US-China contest centres on race for 5G domination
A report for the Pentagon warns the US is falling behind China in telecoms
Less than 10 years ago, all top 10 technology companies by revenue were American. Global telecom standards were set by US companies such as AT&T and Verizon. Today, by contrast, four of the top 10 internet firms are Chinese.
A decade ago, Huawei, the leading Chinese telecoms equipment maker, was a little known provider of services largely to south-east Asia, and eastern and central Europe, rather than a rival to the Americans in more developed markets. Its revenues amounted to some $28bn in 2009. Last year they reached $107bn.
Friction between the US and China, which seemed to have its origins in trade disputes, has moved on. Today telecoms and wireless technology are at the forefront of the competitive sparring between the two countries.
In a world where everything is dual-use technology, it is increasingly hard to distinguish what is commercial and civilian and what is strategic and military. And technology, unlike trade, does not easily lend itself to concessions at the negotiating table. To have the technological edge is existential for both countries.
“There is an even bigger long-term risk facing the world economy than the current trade war. That is the very negative implications of the current US stance against Huawei,” notes Chris Wood, equity strategist for Jefferies in Hong Kong. “The origin of America’s ultra-aggressive stance remains a determination that China will not dominate in 5G or other emerging technologies.”
Yet if no less a source than the Defense Innovation Board, launched in 2016 to help bring innovation and independent advice to the Pentagon, is to be believed, the US is behind in developing the latest technology and in setting global standards for 5G. That is according to an assessment of the prospects of the two national giants in a report on the 5G Ecosystem the board released in April.
The report portrays a technological world in which the US, far from dominating, is in danger of becoming ever more marginal. “The country that owns 5G will own many innovations and set the standards for the rest of the world. That country is currently not likely to be the United States,” the report concludes starkly. “Chinese equipment is cheaper (and) in many cases is superior to its western rivals.”
One Chinese venture capitalist says he takes this as an affirmation that “we won”.
The introduction of 5G is a big deal, both in itself and because of its multiplier effect on a range of other technologies including autonomous vehicles, the internet of things, smart cities, virtual reality and, battlefields, whether physical or in cyber space. The companies or countries that are the first movers will set global standards. That in turn brings hundreds of billions of dollars in revenues, substantial job creation and leadership in any other technologies that require ever swifter transmission of data, the board notes.
“In the early 2010s, AT&T and Verizon took the lead in rapidly deploying next generation technology that improved on 3G technology. US companies like Apple, Google, Facebook, Amazon, and Netflix then built new applications and services . . . and helped drive global US dominance in wireless and internet services,” it states.
Today, though, the US has lost its edge when it comes to telecoms technology for reasons that have little to do with any possible predatory behaviour either from Beijing or Huawei, which today has become a national champion of China, in part because of attacks from the White House and Congress.
Part of the problem is lack of investment. China has spent $180bn over the past five years and has 10 times as many base stations as the US. American companies including Verizon and AT&T have too much debt to undertake the huge investment necessary to build out the numbers of base stations required, the report notes, while other western firms, such as Nokia and Ericsson, have also seen their fortunes decline.
Another obstacle is the fact that in the US, the government and the military appropriate most of the spectrum being used by the rest of the world for commercial purposes, leaving the US market isolated. By themselves, the US markets, both civilian and military, are no longer big enough to dictate to others or to prevent Chinese 5G from continuing to increase market share globally.
The larger question of course is whether what is true in telecoms becomes true on a wider scale.
Meanwhile, the effect of any US sanctions against Huawei or others is likely to only accelerate Beijing’s efforts to achieve self-sufficiency.