Mobile phones, and the accompanying internet access they provide, have changed the nature of communication and how we transact in the global economy. The initial evolutionary waves in mobile came from the West, where Western countries owned the patents and developed the global standards of operation. Now, Chinese telecom giant Huawei wants to lead the way for the next generation of technology – 5G wireless networks – but the United States government is doing their best to stop this from happening. Here we’ll examine the reasons why.
What is 5G, and Why is it Important?
5G (short for fifth-generation) represents the next step in the evolution of wireless networks. 4G networks, currently the fastest available, can send hundreds of millions of bytes per second. 5G will be able to send billions. This would mean being able to download a feature-length movie in seconds, and would also mean autonomous cars and other wireless-equipped devices will be able to quickly and reliably send and receive significant amounts of data. Large numbers of devices would be able to communicate at once.
Early developers of, and patent-holders for, new technology gain significant, influential, and profitable footholds. Huawei, who began life as a seller of inexpensive telephone equipment and is now a multibillion-dollar business working with the world’s cell network providers, has been investing significant resources in 5G research since 2009 – including earmarking $800 million this year alone. This includes hiring high-level employees from international rivals, while leveraging their influence within the groups that codify technical standards for new wireless technologies.
Their goal, according to Sanford C. Bernstein analyst Chris Lane in an interview with the New York Times, relates to their emergence as an economic superpower: “[The Chinese] are saying: ‘We’re a technological powerhouse. We should be sitting at the table with the Germans, the British, the Americans, the Japanese and the Koreans and doing our part.’”
Why is the U.S. Concerned?
Washington’s concerns stem from a 2012 congressional report that indicated the Chinese government could spy on Americans using Huawei’s equipment (a charge Huawei vehemently denied). When the dust settled, Huawei was effectively barred from selling their products in the US. These concerns renewed themselves indirectly in February when Broadcom, a Singapore-based chip maker, raised their final offer for industry giant (and San Diego-based) rival Qualcomm to $121 billion.
The move resulted in United States Treasury deputy assistant secretary for investment security, Aimen N. Mir, flagging the deal for review on the grounds that “China would likely compete robustly to fill any void left by Qualcomm as a result of this hostile takeover.” Mir detailed Broadcom’s statements, suggesting they would focus on short-term profitability over continued research and development efforts. The resulting shift “to Chinese dominance in 5G would have substantial negative consequences for the United States”, said Mir.
Anxiety about Huawei’s rise to international prominence, and its potential implications for US companies, is hardly new. The US government blocked a previous buyout of California’s 3Leaf Systems in 2011, and AT&T recently ended a deal to sell Huawei phones in the US after government officials contacted the FCC to restate potential security concerns.
What Comes Next?
Ultimately, the success or failure of the Broadcom deal might have little effect on 5G standards – one set of 5G specifications was finalized in December 2017, and the first major phase is on track to be completed later in 2018. But China’s ambition remains troubling to Washington. Its latest five-year plan (which is heavily focused on being a leader in the internet of things era), its rising patent ownership (Chinese companies currently own 10 percent of the 1,450 patents for 5G networks), and its growing influence in the Third Generation Partnership Project (the international group which defines wireless standards) signal the possibility of a new, especially lucrative dawn for Huawei and others.
Business concerns, however, are secondary to US officials. More patent control, coupled with favorable technical protocols, means higher likelihood of Chinese companies winning equipment contracts to build and maintain 5G networks. Control of equipment means knowing the ins and outs of the technology – and the possibility of security concerns for the United States. It is too early to call a winner in the race to 5G supremacy, but it is a competition worth eyeing closely in the next twelve months.