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SSRN Id3142229
Chinese actors are extending their influence in standards organizations and international bodies like the
International Telecommunications Union (ITU). They are also engaged in intensive research and
development, and are already making key contributions to essential 5G patents. While they may not be the
first to use 5G, many expect they will aggressively deploy a final 5G specification at tremendous scale.
When it comes to national competitiveness, successful and early deployment and use of 5G technology is
critical. The U.S. government should focus first on improving the investment conditions for deploying 5G
through reforms to siting and permitting policies and make more spectrum available on a flexible licensed,
unlicensed, and shared basis.
The United States should continue to rely on its competitive private sector to deploy 5G networks and not
consider a government-built network. Furthermore, any policy focused on specific Chinese firms must be
considered as a component of a broader, nuanced strategy to return to a rule-of-law, market-driven
framework for trade that also protects intellectual property. Presumptive blocking of equipment from specific
firms without explanation and evidence is likely not the best route to navigate a contentious trade
environment. Instead, the United States should establish a body to analyze potential security threats in
coordination with like-minded allies.
Executing on its “Made in China 2025” strategic plan, China aims to eventually dominate advanced
technologies across the board: robotics, AI, aviation, driverless transportation, and telecommunications. Such
broad economic planning and active intervention is without equivalent in the more decentralized, market-
oriented United States, but it is not even clear the United States has a strategic response. As former Acting
CIA Director under President Obama put it, “China is the most formidable competitor we have faced in our
history. And we, the U.S., have not figured out a strategic approach to dealing with it.” 2 Each day seems to
bring new developments in the unfolding national security and economic competitiveness dynamics in high
tech and telecom between the United States and China.
Against this backdrop, advanced economies across the world are transitioning into 5th Generation (5G)
wireless communications systems. Some of the key verticals that 5G enables include connected cars,
unmanned drone command and control and payload, advanced industrial Internet of Things (IoT), and
robotics. These technologies have an outsized potential for affecting the productivity of a nation’s economy,
with significant implications for national competitiveness, particularly in information and communications
technologies industries. All indications are that Chinese actors plan a dramatic roll out of 5G systems, with
significant direction and backing from the government.
These questions are amplified, considering that next generation connectivity, 5th Generation (5G) in
particular, represent a considerable economic opportunity. Deploying 5G at scale, and seeing it leveraged for
productivity gains throughout the economy, should be a national imperative. There is something of a first-
mover advantage for those economies that successfully deploy a wide-scale platform for new innovations to
make use of. Whatever firms or technologies best leverage the flexible, high-performance 5G network abilities
will likely benefit from strong network effects and economies of scale and scope.
There are several technological components to 5G, but the key architectural shift requires far more cell sites,
meaning an expensive infrastructure deployment, and justifying a rethinking of local permitting policies and
federal regulations. Seeing a successful deployment and use of 5G should be a primary telecommunications
policy focus of policymakers at a federal, state, and local level to help streamline the considerable
infrastructure investment anticipated for 5G deployment.
1
Mike Allen, “Axios AM: China: Greatest rival, growing threat,” Axios (August 4, 2018),
https://www.axios.com/newsletters/axios-am-2ffd3215-b632-4780-b5cf-97bf3a846359.html.
2
Ibid.
2
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Today’s globalized supply chain of telecommunications equipment also raises separate questions of national
security. Mobile infrastructure is increasingly seen as critical national infrastructure, with a serious
government interest in protecting its security and reliability. Globalization’s impact on the
telecommunications supply chain has been something of a frog in a slowly boiling pot. In 2002, 16 years ago,
the Department of Defense began examining the risks of a global telecommunications supply chain,
prompting the National Security Agency to write a still-classified report on the issue in 2003. 3 Navigating
those risks is a key challenge facing policymakers today, with various proposals circulating in Congress and
the FCC that would curtail the use of Chinese telecommunications equipment in the United States to one
degree or another.
Consistent with Chinese strategy in other industries, Chinese firms and state actors are coordinating and
extending their influence in standards organizations and international bodies like the International
Telecommunications Union (ITU). They are also engaged in intensive research and development, and already
making key contributions to essential 5G patents. While they may not be the first to use 5G, many expect
they will aggressively deploy a final 5G specification at tremendous scale. It is important to recognize Chinese
actors have used unfair mercantilist practices with regard to information and communications technology in
the past. But we should not begrudge successful Chinese firms if they abide by international trade
commitments, develop technology fairly, and contribute transparently to standards setting processes that are
industry-led and market-based, especially if doing so would discourage
Any policy focused on specific Chinese firms must be considered as a component of a broader, nuanced
strategy to return to a rule-of-law, market-driven expectation on trade, protection of intellectual property, and
reciprocity. Policy decisions impacting these larger questions of a constructive confrontation with Chinese
innovation mercantilism should be carefully considered, and part of a whole-of-government strategy on
China. For that reason, national security concerns with regard to the telecommunications supply chain should
be dealt with in a transparent, rules-based method, potentially through an oversight board that evaluates these
risks on an ongoing basis. This body would ideally be coordinated with like-minded allies, in a way that
changes the economic calculus for Chinese equipment manufacturers.
This paper first describes the technologies that are anticipated components of 5G systems. It then examines
the economic value of 5G, and its implications for national competitiveness. Next, it discusses the broad
dynamics in competition to develop, deploy, and make use of 5G networks. It briefly examines some of the
national security concerns in the communications supply chain, and concludes with policy recommendations
to help maintain U.S. national competitiveness to the extent it is impacted by successful deployment and use
of 5G.
3
James Andrew Lewis, “Telecom and National Security,” Center for Strategic and International Studies (March, 2018),
https://www.csis.org/analysis/telecom-and-national-security.
3
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Table of Contents
Economic Competitiveness and National Security Dynamics in the Race for 5G between the
United States and China ..................................................................................................... 1
Abstract ............................................................................................................................ 1
Introduction and Summary .................................................................................................. 2
5G and its Technological Components .................................................................................. 5
The New Radio (NR) Standard ......................................................................................... 5
High Frequency, mmWave Spectrum ................................................................................ 6
Advanced Antenna Technology ......................................................................................... 6
Small Cell Architecture ................................................................................................... 7
Network Slicing, Automation, and Programmability ............................................................ 7
Phase 1 and Phase 2 in 5G ............................................................................................. 7
5G Represents a Significant Economic Opportunity with Implications for National
Competitiveness ................................................................................................................. 9
Dynamics of International Competition in Next-Generation Networks ..................................... 11
The Context of China’s Innovation Mercantilism ............................................................... 13
Influence Over 5G Standards ......................................................................................... 15
3GPP ....................................................................................................................... 16
ITU .......................................................................................................................... 16
National Security and Standards Setting ..................................................................... 17
Comparison of Spectrum Allocation for 5G ...................................................................... 18
Comparison of Deployment ............................................................................................ 19
Globalization and Security Concerns in the Telecommunications Supply Chain ....................... 20
Huawei and ZTE Attempts to Enter the U.S. Market ......................................................... 21
Leaked NSC Plan for National 5G................................................................................... 24
Development of Alternatives to U.S. Technology .............................................................. 25
Policy Recommendations .................................................................................................. 26
Supply Additional Spectrum for 5G ................................................................................ 27
Spur 5G and IoT Deployment in the United States ........................................................... 27
Ensure Robust Platforms and Use of Next Generation Networks......................................... 28
Importing Chinese Telecommunications Equipment ......................................................... 28
Conclusion ...................................................................................................................... 30
4
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5G AND ITS TECHNOLOGICAL COMPONENTS
Understanding how the United States and China are positioning economic and policy forces around next-
generation connectivity requires an understanding of its technological components. Analysis of 5G and its
economic impact can be somewhat amorphous, with the catchall term “5G” being applied to different
components of all the various changes being implemented throughout the network stack.
5G is the latest in a long evolution of mobile access technologies. The first generation of mobile was focused
purely on basic voice service, and was an analog (as opposed to digital) service. 2G was still focused on voice,
but made the switch to digital standards; 3G introduced data services, expanding the functionality beyond
voice and including multimedia, texting and some limited Internet access. It was not until 4G that a full
Internet Protocol (IP)-based specification allowed for mobile broadband. These waves of technologies have
come in roughly decade-long cycles, 1G mobile voice in the 1980s, 2G in the 1990s, 3G basic data in the
2000s, and 4G LTE data in the 2010s.
5G is expected to not just bring faster downloads, but bring a much more flexible network that can adapt to
the needs of different verticals throughout the economy. It will bring a new architecture, with significant
changes to the core network and potentially seeing deployments of hundreds of thousands of small cells. 5G is
designed to achieve three broad types of use cases: enhanced mobile broadband, massive machine-type
communications or IoT, and ultra-reliable low-latency for critical applications.
This section offers a brief, non-technical background on the technological components of 5G networks and
the Internet of Things (IoT) for the purposes of situating a discussion of the strategy of different countries
and companies.
The NR standard is unique in its adaptability. It is flexible enough to be applied to a wide variety of different
application demands and a range of different spectrum bands, able to operate from below 1 GHz to 100
GHz. In can change particular communications along a number of technical parameters to, for example,
optimize its communications for massive IoT deployments with ultra-long battery life, or maintain a reliable,
high-bandwidth link while travelling at high-speed.
The NR standard has been broken into two versions, known as standalone and non-standalone. Both are
components of 3GPP Release 15, but the key difference is the non-standalone version utilizes an LTE control
channel or anchor to coordinate use of new 5G infrastructure. This non-standalone version was prioritized
5
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within 3GPP and completed last December. 4 The non-standalone version allows carriers to continue to
leverage their investments in 4G LTE networks while 5G chipsets are designed and integrated into handsets
and equipment specific to 5G is deployed. The initial standalone version of NR was released in June of 2018. 5
These are often called the millimeter wave bands (or mmWave), as their wavelengths can be measured in
millimeters. These bands were long thought useless for mobile applications, as their propagation is severely
limited, and signals in this frequency range are easily blocked by clutter on the ground—like buildings or
trees. Rain can significantly impede these transmissions, and electromagnetic energy is even absorbed by
oxygen at some portions of high-band spectrum.
The hope is that recent advancements in advanced antenna technologies can overcome these challenges and
make these bands more practical for mobile operations than previously thought. NYU Wireless at New York
University has been a research leader in exploring the feasibility of using this spectrum for mobile broadband.
While there is significant excitement around the opportunity for mmWave spectrum to enable breakthroughs
in commercially achievable throughput, especially in the United States, use of high-frequency spectrum is not
strictly necessary for a system to unlock the same capabilities that 5G is designed for. Millimeter wave
spectrum allows for smaller and more numerous antennas on a given base-station, that when combined with
advanced antenna technology unlocks the capability for extreme throughput for any individual user.
Using multiple antennas to transmit a single stream of information is a technique known as Multiple Input
Multiple Output (MIMO). A particular flow of traffic can be broken down into pieces and intelligently
transmitted through multiple antennas, with the effect of dramatically increasing throughput and reliability.
MIMO can be used with other spectrum bands, but the small antenna size enabled by high-frequencies allows
for large arrays of antennas to be used—known as massive MIMO.
4
See Andrei Frumusanu, “3GPP Completes First 5G NR Specification for Release 15” AnandTech, (Dec. 2017),
https://www.anandtech.com/show/12182/3gpp-completes-first-5g-nr-specification-for-release-15.
5
Monica Allevan, “3GPP puts finishing touch on Standalone version of 5G standard” FierceWireless (June, 2018),
https://www.fiercewireless.com/wireless/3gpp-puts-finishing-touch-standalone-version-5g-standard.
6
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Small Cell Architecture
Historically, spectrum reuse has been far and away the source of most gains in increasing the overall use of
wireless systems. Techniques like making smaller cell sizes or splitting cells into different sectors allow for
greatly increased capacity, but this solution is limited as well. As cells get smaller, costs rise dramatically to
cover the same area. The expenses of additional equipment, backhaul connections, rights-of-way negotiations,
and the engineering to avoid self-interference quickly swamp the benefits and cannot easily be borne by
additions to consumers’ monthly bills alone, at least in the short term. This will continue to be an important
consideration as we move closer to 5G—what the technology can achieve and what is economically feasible to
actually deploy may not coincide.
These changes to how networking is done may seem obscure and technical, but they are important to how
networks will transition to 5G. These technologies allow for a far more dynamic network that can adapt to
the needs of specific applications on a granular basis, especially when augmented by automation.
The long-term goal is a combination of 5G connectivity and artificial intelligence, not just within the
orchestration and operation of networks, but to enable the coordination of decision-making at the application
layer. As researchers with Huawei have put it, “One of the most fundamental features among the
revolutionary techniques in the 5G era, i.e., there emerges initial intelligence in nearly every important aspect
of cellular networks, including radio resource management, mobility management, service provisioning
management, and so on.” 6 The integration of advanced machine learning into next generation networks is an
area of intense research; for example, Huawei has supported research in artificial intelligence, internally as well
as in the United States, including a strategic partnership into basic AI with UC Berkeley. 7
6
Rongpeng Li, et al., Intelligent 5G: When Cellular Networks Meet Artificial Intelligence” 24 IEEE Wireless
Communications 5, (March 2017), http://ieeexplore.ieee.org/document/7886994/?reload=true.
7
See Huawei, “Huawei and UC Berkeley Announce Strategic Partnership into Basic AI Research,” Press Releases (Oct.
2016), http://www.huawei.com/en/press-events/news/2016/10/Huawei-UC-Berkeley-Strategic-Partnership-Research-AI.
7
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New Radio. The standards setting body accelerated completion of the non-standalone version last December,
allowing for chipset development and earlier commercial launch plans. 8
Rollout of 5G is likely to be an evolutionary process in the United States, with carriers first looking at
incorporating aspects of 5G through the non-standalone version of NR standard, relying on existing LTE
networks, and gradually deploying 5G hotspots, wireless point-to-point connections to the home, with true
mobile coverage with pure 5G technology coming later.
U.S. operators have set an aggressive timetable to deploy early versions of the Phase 1 standard, looking at
commercial launches this year. Chinese operators, on the other hand, appear content to wait for a uniform
global standalone version of 5G, with commercial launches targeting 2020. 9 In other words, U.S. operators
will explore a more experimental, evolutionary path, leveraging our existing LTE networks and transitioning
to 5G systems where it makes the most economical sense. They will use the non-standalone standard for years
until making a gradual shift to pure 5G technology.
State-owned China Mobile, the largest telecommunications provider in the world with over 900 million
mobile subscribers, has long been planning an aggressive push of the standalone specification. 10 Research firm
Jefferies writes that they “remain highly confident that China’s cumulative 5G capex in the next 5-7 years will
be very large, although how big it will be in 2019 is uncertain.” 11 This will prove more expensive for the state-
run carrier at first, but will gain early economies of scale in the particular technology and vendors they rely on.
China Mobile’s new “5G device guideline” calls for the procurement of 5G modems by September of this
year and the delivery of 5G phones—including those with augmented and virtual reality capabilities—by
April of next year. 12 Guang Yang, a senior analyst at Strategy Analytics, believes China Mobile is likely trying
to leverage its deep financial strength for competitive advantage. 13 Standalone 5G will demand higher up-
front capital expenditure, making it difficult for carriers to follow this model of an aggressive rollout of the
standalone version. Yang also notes that China Mobile is risking that interoperability and interworking for the
new standard may not be complete by its planned commercial launch in 2020 and “may delay the
deployment.” 14
8
See Kelly Hill, “It’s official: 5G New Raio standard is ratified by 3GPP” RCR Wireless (Dec 2017),
https://www.rcrwireless.com/20171220/5g/its-official-5g-new-radio-standard-is-ratified-by-3gpp-tag6.
9
See, GSMA and CAICT, “5G in China,” GSMA Intelligence, (2017)
https://www.gsmaintelligence.com/research/?file=67a750f6114580b86045a6a0f9587ea0&download.
10
See, e.g., Robert Clark, “China Mobile Confirms Aggressive 5G Standalone Plan,” LightReading (March, 2018),
http://www.lightreading.com/mobile/5g/china-mobile-confirms-aggressive-5g-standalone-plan/d/d-id/741013; China
Mobile, “Investor relations: Monthly Customer Data” https://www.chinamobileltd.com/en/ir/operation_m.php.
11
Mike Dano, “China ‘firmly moving ahead’ with widescale 5G launch plans” FierceWireless (Jul 2018),
https://www.fiercewireless.com/5g/china-firmly-moving-ahead-widescale-5g-launch-plans.
12
Ibid
13
Clark, China Mobile Confirms Aggressive 5G Standalone Plan.
14
Ibid.
8
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5G REPRESENTS A SIGNIFICANT ECONOMIC OPPORTUNITY WITH IMPLICATIONS FOR NATIONAL
COMPETITIVENESS
Competitiveness refers to the ability of a nation’s non-mineral-based traded sectors to effectively compete in
global markets in the absence of subsidies and government protections, while receiving a strong price
premium that enables strong terms of trade. 15 With a deeply integrated global economy, high-tech, high-
value-added traded industries (such as telecommunications) play a crucial role in competitiveness. While
global economic growth is not zero-sum, one nation losing competitiveness compared to others means slower
economic growth.
Leadership in the so-called “5G race” impacts national competitiveness directly in the equipment and
communications services industries, but also indirectly in the economic growth a successful 5G deployment
enables. These are distinct, but related considerations. First, consider the indirect benefits 5G: this technology
is a platform technology that is envisioned as dramatically impacting the competitiveness and innovation
potential of virtually every downstream industry that uses it, from manufacturing and transportation to health
care and agriculture. In other words, the strength of a country’s 5G infrastructure is going to significantly
impact the capacity of enterprises therein to develop innovative products and services, and so ultimately will
have a strong impact on overall national economic competitiveness.
But, there is strong competition with Chinese firms in the development and sale of various information and
communications technology (ICT) and services. Radio equipment, chipsets, software, and handsets are all a
focus of international competition. Further complicating the analysis of 5G dynamics is the fact some of these
markets have national security implications. In theory, U.S. operators could deploy 5G more quickly with
relatively cheap Chinese equipment—while this would see considerable indirect benefits by having a broader
or less-expensive network, but would negatively impact U.S. competitiveness in the ICT arena, or potentially
implicate national security concerns. How we approach 5G and supply chain policies have to recognize the
interrelated nature of these generally separate issues of ICT competitiveness, security in the supply chain, and
broader questions of Chinese innovation mercantilism.
There is certainly a good deal of excitement about 5G throughout industry, and some have voiced concern
the technology is oversold. Gartner’s famous “Hype Cycle” put 5G halfway up the initial “Peak of Inflated
Expectations” in 2017. 16 In June of 2018, Qualcomm Director of Product Marketing, Sherif Hanna, stated:
[T]he reality of what the technology is actually good for is somewhere in the middle between all the
hype and all the disillusionment… we are slightly past peak hype and we are on the way to the trough
of disillusionment…. There is a little bit of backlash from some quarters because there has been so
15
See Robert D. Atkinson, “The Competitive Edge: A Policymaker's Guide to Developing a National Strategy,”
Information Technology and Innovation Foundation (December 2017),
https://itif.org/publications/2017/12/06/competitive-edge-policymakers-guide-national-strategy.
16
Kasey Panetta, “Top Trends in the Gartner Hype Cycle for Emerging Technologies, 2017” Gartner (August, 2017),
https://www.gartner.com/smarterwithgartner/top-trends-in-the-gartner-hype-cycle-for-emerging-technologies-2017/.
9
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much hype around 5G. A lot of people are saying, … ‘this is all marketing hype, there is no substance
whatsoever.’ That is not true at all. 17
Hanna is certainly correct: 5G is not without its skeptics. Perhaps chief among those questioning the
significance of 5G is Dr William Webb. In his book, The 5G Myth, Webb argues that the trend for ever-
growing user demand for more data and faster connectivity is abiding, and current LTE performance is “more
than adequate for all foreseeable uses.” 18 Webb raises a number of thoughtful arguments, and asks hard
questions of industry. He makes clear that the road to 5G faces significant challenges, especially when it
comes to the potential for business cases that justify the investment for deploying the new infrastructure,
especially the numerous small cells needed to leverage high-band spectrum.
However, skeptics like Webb and others underestimate the potential upside from a successful, wide-scale
deployment of 5G, and the potential negative impact to innovation industries from losing the competitive
edge if another country were to provide next generation wireless platforms significantly earlier. Often 5G
skeptics attack the viability of potential business models that would justify the investment—but that is a
different question from whether policy should be executed to reasonably lower the cost of deployment or
shorten the timescale of what would otherwise make economic sense to deploy, especially in the face of a
challenge to U.S. national competitiveness in innovative industries that touch communications networks.
A report by Accenture commissioned by the wireless trade association CTIA estimates 5G will require
infrastructure investments by U.S. telecom operators of about $275 billion, and ultimately contribute 3
million jobs and $500 billion in GDP growth to the U.S. economy. 19 Some of the expected benefits are
expected to flow from “smart city” applications. For example, 5G connectivity, combined with data analytics,
could be applied to the “management of vehicle traffic and electrical grids could produce $160 billion in
benefits and savings through reductions in energy usage, traffic congestion and fuel costs.”20
5G is being designed to meet three general types of use cases: enhanced mobile broadband, massive Internet
of Things (IoT) connections, and critical high-reliability and low-latency services. The goal is to have a
flexible network that can adapt to a wide variety of use cases throughout a number of different vertical
industries. Enhanced mobile broadband should see faster throughput (with multi-gigabit per second speeds
possible), latencies as low as 1 millisecond, and a consistent user experience. Massive IoT services within 5G
are being designed for power efficiency and simplification to keep device cost low. The 5G specification
allows devices to only wake and connect to the network when necessary, and simplifies the communications
17
Sean Kinney, “Where on the hype cycle is 5G?” RCRWireless (June, 2018),
https://www.rcrwireless.com/20180618/5g/where-on-the-hype-cycle-is-5g-tag17.
18
William Webb, The 5G Myth (CreateSpace Independent Publishing Platform, 2016). Note Dr. Webb is CEO of
Weightless Special Interest Group (SIG), a non-profit standards organization advancing open wireless standards for IoT
over unlicensed frequencies.
19
Sanjay Dhar, et al., “Smart Cities: How 5G Can Help Municipalities Become Vibrant Smart Cities,” (Jan. 2017),
Accenture Strategy, https://newsroom.accenture.com/content/1101/files/Accenture_5G-Municipalities-Become-Smart-
Cities.pdf.
20
Ibid.
10
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these sensors send and receive, potentially making for battery life measured in years and support for far denser
IoT connections.
The Internet of Things is expected to contribute up to $11 trillion in value per year globally by 2025. 21
Forecasters expect global cellular IoT connections will increase from 520 million in 2016, to 2.5 billion in
2025. 22 Companies can use the Internet of Things to become more efficient, for example by reducing
downtime in factories as they constantly monitor machine performance to address issues before they become
problematic, or as they use real-time data about customer demand to better manage supply chains.
There are certainly technologies other than 5G to perform IoT services. Some are wireless-carrier centric such
as LTE-M or Narrow Band IoT (NB-IoT). Others leverage unlicensed spectrum, such as the series of
“Weightless” standards. But the flexibility inherent to the 5G specification along with improvements to the
core of the network, lowering the overhead of signaling and enabling programmability to far more
connections means next-generation technologies like 5G have a significantly greater opportunity to affect
productivity throughout the economy compared to previous connectivity standards. Successfully deploying
and utilizing next generation networks is a crucial goal to spur continued economic growth.
Within the United States, the four main wireless carriers are racing to deploy 5G, but of generally different
varieties. For example, Verizon, partnering with Ericsson and Samsung, has been focused on a fixed-wireless
flavor of 5G that will beam connectivity to a piece of equipment fixed on the side of a building. 24 AT&T is
focused on first deploying wireless hotspots, rather than phones. Cable companies are also exploring their role
in 5G networks, and may be well positioned considering their extensive existing wireline facilities. Even
before initial 5G deployments, some analysts are already calling the end result: For example, Mike Dano,
21
James Manyika et al., “Unlocking the Potential of the Internet of Things,” McKinsey Global Institute, June 2015,
http://www.mckinsey.com/insights/business_technology/the_internet_of_things_the_value_of_digitizing_the_physical_
world.
22
Andrew Brown, “IoT Cellular Connections by Industry Vertical, Bandwidth and Region,” Strategy Analytics (Mar.
2017), https://www.strategyanalytics.com/access-services/enterprise/iot/market-data/report-detail/iot-cellular-
connections-by-industry-vertical-bandwidth-and-region#.Wpg3H-dOmHt.
23
Edison Lee & Timothy Chau, “The Geopolitics of 5G and IoT,” Jefferies Franchise Note, (Sept 2017),
http://www.jefferies.com/CMSFiles/Jefferies.com/files/Insights/TelecomServ.pdf.
24
See e.g., Ina Fried, “Everyone says they'll be first with 5G,” Axios (Feb 22, 2018), https://www.axios.com/everyone-
says-they-are-first-with-5g-cadcce03-7d59-4660-9bb1-b99368187fe2.html.
11
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editor at FierceWireless writes “China will almost certainly win the race to 5G” because of powerful state-
owned companies pouring money into infrastructure deployment. 25
Dano cites a number of recent reports that support this conclusion. For example, Deloitte writes that “first-
adopter countries embracing 5G could sustain more than a decade of competitive advantage. Unfortunately,
an examination of how the United States compares internationally on investments critical to 5G deployment
surfaces a concerning trend,” before concluding, “China and other countries may be creating a 5G tsunami,
making it near impossible to catch up.”26
Chinese firms and research institutions have been investing increasing amounts in R&D. China, mostly
through Huawei and state-owned China Mobile, but also ZTE and others, is dramatically increasing its
participation in standards-setting bodies like 3GPP and the ITU. According to Jeffries, the number of
Chinese representatives in 3GPP technical working groups has risen from 8 in 2013 to 10 in the most recent
election (out of a total of 57 positions). 27 The Chinese government is actively supporting both the
development of 5G standards as well as the deployment of 5G networks. Beyond government support for
research and development, policies find explicit articulation in the “Made in China 2025” plan and the 13th
Five Year Plan, which aims for a commercial launch of 5G services by 2020.
It can be difficult to ascertain the level of influence of any particular R&D contributions to standards through
intellectual property rights that any one company has over these technology platforms, but one 2017 estimate
by LexInnova put total China ownership at about 10 percent of “5G-essential” intellectual property rights,
most of which are owned by Huawei. 28 The leader in overall 5G patents is Qualcomm, with about 15 percent
of the total. 29 One important breakthrough for Huawei was the acceptance by 3GPP of its proposed coding
methodology for the control channel in the non-standalone “phase 1” 5G version, discussed below. 30
Ultimately what makes the biggest difference is how well these technologies are integrated with the broader IT
ecosystem and how this enables innovation and productivity gains throughout a nation’s economy. It is likely
the United States will win the “race” to be first to deploy at least some version of 5G technologies. However,
China has a long-term strategy to deploy phase 2 standalone 5G at scale, the resources to achieve this goal, the
ability to allocate spectrum for 5G, and to quickly deploy a large amount of infrastructure.
25
Mike Dano, “Editor’s Corner—China will almost certainly win the race to 5G. Here’s why,” FierceWireless (August
2018), https://www.fiercewireless.com/5g/editor-s-corner-china-will-almost-certainly-win-race-to-5g-here-s-why.
26
Dan Littmann, et al., “5G: The chance to lead for a decade,” Deloitte (August, 2018),
https://www2.deloitte.com/us/en/pages/consulting/articles/5G-deployment-for-us.html.
27
Jeffries Geopolitics of 5G report.
28
LexInnova, “5G Network Technology: Patent Landscape Analysis” (2017) http://www.lex-innova.com/resources-
reports/?id=67f.
29
Ibid.
30
Ibid.
12
Electronic copy available at: https://ssrn.com/abstract=3142229
The Context of China’s Innovation Mercantilism
In recent history, the United States has been the global leader in innovation-driven sectors of the economy.
The ability for the United States to implement new technology or processes has been a key tool in its growing
consumer satisfaction, productivity gains, economic growth, and exports. When it comes to specialization and
gains from trade, innovation and high-tech industries have been core contributors to the comparative
advantage of United States in international trade and to its overall economic success.
China has been unwilling to adhere to the spirit, if not the letter, of many global norms and rules governing
trade, investment, and economic policies. Effectively managing the U.S.-China trade and economic
relationship is one of the most significant international challenges facing the United States. 31 The ITIF report,
“Stopping China’s Mercantilism: A Doctrine of Constructive, Alliance-Backed Confrontation,” explored the
challenge:
There is a growing understanding that China is an outlier when it comes to global norms and rules
governing trade, investment, and economic policy, and that the unremitting and even accelerating
‘innovation mercantilist’ behavior on the part of the Chinese government represents a threat not only
to the U.S. economy, particularly its advanced industries, but indeed to the entire global economic
and trade system. 32
Over the last several decades, China’s strategic practices toward trade and innovation have evolved. From the
1980s through the early 2000s, China largely focused on attracting foreign direct investment and building a
strong manufacturing base supported by relatively inexpensive labor. During the years 2006 to 2012, China’s
technology development strategy could be characterized as “indigenous innovation,” where the country
focused on protectionist practices and growing its own internal market systems. 33 These polices are typified by
the “National Medium- and Long-term Program for Science and Technology Development (2006-2020),”
which laid the groundwork for polices seeking to advantage domestic Chinese firms.
Around 2011 and 2012, the Chinese Communist Party updated its approach to development once again.
China’s strategy began to reorient the economy, encouraging growth of a middle class and increased domestic
consumption. 34 The government expanded its investment of large and also began to actively create and
support “national champions”—successful, globally competitive firms in a broad swath of strategic industries,
including telecommunications. The goal is one of Chinese brands competing internationally. So not just
assembling iPhones in China, but being the principal manufacturer and developer of the key technologies
behind the smartphone itself. 35
31
Robert D. Atkinson, et al., “Stopping China’s Mercantilism: A Doctrine of Constructive, Alliance-Backed
Confrontation” ITIF (March, 2017), https://itif.org/publications/2017/03/16/stopping-chinas-mercantilism-doctrine-
constructive-alliance-backed.
32
Ibid.
33
Ibid.
34
Bruce J. Dickson, “Updating the China Model” The Washington Quarterly, (2011),
http://www.hrs3.net/classresources/readings/DicksonUpdatingChinaModel.pdf.
35
Ibid.
13
Electronic copy available at: https://ssrn.com/abstract=3142229
The explicit national strategy has been to move up the value chain: first allowing domestic firms to first gain a
foothold in the large Chinese market through protectionist policies, shielding them so they gain scale through
protected markets at home and then go out and compete from a better position of strength (and ideally
ultimately “dominate”) in international markets. China’s approach is grounded not in comparative advantage
and gains from trade, but a belief that Chinese firms can and should dominate in every sector.
China has targeted standards-setting as an important avenue in its development of advanced information
technologies. 36 China’s institutions of standardization place the state at the center—making China’s
government the initiator, financer, and leader of most standardization projects. 37 As noted, China’s animating
goal has been to develop homegrown technology standards both as a way to gain competitive and, hopefully,
monopolistic advantage, and to reduce Chinese dependence on foreign technologies and the royalties Chinese
enterprises have to pay for those technologies. 38 As one Chinese official explains China’s prevailing view of
technology standards: “Third tier companies make products; second tier companies make technology; first tier
companies make standards.” 39
This general arc, with Chinese actors increasingly gaining influence and market share abroad, is also reflected
in the history of China’s use of mobile spectrum and related standards, and finds expression in a reportedly
popular slogan among Chinese communications firms’ employees: “In 2G we followed; in 3G we caught up;
in 4G we ran head-to-head; in 5G we will lead.” 40 China has leveraged technology standards in the past to, at
least in part, protect its internal market and to disadvantage international competitors. Perhaps the most
notorious of these practices was in 2003, when the Chinese government required WAPI, a China-specific
encryption standard incompatible with wireless encryption standards used outside of China. 41 Similarly,
China’s use of time division duplexing (TDD) over the internationally more common frequency division
duplexing (FDD) for LTE—while certainly a justifiable on the technology’s merits—functionally made the
Chinese market unique and more difficult to enter as those firms gained scale.
36
Stephen Ezell and Robert D. Atkinson, “The Middle Kingdom Galapagos Island Syndrome: The Cul-De-Sac of
Chinese Technology Standards” (Information Technology and Innovation Foundation, December 2014),
https://itif.org/publications/2014/12/15/middle-kingdom-galapagos-island-syndrome-cul-de-sac-chinese-technology.
37.
Michael Murphree, “Building Markets: The Political Economy of Technology Standards” (PhD diss., Georgia
Institute of Technology, May 2014), https://smartech.gatech.edu/bitstream/handle/1853/51821/MURPHREE-
DISSERTATION-2014.pdf.
38
Robert D. Atkinson, “Enough is Enough: Confronting Chinese Innovation Mercantilism” (Information Technology
and Innovation Foundation, February 2012), http://www2.itif.org/2012-enough-enough-chinese-mercantilism.pdf.
39
Dan Breznitz and Michael Murphree, “The Rise of China in Technology Standards: New Norms in Old Institutions”
U.S. China Economic and Security Review Commission (January 2013),
https://www.uscc.gov/sites/default/files/Research/RiseofChinainTechnologyStandards.pdf.
40
Jeffries report.
41
Brian J. Delacey et. al., “Government Intervention in Standardization: The Case of WAPI” (2006),
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=930930.
14
Electronic copy available at: https://ssrn.com/abstract=3142229
As ITIF has explained, China’s “innovation mercantilism” manifests itself in a number of practices, including
intellectual property theft, forced technology transfer and joint ventures, abuses of antitrust and anti-
monopoly law to support domestic firms, protectionist technology standards, direct and indirect subsidies to
domestic firms, effectively closed markets, and state-enabled acquisitions of foreign technology companies. 42
ITIF contends that a “new approach to U.S.-China economic and trade policy will be needed from the U.S.
government and will need to be pursued with great care and sophistication,” and that the goal must be a
considered return to the rules-based international trade order, and not about punishing China or holding
back its economy or its contributions. 43 A broader, ideally alliance-backed confrontation with China over
unfair trade practices, intellectual property theft, illegal technology transfers, subsiding priority high-
technology industries, and below-cost dumping on foreign markets must guide the individual tactics taken on
5G policies.
As discussed above, China has increased its presence in both the 3GPP and ITU, and Huawei has already
made key contributions to the 5G NR specification. All of these mechanisms lead to greater influence over the
direction of ICT development, lowering costs for their technology and increasing their bargaining power in
the ICT space, as well as securing standards-essential patents. 5G is also anticipated to be a key platform for
economic growth, beyond the gains from a strong equipment manufacturing sector—successful deployment
and productive use of next generation wireless is a matter of national competitiveness.
In attempts to shape the new standards for 5G, China’s Ministry of Industry and Information Technology
(MIIT), along with the National Development and Reform Commission (NDRC), and the Ministry of
Science and Technology, jointly established a promotion group to coordinate Chinese actors’ standards
contributions and 5G research in the country in 2013. 46 These efforts have been successful in supporting
Chinese industry in the standards-development process.
42
Atkinson et al., “China’s Mercantilism.”
43
Atkinson et al., “China’s Mercantilism.”
44
Galen Pospisil, “Roundtable Report on the Emerging Governance Challenges Related to 5G,” Silicon Flatirons
(February, 2018), https://siliconflatirons.org/wp-content/uploads/2018/02/5g-roundtable-report-final.pdf.
45
Jeffries, Geopolitics of 5G Report.
46
Elsa Kania, “China’s Play for 5G Dominance: Standards and the Digital Silk Road,” Center for Advanced China
Research (June, 2018), https://www.ccpwatch.org/single-post/2018/06/25/Chinas-Play-for-5G-Dominance-Standards-
and-the-Digital-Silk-Road.
15
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3GPP
The Third Generation Partnership Project, or 3GPP is the core industry-led standards-setting organization
for mobile technology. The body comprises of several “organizational partners” to produce the Reports and
Specifications that define 3GPP technologies. The focus of the organization spans a wide variety of mobile
network technologies, including radio access, the core transport network, and service capabilities, such as
codecs, security, and quality of service. 47
Early generations of mobile standards were fractioned with non-interoperable systems deployed throughout
the world, and at times in the same country. A familiar example is the incompatible radio interfaces deployed
for 3G: CDMA and GSM. There was initial possibility of incompatible 4G systems with the development of
WiMAX, but favorability tipped toward LTE, and now virtually all carriers use LTE for 4G, giving
equipment global economies of scale. The value this scale has generated means 5G will almost certainly see a
uniform standard adopted across the world.
The 3GPP body landed on a particular coding methodology—polar coding—as the enhanced mobile
broadband control channel coding methodology for the 5G New Radio specification. Polar coding is a
relatively young field of mathematical theory, having been initially developed by Dr. Erdal Arikan, a U.S.-
educated Turkish Professor in 2009. 48 Qualcomm and other American firms backed the U.S.-developed
coding method of low-density parity check, or LDPC, and extension of turbo coding. 49 This LDPC method
is used for the data channel, but polar codes are used for the control channel. 50 This represents a significant
win for Huawei, which owns intellectual property rights in polar coding, and firmly establishes the company
as a core contributor to 5G technology.
ITU
While 3GPP, with its industry-led innovation, may be on the bleeding edge of next-generation mobile
standards, the ITU plays an important role in coordinating telecommunications issues
Huawei and other Chinese telecommunications firms have worked to expand their influence within the ITU,
as well.
Chinese firm and government participation in the ITU fits the over-arching narrative of a Chinese
government expanding influence. Having moved beyond wielding standards as a protectionist tool, Chinese
representatives at the ITU are seeking broader influence. Through extensive development work under the
banner of the “Belt and Road” Initiative, the Chinese government has engaged with several countries on a
47
3GPP A Global Initiative “About 3GPP,” http://www.3gpp.org/about-3gpp.
48
Erdal Arıkan, “Channel polarization: A method for constructing capacity-achieving codes for symmetric binary-input
memoryless channels,” 55 IEEE Transactions on Information Theory 7, pp. 3051–3073 (July 2009).
49
Ben Sin, “The Key for Huawei, and China, In 5G Race is a Turkish Professor,” Forbes (July 27, 2018),
https://www.forbes.com/sites/bensin/2018/07/27/the-key-for-huawei-and-china-in-5g-race-against-the-u-s-is-a-turkish-
professor/#37c0176d222b.
50
Ali A. Zaidi et al., “Designing for the Future: The 5G NR Physical Layer,” Ericsson Technology Review (June 2017),
https://www.ericsson.com/assets/local/publications/ericsson-technology-review/docs/2017/designing-for-the-future---
the-5g-nr-physical-layer.pdf.
16
Electronic copy available at: https://ssrn.com/abstract=3142229
wide range of infrastructure, resource development, and industrial and financial investment projects. 51 While
many projects under this initiative have stalled, the investment and development obviously expand China’s
influence throughout the region, win large contracts for Chinese telecommunications infrastructure firms,
and gain sway in one-country, one-vote bodies like the ITU, all at a time when U.S. foreign development
investment is in relative decline in the region.
The ITU is currently led by Houlin Zhao, the first Chinese official to be elected Secretary-General. Zhao’s
term runs from the end of 2014 through January 2019. Chinese actors continue to look to the future, and
expand their footprint in the ITU and its leadership. Dr. Richard Li of Huawei was named Chairman of a
new focus group on “Technologies for Network 2030.” 52 This focus group, under ITU-T Study Group 13,
will coordinate with a number of other standards organizations, with an eye toward mobile technologies
beyond 5G. 53 Li explained, “5G is not the end of the story…. Technology and the industry do not stop here.
We have to move forward; we have to look ahead. We need to know what will happen after the year 2030.” 54
In and of itself, Chinese participation in the standards-setting process is not a bad thing. In fact, the United
States has repeatedly urged China to participate in the international standards-setting process, as is obligated
51
“Belt and Road” refers to two separate initiatives—the Silk Road Economic Belt and the 21st Century Maritime Silk
Road. See James McBride, “Building the New Silk Road,” Council on Foreign Relations (May 2015),
https://www.cfr.org/backgrounder/building-new-silk-road.
52
“ITU Launches new Study on Networks & Technologies for 2030 and Beyond,” ITU News (August, 2018),
https://news.itu.int/itu-network-2030/.
53
Ibid. The author refrains from using the term 6G until at least 2025. The standards bodies collaborating with the
Network 2030 focus group include ETSI, ACM, SIGCOMM, IEEE ComSoc.
54
Ibid.
55
Newly Purnell and Stu Woo, “China’s Huawei Is Determined to Lead the Way on 5G Despite U.S. Concerns” The
Wall Street Journal (March, 2018), https://www.wsj.com/articles/washington-woes-aside-huawei-is-determined-to-lead-
the-way-on-5g-1522402201.
56
Aimen N. Mir, “Re: CFIUS Case 18-036: Broadcom Limited / Qualcomm Incorporated” Department of the Treasury
(March, 2018), https://www.qcomvalue.com/wp-content/uploads/2018/03/Letter-from-Treasury-Department-to-
Broadcom-and-Qualcomm-regarding-CFIUS.pdf.
17
Electronic copy available at: https://ssrn.com/abstract=3142229
under WTO agreements. 57 It is not clear how a transparent, multistakeholder body like 3GPP could possibly
be undermined in a way that directly imposes a threat to national security. The concern is that outsized
influence within standard settings-process could tip the global equipment market when combined with other
unfair practices.
There are significant positive externalities to the expensive and difficult contributions companies make to the
standards setting process that are not captured by any one company. The U.S. government should itself
consider more robust support, coordination and articulation of policy objectives for standard setting activities,
without unduly interfering with industry-led processes. 58
A lot of excitement is focused on new technologies unlocking the potential for extremely high-frequency
spectrum, as discussed above. However, 5G systems are actually designed to leverage a variety of spectrum
bands, and will work best with a good mix of spectrum. Spectrum below 1 GHz, so called “low band”
spectrum, gives access in a wide geographic area, and will be particularly useful for IoT applications and as a
control channel for smaller cells. Spectrum between 1 and 6 GHz gives a mix of capacity and coverage, and is
expected to be a focus of early 5G deployments. It is the mmWave spectrum, in frequencies above 24 GHz,
that will unlock tremendous bandwidth, but comes with a tradeoff of higher capital intensity due to its
limited propagation characteristics.
A number of key 5G spectrum bands have been identified internationally. Three bands of heightened interest
for developing a 5G device ecosystem include 700 MHz, 3400–3800 MHz and 24–29.5 GHz, mirroring the
desire for a mix of high- mid- and low- band spectrum. 59 Chief among them is the 3400-3600 MHz band,
identified by 35 countries to be allocated for 5G. 60
China’s Ministry of Industry and Information Technology has officially reserved the 3.3-3.6 GHz and 4.8-5
GHz bands for 5G, and will likely also allocate 3.6-4.2 GHz in a future proceeding. 61 China is also
57
Eli Greenbaum, “5G, Standard-Setting, and National Security,” Harvard Law National Security Journal (July, 2018),
http://harvardnsj.org/2018/07/5g-standard-setting-and-national-security/#_ftn5.
58
See Silicon Flatirons 5G report, supra note 44.
59
GSA, “Spectrum for 5G Snapshot – August 2018 update” (August, 2018) https://gsacom.com/.
60
Gary Lerude, “GSA Tallies Worldwide 5G Spectrum” Microwave Journal (January, 2018),
http://www.microwavejournal.com/blogs/17-gary-lerude-mwj-technical-editor/post/29671-gsa-tallies-worldwide-5g-
spectrum.
61
Monica Alleven, “China reserves spectrum for 5G, says more low-band frequencies coming: report” FierceWireless
(November 2017), https://www.fiercewireless.com/wireless/china-reserves-spectrum-for-5g-says-more-low-band-
frequencies-coming-report.
18
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conducting trials in the 24.75–27.5 GHz band and the 37–43.5 GHz bands, and is expected to allocate them
for 5G, having recently initiated a stakeholder consultation on these bands. 62
In the U.S., the FCC is out in front on mmWave spectrum, already working to finalize auction procedures
for an additional 1.7 GHz of spectrum in the 24 GHz and 47 GHz bands available for flexible use, and is
allowing mobile use of existing licenses in the 28, 37 and 39 GHz bands. When it comes to mid-band
spectrum, the FCC is also considering changes to the 3.5 GHz band to make the geographic size and license
terms more amenable to investment in wide scale network deployment. The agency is also examining the 3.7
to 4.2 GHz band, and has already licensed portions of the 600 MHz band.
Comparison of Deployment
The general consensus is that the United States and China are leading in 5G, closely followed by Japan and
South Korea. According to Nokia CEO Rajeev Suri, “It’s a neck-and-neck race between the U.S. and China
to see who will be first to deploy.” 63 Europe is generally seen as lagging in 5G deployment, as the market is
highly fragmented and the average revenue per user is lower than other countries, making the investment
needed to deploy more difficult to justify.
China has the advantage of a large population and relatively concentrated market at the operator level (China
Mobile has roughly 70 percent market share). The government is also able to exert much stronger control
over existing spectrum users, allowing for more efficient use, potentially driving global economies of scale.
Examining the money spent on wireless infrastructure and the number of cell sites deployed give a sense of
comparison between the two countries in communications capabilities. When it comes to wireless
infrastructure overall, Chinese actors spent approximately $24 billion more than those in the United States
since 2015. 64 This spending saw construction of 350,000 new cell sites in China, whereas the United States
erected fewer than 30,000 in that same time frame, according to an analysis by Deloitte. 65 By comparison, the
United States had a total of over 323,000 cell sites in operation at the end of 2017. 66
China Telecom—the number three mobile carrier in China with 255 mobile customers—announced
estimates of more than 2 million 5G base stations to be deployed by 2025. The formerly state-owned tower
62
GSA, “Spectrum for Terrestrial 5G Networks: Licensing Developments Worldwide” (July, 2018),
https://gsacom.com/.
63
Monica Alleven, “Nokia CEO: U.S., China lead 5G race, but U.S. needs to make mid-band spectrum available,”
FierceWireless (Feb. 26, 2018), https://www.fiercewireless.com/wireless/nokia-ceo-u-s-china-lead-5g-race-but-u-s-needs-
to-make-mid-band-spectrum-available.
64
Dan Littmann et al., “5G: The Chance to Lead for a Decade,” Deloitte (August, 2018),
https://www2.deloitte.com/content/dam/Deloitte/us/Documents/technology-media-telecommunications/us-tmt-5g-
deployment-imperative.pdf.
65
Ibid.
66
“State of Wireless 2018”, CTIA https://api.ctia.org/wp-content/uploads/2018/07/CTIA_State-of-Wireless-
2018_0710.pdf.
19
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company, China Tower, went public in August 2018, raising almost $7 billion. 67 The company intends for
about 60 percent of those funds for capital investments, primarily for the erection of new towers, including
the construction of new 5G networks. 68
China does not share America’s system of federalized government, which likely will make for a more
expeditious deployment of wireless infrastructure. Here, local governments often have control over the terms
on which wireless companies gain access to poles or rights-of-way, and can hold out for fees in a way that may
contravene national interests. 69 There is a balance to be struck here, where deployment can be accelerated
without giving up the benefits of our decentralized government.
National security concerns were highlighted in the oft-derided plan leaked from the National Security
Council that proposed a “nationalized” 5G network to counter a host of concerns surrounding China’s rising
influence in the global communications supply chain. That memo, discussed below, was widely criticized,
drawing condemnation from across the political spectrum, including from all of the sitting FCC
commissioners. 70 While the specific plan put forward in that memo, centralizing the nation’s communications
infrastructure, did not and should not gain traction, it is worth considering what prompted that idea to be
percolating in the national security team to begin with.
While Chinese firms are not always well known within the United States, partly because of the challenges they
have faced in gaining access to the market, they have found considerable success in the Chinese market and
abroad. Huawei in particular has seen impressive growth, with continual double-digit growth. 2017 was its
slowest revenue growth yet, still at 15 percent. 71 Huawei is now the second largest smartphone manufacturer,
and the largest communications equipment supplier by a considerable margin.
67
TeleGeography, “China Tower IPO raises USD7bn” (August, 2018),
https://www.telegeography.com/products/commsupdate/articles/2018/08/06/china-tower-ipo-raises-usd7bn/.
68
Ibid.
69
See Doug Brake, “Standing in the Way of Next-Gen Wireless: What Gives, Mayor Liccardo?” Innovation Files (Nov.
2017), https://itif.org/publications/2017/11/06/standing-way-next-gen-wireless-what-gives-mayor-liccardo.
70
David Shepardson, “Trump team idea to nationalize 5G network to counter China is rejected” Reuters (January 2018),
https://www.reuters.com/article/us-usa-trump-5g-fcc/trump-team-idea-to-nationalize-5g-network-to-counter-china-is-
rejected-idUSKBN1FI1T2.
71
Mike Dano, “Huawei reports 15% revenue growth in 2017 as it eyes expansion into U.S. smartphone market”
FierceWireless (January, 2018), https://www.fiercewireless.com/wireless/huawei-reports-15-revenue-growth-2017-as-it-
eyes-expansion-into-u-s-smartphone-market.
20
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Table 1 Basic Financials 2017 72
Firm Revenue ($M) Net profit
Huawei $ 92,549 $ 7,276
Nokia $ 28,564 $ 2,363
Ericsson $ 24,156 $ -4,208
ZTE $ 17,419 $ 144
Note the above financials for Huawei include its successful consumer device business (roughly 30 percent of
its revenue)—Nokia and Ericsson do not have an equivalent revenue stream. Nevertheless, it is clear Huawei
is no longer “catching-up” to others in the telecommunications sector. It supplies effective equipment at a
cost usually considerably lower than its rivals.
The relationship between these firms and the Chinese Communist Party is hotly disputed, with the two
claiming they pose no security threat and operate far from Beijing. 73 The ownership structure of each is
complex. ZTE is often described as a state-owned enterprise, whereas Huawei is employee-owned on its face.
However, the line between state-owned enterprises that advance the government’s state capitalism and
privately-owned enterprises can be a blurry one. 74 At the very least, these firms clearly have easy access to
capital at very favorable rates from state-run banks, and sell equipment and services to some of the largest
mobile carriers that are also state-directed.
Regardless of the level of government control over these companies and potential for backdoors or
surveillance, virtually every telecommunications network worldwide incorporates foreign technology. These
are complicated supply chains with each component often sourcing technology from a variety of different
72
Scott Bicheno, “2017 numbers show how much Huawei still owns the telecoms market,” Telecoms.com (April 2018),
http://telecoms.com/488793/2017-numbers-show-how-much-huawei-still-owns-the-telecoms-market/.
73
See, e.g., Jacques deLisle, “Expert Report, In the Matter of Protecting Against National Security Threats to the
Communications Supply Chain Through FCC Programs,” WC Docket No. 18-89 (August 2018),
https://ecfsapi.fcc.gov/file/10806043972847/Huawei%20Ex%20Parte%20Written%20Submission%20Docket%20No.
%2018-89%20%5BEXHIBITS%20A-M%5D.pdf.
74
Curtis J. Milhaupt & Wentong Zheng, “Beyond Ownership: State Capitalism and the Chinese Firm” 103
Georgetown Law Journal 665 (2015),
https://scholarship.law.ufl.edu/cgi/viewcontent.cgi?article=1693&context=facultypub.
21
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firms—simple answers won’t suffice. A nuanced approach should be integrated within a broader strategy on
international trade and intellectual property.
Huawei and ZTE have long attempted to enter the U.S. market, primarily for network equipment, but also in
handsets. These efforts have been rebuffed by the U.S. government through a variety of mechanisms. In 2012
the House Intelligence Committee released a 60-page report titled “Investigative Report on the U.S. National
Security Issues Posed by Chinese Telecommunications Companies Huawei and ZTE.” 75 The report
highlighted ways in which the companies did not fully cooperate with the body’s investigation, and
recommended U.S. network providers seek other vendors for equipment and services. The Intelligence
Committee noted that, “Based on available classified and unclassified information, Huawei and ZTE cannot
be trusted to be free of foreign state influence and thus pose a security threat to the United States.” 76 The U.S.
national-security clearance of SoftBank’s acquisition of Sprint in 2013 included restrictions on use of Chinese
equipment. 77
In testimony to the Senate Intelligence Committee, FBI Director Chris Wray said the intelligence body is
“concerned about the risks of allowing any company or entity that is beholden to foreign governments that
don’t share our values to gain positions of power inside our telecommunications networks.” Bicameral
legislation recently introduced by Senators Marco Rubio (R-FL) and Tom Cotton (R-AR) in the Senate and
Representative Michael Conaway (R-TX) in the House that would explicitly prohibit the U.S. government
from purchasing or using telecommunications equipment or services from Huawei and ZTE. 78
A defense spending bill signed into law mid-August, 2018 included some restrictions on government
networks contracting with either ZTE or Huawei, but were not as strong as initially proposed. 79 In March of
2018, FCC Chairman Ajit Pai proposed limitations on money from the Universal Service Fund that would
prevent disbursements from going to telecommunications operators that buy equipment from companies that
75
Chairman Mike Rogers and Ranking Member C.A. Dutch Ruppersberger, “Investigative Report on the U.S. National
Security Issues Posed by Chinese Telecommunications Companies Huawei and ZTE,” U.S. House of Representatives
(112th Congress, Oct. 2012), https://intelligence.house.gov/sites/intelligence.house.gov/files/documents/huawei-
zte%20investigative%20report%20(final).pdf.
76
Id .at 45.
77
See, e.g., Todd Shields and Chris Strohm, “Huawei Loser in SoftBank-Sprint Deal Over Alleged Spying,” Bloomberg
Technology (May, 2013), https://www.bloomberg.com/news/articles/2013-05-29/huawei-loser-in-softbank-sprint-deal-
over-alleged-spying.
78
See, “S.2391 - Defending U.S. Government Communications Act” Congress.gov, https://www.congress.gov/bill/115th-
congress/senate-bill/2391; “H.R.4747 - Defending U.S. Government Communications Act” Congress.gov,
https://www.congress.gov/bill/115th-congress/house-bill/4747.
79
Jeff Mason, “Trump signs defense policy bill with watered-down China measures” Reuters (August 2018)
https://www.reuters.com/article/us-usa-trump/trump-signs-defense-policy-bill-with-watered-down-china-measures-
idUSKBN1KY249.
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“pose a national security threat.” 80 The proposal received a mixed response from industry, with many trade
groups and others asking the FCC to proceed cautiously. 81
Huawei’s response has been pointed, with its then-CEO Richard Yu calling the developments “ridiculous” at
the trade show Mobile World Congress in 2018. 82 He went on to point to Huawei’s competitors, saying
“Our competitors are using some political way … to try to kick us out from the U.S. market but we have no
issue at all. We are transparent …. But they cannot compete with us on product, on technology, on
innovation, so they compete with us [using] politics.” 83
Perhaps the most dramatic development in the tensions between the United States and China over high-tech
and telecom was in the form of export controls placed on ZTE. In 2012 the FBI discovered that ZTE had
violated various sanctions, selling equipment containing U.S. technology to Iran, and covering up those sales.
It is worth noting that the equipment sold to Iran was not particularly sensitive from a security standpoint—
regular telecommunications equipment sold for Iranian networks. This was a discrete violation of sanctions,
unrelated to the vague accusations that ZTE equipment poses a security risk in and of itself.
In 2016 the company paid a $1.2 billion fine and settled the investigation. Later, in 2018, after finding
structural changes to the company’s governance agreed to in the prior settlement were not satisfactorily
implemented, the United States reinstated the export controls. Without access to advanced U.S. chipsets and
advanced optical equipment, the company was effectively unable to do business. The collateral damage from
these export controls to U.S. firms was considerable—some analysts estimated that the ban would be a hit of
about $500 million per year of lost sales for Qualcomm, who supplies chips for more than half of the about
45 million smartphones ZTE sold in 2017. 84 ZTE lobbied extensively and eventually got the export controls
lifted. 85
U.S. companies attempting to do business in China are of course familiar with similar vague security concerns
driving decisions of what companies are allowed to operate in different sectors. The most explicit of these
Chinese restrictions comes from a 2015 law requiring technology that supports various important sectors of
80
Mark Rockwell, “FCC gets pushback on supply chain security proposal” FCW (June 2018),
https://fcw.com/articles/2018/06/05/usf-supply-chain-fcc-pushback.aspx.
81
Ibid.
82
Arjun Kharpal, “Huawei's rivals 'worry we are too strong' and may use politics to kick the tech giant out of the US,
top exec says,” CNBC, (Feb. 26, 2018), https://www.cnbc.com/2018/02/25/huawei-us-issues-rivals-using-politics-to-
kick-it-out-of-us-richard-yu.html.
83
Ibid.
84
Adam Jourdan & Cate Cadell, “U.S. strike on China's ZTE another blow for Qualcomm,” Reuters (April, 2018),
https://www.reuters.com/article/us-china-zte-qualcomm-analysis/u-s-strike-on-chinas-zte-another-blow-for-qualcomm-
idUSKBN1HO0XT.
85
Disclosures revealed spending of nearly $1.4 million over three months in 2018, compared to a total of $510,000 in all
of 2017. Ana Swanson and Kenneth P. Vogel, “Faced With Crippling Sanctions, ZTE Loaded Up on Lobbyists” The
New York Times (August, 2018) https://www.nytimes.com/2018/08/01/us/politics/zte-sanctions-lobbying.html.
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the economy be “secure and controllable.” 86 American multinationals and trade associations have long
complained that this law results in unpredictable blocking of access, without much explanation.
If the goal on the broader question of a constructive confrontation with China is a return to rules- and
market-driven international trade, respect of international property rights, and reciprocal access to markets,
the U.S. would do well to coordinate policy and ensure any restrictions due to security concerns are
transparent and grounded in formal process.
The memo considered 5G only in narrow terms of national security, and did not appreciate the complexity of
dynamic global supply chains adapting to new market challenges and cutting-edge research. It appears the
memo and presentation were preliminary efforts of a single employee within the National Security Council,
and thankfully do not represent the official views of the administration. The memo’s author, an Air Force
Brigadier General, left his detail to the White House’s National Security Council shortly after its
publication. 89
This proposal would represent an especially bad direction to follow, as it would undermine one of the key
advantages of the U.S. model: private-sector led innovation and experimentation. As economists and
telecommunications experts Thomas Hazlett and Scott Wallsten recently explained, “The idea floated was
considerably worse than commonly understood.” 90 They explained:
The means [the memo proposed for a national 5G network] were dubious and dangerous. A
contemplated pivot away from market competition — the product of a longstanding consensus that
dispatched the old, staid Ma Bell monopoly with an array of robust networks, devices and mobile app
86
Paul Mozur, “Jitters in Tech World Ove New Chinese Security Law,” New York Times (July 2015),
https://www.nytimes.com/2015/07/03/business/international/jitters-in-tech-world-over-new-chinese-security-law.html.
87
Jonathan Swan et al., “Scoop: Trump team considers nationalizing 5G network,” Axios (Jan. 28, 2018),
https://www.axios.com/trump-team-debates-nationalizing-5g-network-f1e92a49-60f2-4e3e-acd4-f3eb03d910ff.html.
88
Ibid.
89
Josh Rogin, “National Security Council official behind 5G memo leaves White House,” The Washington Post (Feb.
2018), https://www.washingtonpost.com/news/josh-rogin/wp/2018/02/02/national-security-council-official-behind-5g-
memo-leaves-white-house/.
90
Thomas W. Hazlett and Scott Wallsten, “Hey, we might need that wall … to stop Mexico’s state-run 5G network,”
The Hill (Feb. 22, 2018), http://thehill.com/opinion/technology/374742-hey-we-might-need-that-wall-to-stop-mexicos-
state-run-5g-network.
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ecosystems — reached back into the dustbin of history, reprising methods that long stymied
progress. 91
Leading in next generation networks is not a question of shock and awe, 3-year timeframe buildout. It will be
an iterative process, especially in the transition from Phase 1 to Phase 2. The U.S. government—at the
federal, state, and local level—can do a lot to make spectrum available and streamline the process for accessing
rights-of-way, poles, and streetlights. It can do more to support U.S. industry through trade and protection of
intellectual property rights. But to actually take over the build-out and development of the network itself is a
radical and unhelpful suggestion. Thankfully, U.S. policymakers are instead actively exploring ways to
streamline the various permitting processes affecting 5G deployment. For example, the FCC made
adjustments to how the National Historic Preservation Act and the National Environmental Protection Act
was applied to the new architecture of smaller, lower-power wireless cells 92
China’s support for the semiconductor industry provides an example. In the weeks after the 2018 export
controls on ZTE, the Chinese government finalized the China Integrated Circuit Industry Investment
Fund. 93 Largely funded by state-owned central banks, the $47.4 billion fund is explicitly aimed at reducing
the country’s reliance on foreign microchips. 94
As Li Tao of the South China Morning Post put it, “The recent move by the US government to ban the sale of
American technology to Chinese telecommunications equipment maker ZTE Corp has exposed the soft
underbelly of China’s technological ambitions. At the cent[er] of the technology gap is semiconductors.” 95
Semiconductors are one of the top exports of the United States, along with aircraft, refined oil, and cars. 96
91
Ibid. Some trade press reporters were more colorful, with one describing the memo as originating from the “intern’s-
brain-fart department.” Karl Bode, “Leaked Trump Plan To 'Nationalize' Nation's 5G Networks A Bizarre, Unrealistic
Pipe Dream” TechDirt (Jan 29, 2018), https://www.techdirt.com/articles/20180129/08390639107/leaked-trump-plan-
to-nationalize-nations-5g-networks-bizarre-unrealistic-pipe-dream.shtml.
92
Sean Kinney, “FCC votes 3-2 to ease small cell siting rules” RCRWireless (March 2018),
https://www.rcrwireless.com/20180323/policy/fcc-votes-to-ease-small-cell-siting-rules-tag17.
93
Yoko Kubota, “China Plans $47 Billion Fund to Boost Its Semiconductor Industry” Wall Street Journal (May, 2018),
https://www.wsj.com/articles/china-plans-47-billion-fund-to-boost-its-semiconductor-industry-1525434907.
94
Ibid.
95
Li Tao, “How China’s ‘Big Fund’ is helping the country catch up in the global semiconductor race” South China
Morning Post (May, 2018), https://www.scmp.com/tech/enterprises/article/2145422/how-chinas-big-fund-helping-
country-catch-global-semiconductor-race.
96
Ibid.
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China, with its strong manufacturing base, imports a significant number of semiconductors—about 60
percent of global chip sales go to China. 97 Mobile chip designer Arm’s recent sale of controlling interests in
Arm Technology China to local Chinese investors—the Hou An Innovation Fund—provides an example of
joint ventures that can be effectively required to do business in the country. 98
There is also evidence of an accelerating aim toward development of a Chinese alternative smartphone
operating system. Li Tao and Yingzhi write in the South China Morning Post:
The US ban that bars Chinese telecommunications equipment maker ZTE from using American
products and services has served as a reality check for China’s technology ambitions. The prospect
that ZTE could lose its license to use Google’s Android operating system for smartphones has also
raised the question: does China need its own smartphone OS as a backup? 99
The reporters, citing four people familiar with the plans, say Hauwei has been developing its own smartphone
operating system for a long time. Asked at the Global Mobile Internet Conference in Beijing, Zhao Ming,
president of the Huawei brand Honor, said “There is no doubt that Huawei is capable of doing it, but for
now I don’t think it is necessary since we work very closely with Google and will continue to use its Android
system.”100
As further discussed in the policy recommendations below, we should take care that any actions are aimed to
dissuade China from doubling down on the “secure and controllable” route, and avoid their tightening and
centralizing state control over information flows and technology equipment. The goal should be relations
grounded in reciprocity.
POLICY RECOMMENDATIONS
Policymakers should take action to ensure continued U.S. leadership in the deployment and use of next
generation communications networks and navigate potential security threats in the global equipment supply
chain. The United States should continue to rely on our private-sector driven, light-touch regulation model,
while supporting early-stage research and clearing the path to 5G investment. A whole-of-government
approach is needed to contest Chinese innovation mercantilism, just like it will be needed to ensure the
United States remains competitive, if not the world leader, in 5G.
97
Ibid.
98
Martha DeGrasse, “Arm selling Chinese business to local investors: report” FierceWireless (June 2018),
https://www.fiercewireless.com/wireless/arm-reportedly-selling-chinese-business-to-local-investors.
99
Li Tao and Yingzhi Yang, “Huawei has been building its substitute to Android for a rainy day. Is that day looming?”
South China Morning Post (April 2018), https://www.scmp.com/tech/article/2143711/huawei-sees-building-alternative-
android-insurance-amid-us-china-trade-tensions.
100
Ibid.
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Supply Additional Spectrum for 5G
5G will make use of a wide variety of spectrum. While there is currently a great deal of excitement around the
ultra-high millimeter wave bands, next generation wireless networks will leverage lower frequencies as well.
The 5G NR specification as well as advances in network core are “spectrum agnostic” technologies. The FCC,
in coordination with Congress and the National Telecommunications and Information Administration,
should work to ensure spectrum continues to be evaluated and potentially put to higher and better use.
More specifically, the FCC should be encouraged to move with haste to auction the 3.7 to 4.2 GHz band, as
well as mmWave spectrum above 24 GHz. Thankfully the secondary market has already seen some spectrum
in the 28 and 39 GHz bands being repurposed for what will likely be 5G, but additional auctions are needed.
Thankfully the FCC is making strong progress on all of these fronts. 101 Before those auctions can take place,
Congressional action is needed to resolve a conflict between the FCC’s requirement that auction revenues be
placed in an interest bearing account and recent changes to banking laws. 102
It is also important that the State Department have a strong presence at the International
Telecommunications Union (ITU) to advocate on behalf of U.S. interests at the World Radio Conference in
2019. The international spectrum coordination at the ITU is key for gaining economies of scale in some types
of equipment, and is also necessary for satellite uses that can supplement 5G.
Thankfully, the FCC is taking steps to help streamline the deployment of wireless networks. It appears the
commission is rolling out several changes to federal policy, and even considering further preemption of state
and local siting rules to help streamline the process and remove regulations designed for a different
technology. For example, the commission recently announced changes to how the small cells anticipated for
5G will be considered under the National Historic Preservation Act and the National Environmental Policy
Act—changes ITIF supports. 104 The shift from large 200 foot-tall macro cells to much smaller, lower-power,
101
See Remarks of FCC Chairman Ajit Pai at the Mobile World Congress, Barcelona, Spain (Feb. 26, 2018),
https://transition.fcc.gov/Daily_Releases/Daily_Business/2018/db0226/DOC-349432A1.pdf.
102
Ibid.
103
Blair Levin and Larry Downes, “How some cities are attracting 5G investments ahead of others,” Washington Post
(Feb 2018), https://www.washingtonpost.com/news/innovations/wp/2018/02/08/how-some-cities-are-attracting-5g-
investments-ahead-of-others/.
104
See, FCC, “In the Matter of Accelerating Wireless Broadband Deployment by Removing Barriers to Infrastructure
Investment” Second Report and Order WT Docket No. 17-79 (Draft rel. March 1, 2018),
https://apps.fcc.gov/edocs_public/attachmatch/DOC-349528A1.pdf.
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but more numerous small cells requires a retooling of regulations and permitting processes at the local level as
well. As the Center for Data Innovation has argued, United States should also have a comprehensive strategy
for the Internet of Things. 105
The ultimate goal should be effective use of these 5G platforms. Commonsense policies to encourage further
use of 5G, such as allowing continued innovation at the application layer and avoiding taxes on Internet uses.
Effective responses to constantly evolving cybersecurity risk require collaborative efforts between all of
industry and the public sector. One opportunity may lie in the recently announced “Council to Secure the
Digital Economy.” Organized by leading companies in the tech and telecom industries, and coordinated
through associations USTelecom and the Information Technology Industry Council, the group hopes to
more effectively coordinate players up and down the Internet stack with government agencies. 106
It is difficult but possible to evaluate individual technologies on an ongoing basis to ensure security. The
institutional arrangements in the United Kingdom point to one possible way forward. In 2004, Huawei made
a successful bid for a major network upgrade for the incumbent wireline operator British Telecom. In 2010
Huawei opened the “Huawei Cyber Security Evaluation Center” (HCSEC). An oversight board was
established in 2014 to audit the group’s practices. 107 The evaluation center and the oversight board to date
105
Joshua New & Daniel Castro, Why Countries Need National Strategies for the Internet of Things,” Center for Data
Innovation (Dec. 2015), http://www2.datainnovation.org/2015-national-iot-strategies.pdf.
106
See Jonathan Spalter and Dean Garfield, “A Future Immune to Cyber Threats,” Morning Consult (Feb. 26, 2018),
https://morningconsult.com/opinions/a-future-immune-to-cyber-threats/.
107
See “Huawei Cyber Security Evaluation Centre (HCSEC) Oversight Board, Annual Report” 2017
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/626110/20170413_HCSEC_Oversight_
Board_Report_2017_-_FINAL.pdf.
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have found “no high or medium priority findings,” but did find a single “low-risk” concern related to
outdated software. 108
The United States should create a strengthened version of this body to oversee equipment entering the U.S.
market. The HCSEC is staffed by Huawei employees (although the oversight board is a third-party)—an
obvious flaw in the structure of the security oversight mechanism. A similar body made up of technical
experts from different organizations could perform a similar function in the United States. Any project or
body to examine equipment destined for U.S. markets should not be comprised wholly of employees of the
company in question, such as is the case in the U.K. HCSEC. This is an obvious flaw in the U.K. model.
Instead, an oversight board should be staffed by a variety of technical experts, at least some of which are from
competitors.
There should be a robust incentive structure in place to ensure strong repercussions if, for example, an
insecure backdoor was discovered in a company’s equipment. One potential mechanism is through an
international agreement—several large markets should agree not to do business with a company if a deliberate
insecurity is discovered. The U.K. and Australia are good allies to start with, considering the two have already
identified similar concerns.
There can also be a distinction for equipment that is destined for national security or public safety networks,
rather than everyday consumers. There is relatively low risk of a sophisticated hijacking of information or
control executed through the telecommunications equipment itself, at least compared to commonplace
hacking vulnerabilities. There should also be a requirement that all components of equipment and handsets
that are evaluated by this body be explainable.
Importantly, any regime that evaluates security risks and potentially allows access to the U.S. market must be
based on Chinese reciprocity. Firms with questionable relations to the Chinese government and potentially
pose a security risk should only be allowed to enter the U.S. market if (1) cleared by a balanced
multistakeholder body evaluating supply chain vulnerabilities on an ongoing basis and (2) China shows true
openness to buying foreign technology in the ICT space, and does not engage in forced technology transfer or
similar unfair practices.
108
Ibid; Jack Stubbs, “Exclusive: Britain says Huawei 'shortcomings' expose new telecom networks risks” Reuters (July,
2018), https://www.reuters.com/article/us-huawei-security-britain-exclusive/exclusive-britain-says-huawei-shortcomings-
expose-new-telecom-networks-risks-idUSKBN1K92BX.
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CONCLUSION
Any policy focused on specific Chinese firms must be considered as a component of a broader, nuanced
strategy to return to a rule-of-law, market-driven expectation on trade and protection of intellectual property
grounded in reciprocity. The United States should continue to rely on its competitive private sector to deploy
5G networks, and work to improve the investment environment, as well as making additional spectrum
available. It appears 5G is likely to play a crucial role in accelerating productivity gains through numerous
sectors of the economy for years to come. Achieving successful deployment and use of this technology, while
preserving the competitiveness of U.S. ICT firms should be a core policy goal.
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