America Cannot Afford to Lose the Race Against China to 5G
Here is how the U.S. market economy can provide a huge competitive advantage, but only if the government unleashes that power and works with American allies to push back.
The United States and other liberal democracies are falling behind authoritarian China in the global 5G race. And if a recent report from Boston Consulting Group is any indication, then it’ll be an expensive race to lose. Only expedient action by U.S. policymakers can remove barriers currently impeding our companies and innovators from repeating American success in the global 4G race.
The Boston Consulting Group’s report finds that the U.S. 5G economy will create 4.5 million jobs and contribute $1.5 trillion in GDP from 2020-30. It also warns that every six-month delay in network deployment means a potential average loss of $25 billion in economic benefits. The losses would handicap the coronavirus recovery across key sectors, including healthcare and manufacturing, killing off tens of thousands of potential jobs. Delays would undermine rapidly-evolving data-intensive technologies that’ll improve American lives, including autonomous vehicles, surgical robots, telehealth services, interactive virtual learning, and smart energy grids.
It’s tempting to see 5G as something that doesn’t need to be a competition. But the implications of China’s meteoric rise as a telecommunications player are dire. U.S. officials warn that permitting Huawei, ZTE and other state-backed Chinese giants into 5G networks will make critical systems “vulnerable to disruption, manipulation, and espionage while putting sensitive government, commercial, and personal information at risk.”
The risk has locked these Chinese companies out of U.S. 5G infrastructure. Other countries are not so worried. Between the ownership of key 5G patents, artificially low costs, over $75 billion in subsidies, outright industrial espionage, and protected access to China’s lucrative domestic telecommunications market, other governments are increasingly enticed by these Chinese companies. After all, the immediate economic benefits are more straightforward than the long-term consequences of compromised national security and data privacy. In an increasingly interconnected world, American companies engaged in these countries will be impacted too.
Chinese laws compel these Chinese companies to hand over user data and assist in state surveillance. And the dictatorship in Beijing already has a history of cyberattacks and attempts to acquire sensitive military intelligence. While Chinese officials tell western audiences that they don’t want to challenge U.S. leadership or hegemony, their statements to Chinese audiences indicate the opposite and flag a deliberate economic and diplomatic strategy to further geopolitical ambitions by undermining the United States.
Unlike China, the United States thankfully doesn’t need billions in taxpayer-funded state support to prop-up its telecommunications sector. The biggest hurdle facing American companies is the military’s monopolization of mid-band communication frequencies. These frequencies are ideal for 5G deployment and extensively utilized by China and other global players. Mid-band frequencies provide a balance between high-speed, cost-effectiveness, and network coverage, unlike the low and high-band frequencies to which American 5G development has mostly been restricted.
The FCC must push ahead with auctioning 3.45-3.55 GHz mid-band spectrum this year, with more transparent timelines for future auctions of unlicensed spectrum. Recent FCC rules that streamline 5G rollout approvals and prevent municipalities from levying exorbitant taxes from infrastructure providers for revenue-raising are welcome. But local governments can also help through urban planning that provides street space for cabling and powering 5G equipment.
On the diplomatic side, the Biden administration has already flagged engagement with American allies on a common strategy for countering harmful Chinese policies. Recently, the European Commission (EC) found that Chinese firms’ heavy state subsidy unfairly disadvantaged foreign telecom companies by letting them dramatically underbid the competition. Unfortunately, the EC eventually dropped their investigation after Beijing agreed to increase European firms’ access to the Chinese telecom market.
Today, China is restricting market access and threatening European firms that manufacture components in China with export controls. The timing’s ripe for the U.S. to urge revisitation of the EC investigation on an international scale, to oppose Chinese protectionism of its own market and the large subsidies for Chinese companies in foreign markets. Coordinated action is especially important since China has successfully threatened to withdraw domestic market access to pressure foreign firms accusing it of stealing their intellectual property into dropping complaints.
A coordinated international alliance will also counter China’s practice of funding surrogates to sit on standards-setting boards for global telecommunications network equipment, while subsidizing delegates from China’s ‘national champion’ companies, like Huawei. This grants China-backed firms that raise security concerns disproportionate influence in making their patented technology the global standard, forcing foreign competitors to purchase their equipment or pay royalties. By late 2019, Huawei had sent 3,098 engineers to attend standards-setting meetings for 5G, and had filed 19,473 technical contributions. Conversely, the largest American contributing firm, Qualcomm, had only sent 1,701 engineers and filed 1,994 contributions.
U.S. diplomatic pressure has previously caused countries like Britain to drop plans to issue 5G infrastructure contracts to Huawei. However, more sustainable strategies to coordinate moving forward would be engaging allies on the grounds of mutual economic and geopolitical benefit. And ensuring that U.S. interests are adequately represented in standards-setting meetings.
Removing regulatory barriers to spectrum access and countering Chinese industrial policies through diplomacy will put American companies and innovators back on track in the 5G race. Immense economic benefits and a more secure and competitive global telecom sector are on the line—and can all be achieved without burdening American taxpayers by trying to match Chinese subsidies. America must act.
Satya Marar is a senior contributor and tech policy fellow at Young Voices. His articles on tech and innovation have been featured in The Hill, Washington Times, Washington Examiner and other national and international outlets.