"I want 5G, and even 6G, technology in the United States as soon as possible," the presidential tweet read last February 21. "American companies must step up their efforts, or get left behind."
The race to 5G, as it is often called, has been characterized as a rush to be the earliest adopter, the first over the line, the leader in the establishment of the infrastructure for a modern, global, digital economy. It starts out innocuously enough, sounding like dozens of neighborhood kids racing to be the first to jump into the pool on a hot summer day -- the last one in is a rotten egg. Then some of us admittedly get a little zealous, elevating it to "the race to replace the future" and "the battle over 5G," as though the global stage were a board game, and the objective were world domination.
If you've ever watched kids play a board game, you'll recall how at least one player's strategy for success usually involves squabbling over the rules. For 5G Wireless, the rules are written by the participants of a wireless standards body called 3GPP, comprised of the world's leading stakeholders in telecommunications. 3GPP describes itself as "a global initiative" whose primary objective is to provide these stakeholders with "a stable environment" in which to produce the 5G portfolio.
At one level, that sounds like the YMCA, giving folks "a safe and stable environment" in which to compete, in everything from basketball to chess, while making friends and growing strong and healthy relationships. Or perhaps toward the other extreme, it sounds like the UN Security Council, where the substance of the most threatening arguments against one's neighbors can be conveniently lost in translation.
But here's the real point: For 5G to work, from an economic standpoint, it has to be a single technology portfolio. It can't be a plethora of non-cooperating manufacturers' peculiar interpretations of what a better standard should be. If the world can't be a marketplace unto itself, then no single stakeholder can afford to compete in a restricted, subdivided, localized market. It's everything or nothing.
"We have now so many years of shared global experience of how we build the telecommunications industry, and upgrade it every so often," remarked Herbert Blum, global management consultant with Bain & Company. Blum continued:
It has been so mature at this point that the whole idea of building something rarely has an incentive of being sold in a single country. If it is the case, then it's typically a legacy issue or a legal issue in that particular country, that requires customization. But all players at this stage have basically the economic incentive to build in a way that allows them to monetize the innovations that they make, in as many countries as possible. The incentive system behind that is very similar to the media industry: If you create content, you're trying to monetize that content in as many countries as possible, because you obviously make greater returns because the investment is fixed.
Blum is the co-author of a Bain & Company brief entitled, "Why the 5G Pessimists are Wrong," where he and his colleagues make the case that telcos can make a positive business case for 5G based mainly around relieving network congestion and alleviating capacity restraints. Under the rules of the game as Blum perceives them, the whole world must be included in a level playing field, or no single player has an incentive to stay in the game. Innovation cannot be localized or regionalized, he asserts. China would be working against its own interests, he said, if it were to restrict its 5G expansion plans to China alone. Its plan has to be global in scope, or it will not work.
If there has to be a race, it should be one of market perception: of being recognized as the first implementer.
"I think that's exactly what's going on," said Erik Brattberg, fellow and director of the Europe Program at the Carnegie Endowment for International Peace. "Countries are racing to be ahead on 5G." As Brattberg went on:
The first mover advantages of adopting this new technology, in terms of being able to leverage it for developing products and applications, are so potentially huge. So that's why countries are racing ahead, and it is a competition.
Western countries -- Western European ones in particular -- may have an incentive to lead the way in implementing global standards, Brattberg told us, in a strategy to encourage others to follow in adopting those same standards. But then he continues:
What's interesting about 5G is the rise in global competition between the United States and China playing out so vividly in the technological area. That's what's really making it difficult for other countries, such as [in] Europe, to manage this. Because ultimately, it's not just about getting the most advanced technology for the best price to help your economy. It's also equally, if not even more, about the strategic considerations. That's very much what the debate in Europe is all about right now: how to manage these two pieces.
As any grade school teacher might have predicted, there's squabbling over the rules. And left to its own devices, that squabble has boiled over into something way beyond a parliamentary "point of order."
If anyone has mastered the art of building scenarios around world domination, it's the Pentagon. In an April 2019 publication for the Defense Dept. by the Defense Advisory Board, an independent advisory committee established by the DoD, Google Vice President of Wireless Services Milo Medin and intelligence-oriented venture capitalist Gilman Louie presented this advice:
The shift to 5G will carry the same potential risks and rewards as previous generational transitions, but at an even larger scale. The leader of 5G stands to gain hundreds of billions of dollars in revenue over the next decade, with widespread job creation across the wireless technology sector... The country that owns 5G will own many of these innovations and set the standards for the rest of the world.
For the reasons that follow, that country is currently not likely to be the United States.
Advance Australia fair
The story of China's rising influence in global telecommunications begins down under.
"Australia is, if you like, the canary in the coal mine when it comes to Chinese influence in general," remarked Dr. Sarah Logan, research fellow with the Department of International Relations at Australia National University. "Chinese influence in our domestic politics is a big issue, and a real, well-founded fear."
For most countries in the 20th century, telecommunications infrastructure was either owned and operated by their respective states, or intentionally established as a government-regulated monopoly. The breakup of the United States' Bell System telecom monopoly happened in 1982, setting the precedent for the rest of the world to follow suit. Australia did so in 1991, spinning off Telecom Australia into the private firm Telstra.
"Many Australians might be surprised by just how important Chinese innovation is to our telecoms and IT industry," remarked John Brumby, former premier of the state of Victoria, in a 2014 speech. Brumby continued:
In fact, Australia imports more telecommunications and IT equipment from China than from the rest of the world combined. And the drive amongst Chinese companies to develop their own intellectual property is not limited to Huawei. When measured by domestic applications, China became the world's top nation for new patent applications for the first time in 2011 – ahead of both the US and Japan.
Brumby had been a member of Huawei's independent board of directors for about three years, and that relationship was no secret. At the time, it was perceived as a cordial arrangement between a recognizable Australian former head of government and one of the country's most important trading partners. Australia is far and away the world's largest exporter of coal, shipping more than double that of Indonesia, and more than four times that of the US. As much as one-third of those coal exports are typically bound for China.
Under Brumby's tutelage, Huawei surged into a leadership position in global telecommunications. By the third quarter of 2018, according to telecom analyst firm Dell'Oro Group, it had seized a 29% share of the global service provider equipment market. According to Huawei's 2017 Annual Report, although the Asia Pacific region was only its third largest after China itself and the Europe/Middle East/Africa (EMEA) region, Asia Pacific was growing at a year-over-year rate of 10.3%, compared to just 4.7% for EMEA.
The China/Australia relationship appeared to be a virtuous cycle in itself. Then the US began raising suspicions.
In July 2013, former CIA and NSA director Michael Hayden told Australian Financial Review that US intelligence agencies had evidence proving Huawei had shared its knowledge of foreign telecommunications systems with the China government. It's a charge that Huawei has repeatedly denied, including to ZDNet's Corinne Reichert.
As Huawei's and China's motives began raising suspicion, Australian lawmakers changed course. In August 2018, its government formally banned both Huawei and ZTE from participating in Australia's 5G rollout. That ban was enacted the following month, and remains in effect today in that country today, even though ZTE was able to escape a similar ban in the US by paying an estimated $1.4 billion in fines and escrow.
During a panel discussion in March, Australian Foreign Minister Marise Payne defended the Huawei ban and the Foreign Influence Act, crediting her country's intelligence agencies for providing "the strongest technical advice as to the best way to protect Australia's national interests in the establishment of a 5G network here."
"Australia is an interesting test case," Dr. Logan told ZDNet, "because if you look at the history of the US/Australia defense relationship, it's extremely close. There's a strong signals intelligence relationship." She continued:
The other thing to remember is that Australia has no technology industry of its own. So there's no domestic technology interests at play here. There's some consumer lobbying here, because not having Huawei in the network will increase the cost to consumers here. But if it is political, it's about maintaining that relationship with the US at all costs. And there's not really a choice there for Australia. There just isn't. It is rational, but according to different sets of interests.
China's immediate response to Australia's ban was to register a formal complaint with the World Trade Organization. In their complaint, China's diplomats argued that it was against the rules of global trade to discriminate against a country -- not a company, but a country -- by banning the trade of goods supplied by (and, by direct implication, invented in) that country.
"China is part of the WTO. Therefore, the intellectual property rights and the way we broker them," remarked Bain & Co.' s Blum, "is actually agreed to. It's a common framework."
Put another way, you can't have a global framework where you encourage everyone's participation, but then exclude one participant after it has already made the critical contribution from which all the others sprout forth.
"Let us build a new Great Wall"
The breakup of Chinese telecommunications interests (as it has been described) began in 1999 and took three years to complete, initially forming four corporations, although two would re-merge with one another. Rising from the chaos were China Telecom, China Unicom, and China Mobile.
Through the dawn of the 21st century, the Chinese firms weren't taken very seriously. "My reading of Chinese sources," stated Dr. Logan, "is that they feel they were locked out of that process by US and Western interests."
While China's government began an internal probe into whether China Telecom and China Unicom were conspiring to control the country's broadband market, China Mobile began a bold experiment. Seeing how corporations worldwide were consolidating their distributed data centers into centralized cloud platforms, its engineers tried relocating the software that controls the baseband units for its 2G and 3G transmitters from the units themselves to a single cloud. China Mobile published its results in 2011:
By using new technologies, we can change the network construction and deployment ways, fundamentally change the cost structure of mobile operators, and provide more flexible and efficient services to end users. . . We'd like to invite all the mobile operators, the telecom equipment vendors, the traditional IT system vendors, and industry/academic research institutes who are concerned on the future evolution of the RAN [radio access network] to devote their intelligence and resources in the research of C-RAN to make it a reality.
C-RAN was China Mobile's design for an evolved radio access network (RAN). Citing Moore's Law as its inspiration, its engineers proposed that the markets of optical fiber, signal processors, and processor technology could co-exist in a virtuous cycle. The type of network consolidation that was unforeseeable during the 3G era, due to being cost prohibitive, would become not only practical but more affordable as soon as 2016.
"5G is a response, in some ways," said Logan, "to the humiliation of what happened with 4G."
In 2014, China Mobile engineers published their proposal in a leading Australian telecommunications journal [PDF]. Their message struck all the right chords: a much easier system to deploy, using much lower power, with higher signal strength, whose cellular structure need no longer use equally-sized cells for territories that required specialized transmission. It was a roadmap for the telecommunications future of any country with a large land mass notorious for its difficult terrain.
Although Huawei is officially described as a private company -- even as an employee-owned company -- it's interesting to note that those doing the describing are often Chinese government officials. According to a study published last April 17 by researchers with George Washington University Law School and Fulbright University Vietnam [PDF], outside of the 1% of Huawei stock owned by the company's founders, the remaining 99% is distributed to what China calls a "trade union committee" representing employees' interests. Although employees may participate in what the researchers call "contractual interests in a profit-sharing scheme," as Donald Clarke and Christopher Balding go on, they describe what the employees end up owning as:
...a kind of virtual stock that allows them a share in the profits. But this virtual stock is a contract right, not a property right; it gives the holder no voting power in either Huawei Tech or Huawei Holding, cannot be transferred, and is cancelled when the employee leaves the firm, subject to a redemption payment from Huawei Holding TUC at a low fixed price. At present, this virtual stock ownership has nothing to do with financing or control. It is purely a profit-sharing incentive scheme.
If countries with a direct stake in telecommunications were perceived as equal stakeholders along with private organizations, China might not require its own interests to be represented in 3GPP and elsewhere by a "trade union committee" in the guise of a private firm. What's more, other "national administration" bodies -- the United Nations' term for political stakeholders, particularly Russia -- might also have their own seats at the table. As the UN's International Telecommunications Union continues to argue, only through such "coordinated regional action" (alignment of 5G interests along geopolitical boundaries) can global standards be attained for such 5G-related topics as the Internet of Things and video-over-LTE (ViLTE).
In July 2015, China President Xi Jinping signed into law a sweeping national security act tying intelligence interests directly back to the state. As Meia Nouwens, research fellow for Chinese defense policy and military modernization at the International Institute for Strategic Studies, described to ZDNet, under this law:
...all Chinese citizens and companies (private and state-owned) are obligated to safeguard national security. This requires them to, for example, provide timely reporting of activities that endanger national security, provide evidence and assist state security agencies, public security agencies and relevant military agencies in national security work.
Beyond those concerns, Nouwens admitted, "what constitutes a threat to national security is very vague."
Theoretically, the government could have leveraged this law to mandate that Huawei, ZTE, and others develop their own 5G platform exclusively for China, instead of -- as the US and its allies allege -- a global platform with China's exclusive interests in mind. But Bain & Co.'s Blum argues that any effort by China to detach itself from the rest of the world would end up working against it in the end:
We have not seen the Chinese government going in and saying, 'Hey, Huawei, you're only going to provide our carriers with this brand-new equipment. And in five years' time, when we have figured out how to build new business models, when we have trained our artificial intelligence algorithms faster and further than everybody else -- when we have gained that advantage, at that point, you're allowed to sell again.' Net/net for the Chinese government, that would be bad policy, because they would actually be worse off.
Pawn takes queen
Toward the end of 2018, the only thing missing from the China affair becoming the plot of a spy novel, was the taking of hostages.
On December 5, Huawei CFO Meng Wanzhou was arrested at Vancouver Airport, while she was changing planes en route to Mexico. Wanzhou's detainment was pursuant to a US warrant for extradition, alleging that Huawei had actually been doing business in Iran under a false subsidiary called Skycom, in violation of international sanctions against Iran. (Wanzhou remains in Vancouver under house arrest.)
Taking a page from the US president's playbook, China immediately punched back -- but not against the US directly. China's government has detained a net total of 13 Canadian citizens since Wanzhou's arrest, including a diplomat with the International Crisis Group. One detained teacher was later released, and as Reuters reports, approximately 200 other Canadians are seeing their detainments extended as a result of the US/Canada action.
Also: 5G will impact these 10 industries the most TechRepublic
Meanwhile, Brumby, along with other Australian government and parliamentary officials, were called into question for the coziness of their relationships with foreign interests. Brumby publicly defended Huawei, arguing it was a private company and not a Chinese state entity. If anyone at Huawei had ever passed a country's confidential data over to the Beijing government, he told Australia's ABC News, "we'd be finished" ("we," in this case, referring not to Australia but to Huawei).
On December 10, Australian lawmakers passed the Foreign Influence Transparency Scheme Act 2018, to take effect the following March. Its intent is to require individuals -- including former chief executives such as Premier Brumby, but also especially lobbyists -- who enter into business arrangements with foreign governments to enroll themselves in a federal register of foreign connections that is publicly viewable online.
As 2019 began, US officials stepped up their cold war-like rhetoric. On January 16, a bipartisan group of US senators introduced a bill that would penalize any US corporation that sells technology to Huawei or to consumer equipment maker ZTE; an essentially identical bill was introduced in the House of Representatives the same day. The Senate bill's principal sponsor, Sen. Tom Cotton (R – Ark.) issued a statement that invoked language hearkening back to the "Red Channels" days of the 1950s:
Huawei is effectively an intelligence-gathering arm of the Chinese Communist Party whose founder and CEO was an engineer for the People's Liberation Army. It's imperative we take decisive action to protect U.S. interests and enforce our laws. If Chinese telecom companies like Huawei violate our sanctions or export control laws, they should receive nothing less than the death penalty — which this denial order would provide.
At the time of their drafting, it appeared the Huawei ban bills would have the support of the US President. However, he later followed up his now-infamous "6G" leadership tweet with another one stating that he opposed "blocking out currently more advanced technologies." The bills remain under deliberation while their sponsors discuss whether they would receive the executive support they thought it would. Meanwhile, Secretary of State Mike Pompeo insisted that opening up markets to Huawei would be the same as granting direct intelligence access to Beijing.
While the telecommunications world hesitated, wondering whether the US President could successfully lead them in opposite directions simultaneously, China struck back hard. In February, it enacted an import restriction on Australian thermal coal through its Port of Dalian. The value of the Australian Dollar immediately tumbled, and has since fallen to a five-year low of USD$0.69.
All of a sudden China has a hot hand in a game it had either been losing, or not been perceived to be actually playing, up to now. In a very real sense, China argued for the rules of the game to be changed, and it won.
"Even if one does not worry about the cybersecurity implications, or the directly political ones," remarked Dr. Henning Schulzrinne, "the longer-term concern is that all telecom equipment manufacturing for larger-scale, wireless networks -- not Wi-Fi, but classical 5G, 6G, 7G, whatever -- will be basically supplied by Chinese companies." Dr. Schulzrinne is presently a professor of computer science at Columbia University, and served as CTO of the US Federal Communications Commission during the Obama administration. A member of the Internet Hall of Fame, Schulzrinne is the co-author of Session Initiation Protocol (SIP), the internet's premier system for multimedia conversations between multiple parties.
"China is often accused and suspected of trying to stack the deck for the standards bodies with its personnel," Schulzrinne told ZDNet. Up until recently, he admitted, representation on standards bodies were stacked in favor of companies in Western countries, especially when there were more of them: Lucent, Alcatel, Nortel. "That dominance," he remarked, "is fading."
An island entire of itself
In 1981, the Government of the United Kingdom formally separated its telephone services from the Post Office. Three years later, it declared British Telecom a private entity. Almost immediately, the European Commission (EC) -- then part of the European Economic Community -- sought to include Britain's emerging, free-market telecommunications infrastructure as part of its Common Market initiative.
Since that time, the European Union has sought to evolve the Common Market into what it calls the Digital Single Market. Here, both publishers and merchants recognize their customers equally as Europeans, each of whom happens to reside in one of its member states. To that end in 2016, the EC published its 5G "Action Plan" [PDF]. In it, commissioners made the case that, in order for Europe to be taken seriously as a 5G customer by equipment providers, it needed to be perceived as one cohesive unit rather than 28 bickering neighbors.
"It is essential to avoid incompatible 5G standards emerging in different regions," the EC told the European Parliament. "If Europe is to help shape a global consensus as regards the choice of technologies, spectrum bands and leading 5G applications effective, EU coordination and planning on a cross-border basis will be needed." Any disparity whatsoever, fragmenting the standard in as few as two shards, commissioners argued, would enable complete market segmentation across borders, as member states would end up jockeying against one another for visibility and credibility.
"The problem for Europe is that Europe lost out on 4G developments," remarked the Carnegie Foundation's Erik Brattberg. "Europe is very well positioned in terms of telecommunications, but was a late adopter of 4G, which had an adverse impact, both on the European economy but also on the European telecommunications companies, the main ones being two Scandinavian companies: Ericsson and Nokia."
There are two centers of power emerging in the telecommunications world today. The other one is Scandinavia. Ericsson, headquartered in Stockholm, Sweden, has a global share of the telecom equipment market hovering around 13% according to Dell'Oro estimates; Nokia, based in Espoo, Finland, is stable at about 17%. Cisco, representing essentially the US' entire stake in this market, remains stuck in the single digits.
As Brattberg observed, Europe fell behind both the US and East Asia in the development and distribution of 4G smartphones (although the Nokia phone brand belonged to Microsoft for much of that time). Consumers gauge the competitiveness of their nations not by the size or spectrum allocations of their cell phone towers, but by the capabilities phones have within their borders. Research conducted by the Carnegie Endowment revealed that, despite extensive testing, European carriers will remain somewhat behind their North American and Asian counterparts in 5G phone deployment. For this reason, among others, the European Union has mandated that carriers deploy true 5G networks in their member countries by the end of 2021.
The UK has a problem with being told what to do by the EU. In a June 2016 referendum, a slight majority of UK citizens voted to have their country exit the European Union. No timetable or exit mechanism had been offered or even considered prior to the referendum being held. A principal player in Europe's coming of age is exiting its stage.
While the initial impact of Brexit was being felt throughout Europe, Huawei was making inroads with member states. As Brattberg told us:
It's important to understand why Huawei is such an attractive provider for European countries. It's seen as offering the most advanced technology for a very competitive price, and could aid Europe in speeding up deployment of 5G. Huawei has already, over the past decade, established itself in Europe as a provider for a lot of the existing 4G networks. So that's why the whole debate now around Huawei and 5G, from a security and intelligence point of view, is a really tricky one in Europe. They have to balance, on the one hand, security concerns being pushed by the United States, with the desire to not be left further behind. There are reports that suggest, should Europe seek to block Huawei and other Chinese companies from providing buildup for 5G networks, that could lead to an even longer setback for deployment of 5G in Europe, which would then have further economic repercussions on trying to be competitive with this new technology.
At risk is Europe's relative value as a staging ground for any kind of industrial endeavor where connectivity is critical: pharmaceuticals, physics research, media and entertainment, global finance. The world's data centers will require connectivity to each other first and foremost, connectivity to the public cloud next, and certainly connectivity to the customer -- all of which, especially across vastly variegated territories, will require high-speed wireless infrastructure. Enterprises will locate these data centers where connectivity and power are both available and cheap. And if that's not Europe, then Southeast Asia, India, and even the Middle East rise in stature.
From a technical perspective, former FCC CTO Schulzrinne makes clear, the very definition of "generation" is at issue. As 5G stands now, 3GPP collectively decides how many upgrades to transmitters and base station equipment ("Releases") are grouped together into a single "G." Release 15 marked the start of 5G, although Releases 16 and 17 are on the schedule, with Release 18 a probability -- all part of 5G.
The planned product cycle between each of these releases is from 14 to 16 months. Ironically, Schulzrinne told us, Nokia and Ericsson were behind the move to tighten those cycles. But 5G's actual customers -- not so much countries but their carriers -- are pushing the other direction, in favor of equipment with more staying power. "The investment cycles in radio access networks are starting to get drawn out a bit more," Schulzrinne remarked. He continued:
Equipment is getting cheaper, so the infusion of cash is less. And I believe it will get more cyclical. One of the reasons why Nokia and Ericsson are flogging that 5G horse so hard, is that they're desperate for money. And the 4G investment is largely done. Networks have them installed, and the equipment may last for ten, twenty years. There's a finite number of carriers that will be customers, that they'll be primarily selling to. So they see this real problem where they have this spurt of investment, followed by a ten-year valley.
If the definitions of "5G," "6G," and whatever may come next, end up being defined by individual manufacturers (the few that remain) rather than by a global standards body, a 16-month gap in innovation may as well be a whole generation -- an unfathomable gulf. If a global standards split should become complete, China could position itself as one or two G's ahead of the rest of the world, thereby rendering the European standard a veritable Scandinavian desert.
Suddenly, perhaps for the first time in the Western Hemisphere, China would be in a unique position to exercise its role as "kingmaker," restoring credibility to nations that sacrificed it during their experiments with isolationism.
"A no-deal Brexit scenario would be catastrophic," remarked Brattberg, "because the UK would end up without access to the European Single Market."
Should no agreement of any kind be reached between the UK and EU governments, no second referendum take place within the UK, and Brexit be allowed to happen on October 31, Brattberg told ZDNet, rules governing international conduct enforced by the WTO, would immediately take effect. Trade tariffs would be instantaneous. Roaming agreements would need to be hammered out between carriers, but until then, substantial cross-border exchange fees would resume. Some carriers with assets in both the EU and UK, most notably Vodafone, might have to restructure. If the two governments are unable to reach general agreements, conceivably the carriers themselves -- including BT, O2, EE, and Virgin Mobile -- may find themselves negotiating individual, short-term carriage deals with their counterparts in each of the EU's remaining member nations.
"It would be a long period of uncertainty, for sure," said Brattberg. "I know for a fact there are already contingency plans put into place, in order to mitigate the consequences of a no-deal Brexit scenario. Nevertheless, the effects would still be very grave. One could also make the argument that, should that scenario happen -- which I still think is quite unlikely -- that would lead the UK to pursuing other economic partnerships, with other players around the world."
It may not be the United States that tops the list of Britain's prospective partners. Indeed, the top candidate Brattberg mentioned is, of all places, China.
"It raises a lot of very interesting questions," he admitted. "And I think we still don't have any of the answers about what such a scenario would entail."
In a speech to St. Andrew's University last December, MI6 chief Sir Alexander Younger phrased the situation this way: "We need to decide the extent to which we are going to be comfortable with Chinese ownership of these technologies and these platforms in an environment where some of our allies have taken a quite definite position. We need to have a conversation. It's not wholly straightforward."