Could America Lose The 5G Race To China?

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The next generation of wireless technology is fast-approaching as multiple countries around the world are racing for its development and subsequent wide-scale application.

The quicker nation states and their companies are able to successfully establish the prospective technological infrastructure, the quicker they will be able to reap the massive economic assets and advantages. And as of recently, it seems that China is in good shape to cross the finish line first.

Specifically known as 5G, or the fifth generation of mobile networks, the technical classification is for now ill-defined standards of advanced wireless systems — (the formulation of criteria is currently an ongoing process for a handful of industry organizations). In general, it means a substantially increased internet capacity, which will inevitably cause a number of positive changes like smoother device-to-device communications, lower energy consumption, and overall more reliable and faster networks.

If such improvements in the technical infrastructure come to fruition, it will inevitably allow a higher density of mobile broadband users without adding to the latency of computing — much like the jumps from 2G to 3G and 3G to 4G experienced. Thus the vast amount of technological possibilities under what’s known as the Internet of Things (IoT) could reach actualization, resulting in a continuous proliferation of amazing features that will make homes and hospitals highly intelligent, and foster the development of autonomous vehicles and revolutionary education environments.

In short, former pipe dreams of ostensible science fiction will soon become reality; and the rewards will be aplenty.

But what happens if a country like China, with its ever-growing economic power and internet-restricting practices, is the first to successfully and comprehensively create a 5G technical infrastructure? Would all developers and would-be users of such technology be forced to become suppliants in their bids to employ 5G? Or would late-comers be able to enjoy the wonders of a faster internet without any significant repercussions or lapses in implementation?

“I think there is a concern of falling behind,” Brent Skorup, a research fellow in the Technology Policy Program at George Mason University’s Mercatus Center, told The Daily Caller News Foundation. “Whoever does go ahead, whether it’s China or someone else, will be at the forefront of developing new apps and services, some of which we can’t even imagine will be developed. No one in the year 2000 foresaw Uber and Airbnb developing from mobile broadband.”

Skorup, though, said he’s “fairly optimistic” about the ability of the U.S. economy and Silicon Valley to rebound if a temporary delay in new networks ensues or is ensuing. He cites the former nascency of wireless broadband like 2G and 3G in which “Japan and Europe did have better early mobile systems than we did” before “we came back, and today dominate the internet and tech sector” with 4G.

Roger Entner, another highly respected telecom expert and founder of Recon Analytics, agrees.

“I think everybody is recognizing the huge advantages the United States has by being the leader in 4G. The whole ecosphere that is built around that — that ranges from faster, better, lower-priced communications, profitability for the operators,” was specifically brought on by U.S.’s commercialized endeavors, and has led to huge success stories for American companies, he told TheDCNF.

“The dominance that Google and Apple have over the mobile ecosphere could not be possible without America’s 4G dominance,” Entner continued. “Everybody’s seeing that [success] and how wireless should work and saying ‘we would like to have that too.’ And that really spurs on the Chinese, it spurs on the Europeans, South Koreans and Japanese. Everyone wants to be the leader in 5G.”

And it’s no surprise.

As a result of 5G-empowered advanced connectivity and computing capacity, high-speed wireless networks would transform local economies both big and small, ultimately leading to “Smart City solutions,” according to an extensive Accenture report.

“By allowing many unconnected, energy-consuming devices to be integrated into the grid through low-cost 5G connections, 5G enables these devices to be more accurately monitored to support better forecasting of energy needs,” Accenture’s analysis reads. And “by connecting these energy-consuming devices using a smart grid, demand-side management will be further enhanced to support load balancing, helping reduce electricity peaks and ultimately reduce energy costs.”

In other words, if fully embraced, it will inevitably enable the creation of flourishing, more energy-efficient cities, says the report.

“For example, by installing smart grid technology, Chattanooga, TN, a medium-sized town, reduced the duration of outages by over 50% during a severe windstorm and saved the utility $1.4 million* in operational costs for just one storm.”

Overall, the assessment estimates that telecom operators building out the networks for 5G should lead to a $275 billion investment in cities infrastructure over seven years, which in-hand would likely contribute to the creation of 3 million news jobs and a boost to the annual GDP by $500 billion.

In general, IoT, which would be directly supported by 5G technology, could generate up to $11.1 trillion a year in economic value by 2025, according to an extensive McKinsey & Company report.

And none of this even directly touches upon the ample amount of prospective advantages for both national security and cybersecurity purposes, as America and its allies could certainly benefit from a reliable and safe 5G infrastructure.

While Skorup’s worries about a China-first 5G system are certainly not extreme, in his eyes and many others,’ China is “kind of a new animal,” so the situation may play out differently this time around. China’s economy, and particularly its tech industry, are growing at a rapid rate, and not through the usual catalysts like the free-market’s competitive climate, but via paternalistic public policy. Once budding enterprises, the quasi-private tech companies have become full-fledged corporations with almost-ubiquitous services. Alibaba — a massive Chinese conglomerate with services and products in various industries like e-commerce, entertainment, cloud computing, and live-streaming, among others — had more sales than Amazon and eBay combined in 2014. And more recently, it still beats out similar American-based online platforms in many respects on Wall Street — even though Amazon is essentially Alibaba’s American cousin, with stakes in almost the same areas of business.

The Chinese mobile market, which includes mobile commerce, in-app advertising, and application store purchases, in general reigns supreme over all others around the world. It is approaching $800 billion on total yearly spending, which equates to about 41 percent of the global mobile market, according to App Annie, one of the few resources of such elusive data. And a CNBC report, citing analysts at CCS Insight, predicts that 5G technology will be in place by 2020 and will have more than one billion users by 2023, half coming from China — a country it says appears “set to dominate.”

To put the rate of commercial growth for China into perspective, just years ago no Chinese internet companies were in the top-20 globally. Now, 7 — Tencent, Alibaba, Baidu, Ant Financial, Didi Kuaidi, Xiaomi, and JD.com — are all ranked in that highly competitive parameter.

“These [Chinese] companies develop solutions that will become the new global standards,” Roslyn Layton, a visiting scholar at the American Enterprise Institute who also served on the 2016-2017 Federal Communications Commission (FCC) Presidential Transition Team, told TheDCNF. “And this is a result of the Chinese proactively avoiding rules that unnecessarily prohibit Chinese innovators from using the capabilities of networks,” she continued, specifically referencing the net neutrality rules put in place by the FCC under the Obama administration, among others.

Net neutrality is a nebulous term with a wavering definition, but is broadly referred to as the principle that internet service providers (ISPs) treat all traffic equally. This means that ISPs do not have a right to discriminate against certain forms of traffic, which could also mean offering special, advanced features or fasters speeds is not allowed.

“To put it another way, the Chinese would not be so stupid to adopt net neutrality rules and imperil their next generation networks and apps,” Layton said emphatically. “The Chinese are expected to eclipse the United States on the internet because they focus their industrial policy on global competitiveness, not network ideology.”

So, in other words, Layton asserts that rather than engaging in self-important bickering about equality in services — which doesn’t inherently comport with how technology or 5G works, since certain products and utilities require or warrant faster speeds — the U.S. should focus on the nuances behind 5G development.

Layton continued:

The whole notion about neutral networks and all data being the same is the total opposite of 5G. 5G is about all data being treated with the particular [respective] technological requirements. If you have a thousand devices in your house, they are not going to all need the same treatment, they’ll need different treatment depending upon what the service is. Maybe [for] health sensors on your body you want to have a certain kind of treatment, and then appliances you don’t. The whole notion of the pricing and engineering for the Internet of Things, it’s not one-price-fits-all, or one-size-fits-all, it’s a highly diversified strategy.

Skorup said he and others aren’t sure what the net neutrality rules even mean, but explains that its ambiguity and dubiousness is exactly why they are likely counterproductive.

“Net neutrality, ‘open internet,’ the internet regulations the Obama administration had — this is not just from me, this is from engineers who work in this area — there was some question, including from around the world, what these policies mean for 5G,” said Skorup. “With all of these services, like broadcast, IoT, etc., you need pretty intense network management. It’s not clear worldwide how this will interact with net neutrality rules.”

Layton concedes that “we don’t know which business model is going to work today,” but adopting a uniform, and thus restrictive, policy won’t help businesses find what works best for them.

And it’s not just seemingly tentative, self-imposed internet regulations that are stymieing America’s capabilities, according to some experts — it’s also self-imposed antitrust regulations.

“The Obama administration weakened the ability of US technology leaders to benefit from their world-leading research in wireless technologies by applying new standards under antitrust law to limit the control of inventors over licensing of their patents which are ‘standard essential,’” Thomas Duesterberg, a senior fellow at the Hudson Institute, told TheDCNF. “These are fundamental patents with wide application in, for instance, the transmission technologies for wireless communications.”

He said that by changing the way antitrust law is applied to licensing such patents, it “essentially limited the freedom of patent holders in setting the terms and pricing of their patents.” This new interpretation ultimately “opened the door for Chinese, Korean, Taiwanese and European antitrust authorities” to limit the ability of tech firms (like semiconductor manufacturers) with superior technology to capitalize on the investments “they made to develop the best technologies in cellular and wireless markets.” Duesterberg alleges that China’s tactics, including the violation of intellectual property, are highly illegal in the rules of the World Trade Organization, but often eschew international diplomatic concerns to get ahead.

Duesterberg’s suggestions going forward include the redoubling of “efforts to protect patents around the world” by, for one, limiting the reach of antitrust authorities over patent licensing. Along with further support of basic research in America’s universities and research labs, he said the U.S. should also “improve conditions for private firms” to study the necessary technology by lowering corporate taxes, which he adds is “the highest in the industrialized world.” Most notably, he also states that the U.S. needs to work with its allies in Europe and Japan “to combat China’s unfair trading practices.”

In a telling article titled “The Growing Chinese Threat to Advanced Technology Industries,” Duesterberg details China’s economic system — what he calls mercantilist industrial policy — which features massive, state-supported investment and a protectionist approach, but also the underhanded acquisition of foreign technology.

For example, “the commercial aerospace industry,” Duesterberg said “has benefited for decades from state financing and from coerced technology transfer from major foreign investors in China such as jet engine and avionics suppliers.” (RELATED: China Battles For Internet Hegemony After America Gives Up Control)

And even while setting aside the economic concerns of China’s rise, there are also considerable national security concerns.

If China becomes dominant in 5G first or ever, the software and equipment will come from Chinese sources, as the state heavily favors its own companies as a matter of policy. Who’s to know if a Chinese company like Huawei won’t create some inconspicuous backdoors on their technology to spy on people’s communications, all at the guidance or direct implementation of its heavy-handed government?

So what can America do to try to get out ahead, or at least keep pace with the Chinese, who appear full steam ahead on the development of a 5G-conducive technical environment?

The reversal of the aforementioned adjustments to antitrust law appears to be one possibility, according to Duesterberg, as could the reversal of aforementioned net neutrality rules, according to Layton and Skorup. In addition, the U.S., both the public and private sector, could and should invest more in spectrum, the critical input for wireless service, according to Skorup, Layton, Entner, and CTIA, the trade association representing the telecommunications industry.

“We need a pipeline of low-, mid- and high-band spectrum auctioned to meet Americans’ growing demand for more mobile services,” reads CTIA’s subsection called “How to Win the 5G Race.” “Mobile data usage has spiked more than 200% in the past two years and will grow 5-fold by 2021. Freeing up new airwaves will help carriers meet America’s mobile needs today and tomorrow.”

CTIA also seems to broadly, or at least indirectly, reference Layton’s concerns over net neutrality rules, which many, like FCC Chairman Ajit Pai, have claimed are based off of policies designed from the 1930s.

“Tomorrow’s 5G networks that rely on small cell antennas the size of pizza boxes shouldn’t be governed by the same rules as yesterday’s 200-foot cell towers,” the group’s list of necessary “key policies” continues. “Every level of government should modernize their rules for the deployment of modern wireless infrastructure.”

CTIA also said updating the corporate tax structure is necessary as “to incentivize billions in new 5G investment that will create millions of jobs and give our economy a shot in the arm,” much like Duesterberg alluded to.

And certain public officials have started to show urgency in 5G infrastructure development.

Sen. John Thune of South Dakota, a Republican, and Sen. Brian Schatz of Hawaii, a Democrat, recently drafted a bill aimed at helping the U.S. win the 5G global race. It has not yet been introduced for consideration, but the legislation reportedly addresses concerns that delays in granting permits will unnecessarily hamstring the various necessary industries in America.

Even though the drafted measure is in the embryonic stages, CTIA applauded it’s intent.

“By modernizing how wireless networks are deployed, this draft bill would help enable the wireless industry to invest hundreds of billions of dollars to win the global race to 5G,” Kelly Cole, CTIA senior vice President for government affairs, said in a statement. “We look forward to its quick passage.”

Pai, as leader of the federal agency that is best suited to facilitate the rollout processes needed for 5G’s materialization, could start by cracking the proverbial whip.

In a February speech made at the Mobile World Congress in Barcelona, Spain, Pai stressed that in order “to realize the 5G future” we need to “return to the light-touch approach to regulation that produced tremendous investment and innovation through our entire Internet ecosystem” — something he says “we are in the process” of doing through his spearheading of the imminent U-turn on net neutrality rules.

“Our goals are clear,” Pai said at a different speech in September at the Mobile World Congress Americas, “to make sure the U.S. continues to lead in 5G and to enable wireless consumers to benefit from these technologies sooner rather than later.”

TheDCNF reached out to Pai to see what the FCC specifically is doing “to realize the 5G future.”

“Under Chairman Pai’s leadership, the FCC is focused on making available more spectrum for 5G as well as making it easier for carriers to deploy the substantial amount of physical infrastructure necessary for 5G networks,” FCC Press Secretary Tina Pelkey told TheDCNF. “These policies will help bring about faster wireless networks for American consumers and businesses.”

And it’s not just at the federal level. Virginia Gov. Terry McAuliffe organized a ceremonial bill signing in June for legislation directed at easing the installment processes of new wireless tech on pre-existing utility structures. CTIA also praised this move, and stated that seven other states — Texas, Minnesota, Florida, Iowa, Colorado, Indiana, and Arizona — have similar bills in the works.

Bureaucrats, public officials and private companies in the U.S. are becoming increasingly more aware of 5G and persistent in pushing the infrastructure and policies that could help further its production — but so too are players in China.

With all of the benefits ready for the taking, Americans can only hope that it’s not too late.

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