities and take that knowledge back with them back home.
There are huge complexities here. China is a huge market for U.S. tech companies. On the other hand, companies such as Facebook and Google are largely blocked from doing business there, which has allowed home-grown firms such as Alibaba to achieve outsized market share in China.
Why the focus on 5G in the U.S.-China economic war and the evolving chilly-if-not-cold war/cyberwar? Well, it’s a going to be a multi-trillion dollar market over the next 15 years. Not just 5G infrastructure but all the devices and billions of connected things that form the business case for 5G. And, the adjacent markets, such as connected/driverless car, that are enabled by 5G and are yet another important U.S. v China battleground.
So, what should we do about this? It might take something akin to a national industrial policy, which is anathema to those who promote free market forces. But throw national security concerns into the mix and at least we might get their attention.
First, a review of the Broadcomm-Qualcomm deal is warranted. I’m not saying kill it but let’s make sure there are conditions that address not only Qualcomm’s interests but U.S. national interests. Despite its occasionally icky practices, Qualcomm is a very important company to U.S. interests from a patent and innovation standpoint. I was really concerned when I saw activist investors complaining that Qualcomm spends an outsized 25% of its revenues on R&D. Particularly as the U.S. government seems to be relinquishing its support of science and technology, we need the Qualcomms and the Googles of the world to invest in the frontiers of tech such as 5G and AI.
Second, if past behavior predicts future results, we need to step back and think about the national security issues related to 5G, and not in the ad-hoc way we’ve been dealing with it. We should define the safeguards that need to be undertaken given the risks on infrastructure, in chipsets, and in all those billions of connected devices. It is good practice to define the rules, and the steps/precautions that must be taken, for foreign companies and governments that want to do business here.
Finally, we need to think seriously about the education/talent aspect here. I hear almost daily from tech execs about the lack of suitable talent to fill jobs in emerging areas such as AI. In 5G, there is enormous turnover, and a different skill set needed, for the jobs that will be involved in building next generation networks. There is a deficiency of higher-end programs in these areas. Greater public-private cooperation is warranted. Wealthy foreign nationals are coming here and getting their pick of programs at universities where they’re paying full freight, while the average U.S. college student has to spent zillions and get saddled with debt to get the same education that is nearly free (or even sponsored) elsewhere.