By Mercy A. Kuo
Trans-Pacific View author Mercy Kuo regularly engages subject-matter experts, policy practitioners, and strategic thinkers across the globe for their diverse insights into U.S. Asia policy. This conversation with Brett Simpson – Co-Founder of Arete Research, an international research consultancy based in London – is the 171st in “The Trans-Pacific View Insight Series.”
Describe the strategic context of U.S.-China competition over 5G technology dominance.
The cellular industry typically develops a new generation of wireless standard every decade and given that there are almost 6 billion mobile device subscriptions today, this has become the main consumer technology platform for communications and internet usage globally. With 5G, we will have network infrastructure that enables mainstream AI and connected machines (e.g. automotive) on a scale we have never seen before. The amount of data generated from these machines become a significant source of new value in tomorrow’s world. China is likely to be the first market to launch 5G commercial services and given the unique scale of their networks (serving 1 billion-plus people) they will benefit from cost leadership.
Explain the role and reach of Huawei in this content for 5G supremacy.
Huawei has a deep understanding of wireless and have been one of the key actors in developing radio technology as well as defining global cellular standards and filing patents. Not only is Huawei the largest equipment provider, but it also is the most vertically integrated, boasting a significant silicon chip design organization called Hisilicon. They make some of the most advanced chips in the world, including mobile phone processors, base station chips, and emerging areas like ARM based server processors and AI processors. Even though they have been restricted from scaling up in the U.S., Huawei has overtaken Ericsson and Nokia in radio market share by building significant volumes for its domestic China market and also leveraging its scale across product areas and cost leadership into international markets. In mobile phones, Huawei is the largest Chinese vendor by volume and currently number three worldwide by sales, behind Apple and Samsung.
Assess the rationale behind the decision of “Five Eyes” countries – the U.S., U.K., Australia, New Zealand, and Canada – to prohibit or restrict Huawei in their domestic markets.
If you look at how the Chinese government have restricted many of the largest U.S. internet companies in China over the last decade — e.g. Facebook, Google, Amazon, etc. — the barriers being placed on Huawei in the West are no different. Western governments not only want to access the giant datasets that are generated on these networks, but they also will want to set tighter rules over the security and privacy of data that is generated. And with 5G enabling AI and IOT [internet of things] to scale up fast, the amount of data generated from machines is an area that governments will want to maintain control over.
Describe three scenarios – good, bad and ugly – of China’s 5G predominance.
The good from all this is that with China’s domestic scale, there is an ability to drive down costs and enable technology to reach mainstream price points fast. Sub-$100 smartphones were a great example, though they don’t come with build quality or features we might expect in the West. 5G will be no different in that regard. The concern, particularly coming from the U.S., is that China will lead the world in 5G – well before we see 5G iPhones – and that potentially could mean a raft of new technology disruption (AI, IOT, etc) not defined by Silicon Valley’s giants, but by Chinese companies like Huawei who can drive costs down and export this know-how overseas. This competitive threat is underlined by the Made in China 2025 plan to lead the world in a number of advanced technologies, wireless being just one area. An ugly scenario would see a breakdown of the IP regime that allows companies in both the West and China to justify ongoing investment in innovations. Equally, the world cannot afford to break apart into a series of internets, each with services limited to ones authorized in their sphere of influence.
Explain why 5G technology is a U.S. national security issue.
For a number of reasons. From a commercial standpoint, Silicon Valley companies have grown up with 4G and benefited hugely from the rise of smartphone usages. It enables billions in profits from internet services, which the United States dominates. Exporting services in the form of smartphone apps has been a key source of competitive advantage for the U.S. They do not want to see this challenged by China, even if they have limited entry within Chinese markets. Secondly, the mobile phone (and the base station) is a primary point of presence for global communications and the U.S. government does not want to give Chinese companies a chance to divert or monitor data traffic that flows over wireless networks. With 5G this becomes even more strategic given the amount of AI and machine to machine data transfer.
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