Game of Phones

Those problems compound at the application level. The 5G bet rests on a host of unexplored, nascent technological modes coming together at the right time on the right network. That requires the right alignment of technology, but also of regulatory, social, commercial forces.

The trendlines are good. But the uncertainty is high.

State of Play

This is a contest for global scale and standards. Only the U.S. and China have both the market size and the technological sophistication really to engage on that front and to compete for 5G rule-setting power. Companies from a handful of other countries — Japan, South Korea, Sweden, Finland, and, to a lesser extent, other E.U. member states — vie for the 5G hardware, infrastructure, and equipment markets or to operate 5G enabled networks. They seek a profitable niche in the larger ecosystem.

3GPP selects from competing patents to form its international 5G standards. That selection determines whose technology will be licensed as the global norm — and who shapes the profile that connecting systems have to fit. Over the past two years, the PRC has rapidly caught up to, perhaps even drawn ahead of, an early U.S. lead in global standards. In 2018, 3GPP released a first complete set of 5G specifications. Those backtracked from early support of the U.S. coding scheme LDPC, instead endorsing a Solomon-like combination of LDPC and Huawei’s Polar. “China has won half of 5G standards,” crowed Beijing’s media.

The balance risks shifting farther in China’s favor. U.S. systems are increasingly disconnected from the global norm. The U.S.leads in allocating, and using, mmWave spectrum. But it has historically cordoned mid-band off from commercial use. There, China leads. And mid-band increasingly represents the global standard. That means that Beijing’s systems and patents are the ones positioned to take off globally.

China’s dominance in 5G’s hardware and equipment further supports its bid for standards — especially as the U.S. has no entrant in that game. There are six primary global players: Sweden’s Ericsson, Finland’s Nokia, South Korea’s Samsung, Japan’s newly engaged Rakuten, and China’s Huawei and ZTE. Beijing’s state-supported companies offer the best prices and boast the broadest footprint. They offer a platform through which to promote PRC standards.  And even if Beijing loses the rule-setting contest, it will retain a keystone role in the global 5G ecosystem. Meanwhile, when Washington tells its partners not to buy Huawei equipment, it does so without proposing an American alternative.

This matters because the 5G competition is fundamentally one for global scale.  The entire developed world is trying to set up 5G networks at home. Most countries do so by purchasing foreign equipment that conforms to a foreign standard, and, often, assisted by a foreign network operator. For them, this is about keeping up as efficiently as possible — in terms of price, time and political capital. To claim any part of the equipment market is to play an integral, scalable role in a profitable global industry. To claim the standard is to decide the rules, hierarchies, and resource flows in a backbone global network — one that, should the IoT bet come to fruition, will affect the physical as well as virtual worlds.

An Asymmetric Competition

Beijing has chosen this playing field for a reason. Network and standards grant rule-making power, and with it governance over resource flows and value. They grant that in an enduring, universal fashion: Since 2008, PRC strategic texts have framed standards as “winner-take-all” fields in which the victor locks in a protected monopoly. Moreover, 5G — and the broader contest for networks and standards — plays perfectly to the PRC’s strengths; its scale, centralization, and narrative control.

That means three critical things. First, Beijing games the standard-setting process. 3GPP will approve nothing that the PRC opposes. The CEO of Lenovo, Yuang Yuanqing, was publicly shamed for not voting the party line at 3GPP’s standard-setting meetings in 2016. The government runs a dedicated task force — the Ministry of Information and Industry Technology’s IMT-2020 5G Promotion Group — to craft the proposals for and influence those meetings.

Second, Beijing’s regulatory arbitrage lets it seize standards and foundations from the bottom up. CCP support means that China can build and export its 5G infrastructure without concern for market forces. This is a state project: The PRC consumer does not have to foot the bill. Chinese telecommunications companies aggressively undercut global prices, suffocating competitors bound to market forces. Huawei has already signed more than 40 contracts to sell 5G equipment internationally.

Third, Beijing moves deliberately. It is not just racing for the first, shiny single-city network or the first 5G phone. It carefully builds full industry value chains and supporting infrastructure, both for 5G itself and for the systems that will link into it. The central government cooperates with industry to ensure “vertical deployment.” National-level science and technology (S&T) prizes reveal a disproportionate focus on the antennae and base station hardware that undergirds 5G, as well as on the smart sensors, meters, road, and grid systems necessary for the industrial IoT and smart city infrastructures on which the 5G gamble is based. Horizontally, local governments have been tasked with installing base stations and fiber optic cables nation-wide.

Huawei began work on 5G in 2009, before 4G had even been implemented. Within China’s twelve National Key S&T projects — the most prestigious and best-funded items on the CCP’s tech agenda — one is dedicated exclusively to “broadband mobile communication,” one to the chips that power it, and one to the core infrastructures that deploy it. They were launched in 2006, 2011, and 2008, respectively.

“You can go fast,” writes Lin Zhenhui, Executive Director of CITIC International Telecommunications Group Co., Ltd., “and win the first prize in a specific industry or city.” Then, you “will enter the 5G era in 2020. But scale coverage needs a huge investment.”

Speed, sadly, drives the U.S. approach. Driven by short-term market forces and an inherent proclivity toward hype, domestic giants compete for the best basic technology or for the quickest returns and easiest wins rather than for scope or scale.