ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846
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Exploring the 5G Saga

Is the USs ban on Huawei a strategy of market competition or state control of digital spaces?

 

After 40 years of economic integration, the United States (US) and China, under their current political regimes have reached a tipping point of economic tensions where both countries remain non-committal towards any kind of forbearance. In fact, political leaders from both countries are advocating for disintegration across all four baskets of goods, capital, people and technology. The disintegration of goods comes undue on the global supply chains, particularly the development of sensitive technologies. The integration of cross-border capital flows is threatened by restrictions on Chinese investments taking hold across big sectors of the US economy. While the integration of people—especially young Chinese students—can be stalled by the US’s potential policy of barring them from a gamut of science and engineering courses in the US. With such trends emanating, the integration of the global innovation ecosystem is at risk with the mutual efforts of the US and China to exclude each other. The recent embargo/moratorium on the Chinese telecom giant Huawei by the US and its allies—especially those in the Five Eyes alliances—is indicative of such technological disintegration.

Starting as a mere reseller of telephone switching gears—imported from Hong Kong—in 1987, Huawei has emerged as one of the leading global suppliers of high-tech network building kits for mobile phones since the late 1990s, along with Nokia and Ericsson. But more importantly, the firm is noted for its proactivity in setting the technical standards for the “fifth generation” (5G) network, wherein China alone is projected to deploy almost 33% of all 5G connections, world-wide, by 2025. In contrast, the share of the US and Western Europe, taken together, is estimated to be around 25% or so. What does this mean? China, and Huawei’s technologies in situ—with 10% of the 53,345 technology patents filed by China in 2018 coming from the firm alone—will be at the heart of those technologies that the governments worldwide have recognised as critical for the future of national infrastructure. According to Deloitte, between 2015 and 2018, China has not only outnumbered the US cell sites by at least 12 times but also outspent it by $24 billion in 5G infrastructure.

The 5G, being spectrally more efficient than the predecessor technologies, can transmit higher amounts of data across larger numbers of communicative devices at lower propagation latencies. But, saving latencies is an expensive proposition. For instance, take the case of the Hibernia Express—the 3,000-mile fibre-optic link across the Atlantic Ocean to connect London and New York—that Huawei had started laying in collaboration with the Hibernia Atlantic in 2011. For saving 5 milliseconds of latency, the estimated total cost is at least $400 million, or roughly around $80 million for each millisecond saved. As in the case of the previous generations of (tele)communication technologies, for the 5G too, deployment during the initial/nascent phase of the technology appears to be highly capital intensive. At the same time, while it is almost ubiquitously accepted that 5G will generate new revenue streams through diversification of cyber products and services, how much of this value can be captured by the carrier is uncertain.

In fact, the lessons learnt from the long-term evolution (LTE)/4G deployment during the last decade can plausibly explain the frugality of network investments by the carriers—especially those in the US—who have been among the early deployers of 4G infrastructure. Instead of generating the anticipated new revenue benefits for the carriers, the LTE-enabled applications became a capacity layer to help the carriers grapple with escalating capital requirements arising due to the exponential traffic growth from over-the-top media services and the declining average revenue per user due to intense price competition.

In such a context, network sharing could have been a cost minimising strategy for faster deployment of 5G. But the US and its allies seem cynical of any such arrangements. Is it because the Asian economies have developed a natural resilience in the face of declining revenues, by making speed and network capacity the basis of (price) competition? With a widespread perception that the foundation of economic leadership will rest with the creation of value and new uses of data, it is no wonder that China’s 5G network density rate—5.3 sites every 10 square miles or 14.1 sites per 10,000 people, in comparison to 0.4 sites every 10 square miles or 4.7 sites per 10,000 people in the US—is a matter of concern for its competitors.

By keeping the friction inherent in network deployment processes alive, the US and its allies are potentially building up a case for state intervention in the digital space. On the one hand, are protectionist interventions like subsidies that would give them a price advantage in the global markets. But more disconcerting is the pervasive surveillance power that the state can openly exercise once its control over digital infrastructure gets institutionally acknowledged. Such control further enables the blurring of ideological crises of the contemporary political systems. With China arguing for cyber sovereignty and the right of the state to control cross-border data flow overtly, and the US and the European Union pushing for the same covertly, what is their realpolitik relationship: long-term adversaries or strategic competitors?

 

Updated On : 25th May, 2019

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