Big data (photo: Pxhere)
How can a single company possibly be so threatening to the US that – at least to one former presidential advisor – destroying it means more than bringing an amicable resolution to an economic rivalry that is costing both countries tens of billions of dollars? It is not just a figment of Bannon’s imagination either; his statement came mere days after the United States had placed Huawei and its affiliates on the restricted entity list, effectively banning US companies from conducting any business with the Shenzhen tech giant. Washington has also pressured US telecom companies into not offering Huawei mobile phones, forbid sales of Huawei phones on US bases, and pressured other countries to limit Huawei’s footprint in their telecom infrastructure. Last but not least, the US has issued a warrant for the arrest of the company’s CFO (who also happens to be the daughter of Huawei’s founder and CEO). It could be argued that the war the United States has declared on Huawei is one of the most symbolic and widely discussed aspects of the continuously escalating economic warfare between China and the United States – quite a feat in its own right.
Huawei’s rise can only be compared to that of the Chinese economy. In 2013, the Shenzhen-based company sold just over 53 million phones, and held 2.9% of the global mobile phone market. By the end of the first quarter of 2019, Huawei had become the second largest producer of mobile phones, with a 19% market share. What’s more, Huawei is not only a major producer of mobile phones but also of telecom equipment as well as semiconductors (via its subsidiary HiSilicon). Arguably however, the reason behind the United States’ decision to throw its weight around so recklessly – not just domestically, but in the international arena as well – is Huawei’s position as the world’s premier supplier of 5G infrastructure and technology. It seems that US stakeholders recently became fully aware of the disruptive potential 5G has to offer. Just in the past seven months, the US Commerce Commission has organized two hearings, the Pentagon’s Defense Innovation Board has released a highly critical report concerning the current technological and commercial landscape of 5G in the US, while the Trump administration has used every trick in the book to prevent Huawei from gaining any more ground.
It would revolutionise production processes and supply chains, allowing whoever is most adept at harnessing its potential to rake in trillions of dollars in added GDP, as well as tens of millions of jobs. How the rivalry over 5G technology unfolds may also serve as an indicator as to what a world of split supply chains, mutually exclusive economic blocs and trade wars may look like – the world that may come after the end of the era of globalisation. It also may serve as an indicator as to how the US will choose to conduct its business once the Bretton Woods System, which the US itself created and up until recently guarded, runs its course.
(Photo: Wikimedia Commons)
Simply speaking, 5G is the fifth generation of mobile connectivity – technology that allows sending and receiving data to mobile devices. The history of mobile communications at a commercial level begins with 1G, which emerged at the tail-end of the 1970s, with subsequent generations coming in roughly ten year increments. 1G was the first and only mobile communication technology that was analog rather than digital, and offered data transmission speeds which translated to roughly around 2.4kbps. The second generation of mobile communication was introduced in the early 1990s. Unlike 1G, signals sent via 2G networks were transmitted digitally and encrypted. While 2G initially offered data bandwidth of 64kbps, subsequent improvements in technology offered significant increase in bandwidth, which in turn enabled services other than voice calls to be added, such as text messages. The advent of the third generation – 3G – began in the late 1990s, with Japan and Korea taking the lead in developing and implementing the technology. As was the case with previous generations, it brought a significant increase in throughput, with the mature technology reaching up to 2 mb/s, which in turn enabled internet access and video calls – all of which created new revenue streams, by tapping into the then-ongoing internet revolution. Standards for 4G were established in 2008, with commercial roll-outs following shortly afterwards. 4G once again brought a major increase in the throughput of cellular networks; download speeds of 100mbps and 1gbps for stationary and moving users respectively (on a side note, these speeds are still not attainable in most cases and for that reason most services are labelled as LTE). Massive increase in bandwidth, coupled with phones built around touch screens such as the iPhone, allowed for mobile web browsing to become not only feasible, but also user friendly and hence – omnipresent. Those two in turn fully unlocked the potential of mobile internet. Since the US secured a dominant position in the 4G market, large chunks of revenue created by the new technology ended up lining the pockets of US companies. This is true both for mobile phone manufacturers (Apple), social networking sites (Facebook, Twitter, Instagram), VOD services (Netflix, Amazon), telecom equipment (Qualcomm) and a myriad of app developers, many of which hail from Silicon Valley.
Which brings us to 5G, the latest product of this evolution. In the simplest terms, the implementation of 5G will offer a significant jump in upload and download speeds of mobile internet, alongside much lower latency, and greatly increased connection density. Increase in bandwidth seems to be the angle worked by the majority of mobile operators, which do not shy away from PR stunts involving promised roll-outs of 5G technology. That alone however does not justify the attention 5G has recently been getting from media and policymakers alike. To put things simply, what mobile carriers promise is downloading a TV show in seconds – which is nice, and helps grasp the imagination of the general public – but it alone does not constitute a revolution. Downloading a TV show in seconds, while commuting at 300 kilometers per hour in your autonomous vehicle, which navigates the city by communicating with other autonomous vehicles, pieces of infrastructure such as roads and traffic lights, all of which are integrated within a single smart city system that organizes flows of vehicles in order to avoid congestion – that is more of an actual gamechanger – and this is the promise that 5G brings. Equally importantly, 5G can be considered as an integral element, an exemplification and a harbinger of the global Chinese-American rivalry. 5G, and more broadly, telecommunications equipment is supposed to become a driver of Chinese economic expansion – David Goldman has once compared Huawei’s function to that of an imperial horde of the Mongols, and the role Chinese engineers played in its conquer of Baghdad. Long story short, in 1258 Mongol army besieged Baghdad, a city encompassed by impermeable and thick walls. Needless to say the light cavalry oriented Mongol army could not possibly scale the city walls; instead they used Chinese engineers, who were able to blow up the walls, allowing Mongol armies to flood in. Today, there are over 50,000 foreigners employed by Huawei’s R&D department, all working to perfect solutions that are supposed to become a battering ram for the Chinese technology, granting it access to foreign markets, and by extension – providing it with a primus inter pares position in a global system of economic, intellectual, social and cultural exchange with the rest of the world. This in turn is supposed to create a coprosperity sphere with China at the helm. Unlike Mongols however, who’s primary exports were carnage (and trade routes, a fact oft forgotten) it seems that the Chinese adopted a more sustainable approach, by offering an objectively useful technology that promises an exponential increase in connectivity.
As defined by the ITU, the key defining characteristics of 5G are:
There is a catch however, especially in regards to data transfer speeds: the sky high bandwidth is likely to only be available in most limited areas. The core issue with 5G is that it basically operates within two different radio frequencies. On the one hand there is the millimeter wave which will operate on frequencies from 24 up to 300 GHz (known as EHF, extremely high frequencies). Mmwave will offer a drastic increase in speed (up to the promised 20gbps level), but is greatly limited in coverage. This is because EHF signals are easily attenuated – anything from walls, to foliage, human bodies and rain will distort the signal. This also means, that the range of mmwave signals is limited to roughly a kilometer. In practical terms this translates to having to have an unobstructed line of sight between the device and a base station in order to enjoy the promised bandwidth. On the flip side, EHFs are scarcely occupied, as most other wireless signals are usually within much lower ranges of the radio frequency spectrum – this means there will be little interference and frequencies can be easily allocated.
A number of enabling technologies are being developed to at least partially solve the coverage and attenuation problems posed by the mmwave variety of 5G. These include beam forming, which is a technology that allows bouncing the signal of obstacles in order to reach its destinated target – even if it is not within a direct line of sight. Then there are small cells, which would allow for a significant reduction in size of base stations, allowing for a much denser network. While small cells would at least partially resolve the connection strength problem, it would require installing one at virtually every utility pole or streetlight in any given country to provide at least a mediocre reception. And it is a huge problem since capex required to cover the entire US with an adequate number of small cells and base stations is roughly $400 billion (costs alone may prove prohibitive to commercial US telecommunication companies), and even this would only guarantee 100mbps connection speed (a far cry from the promised 20gbps) to 72% of the United States.
There is also a more practical alternative to mmwave – the sub6. As is the case with the mmwave, the term sub-6 derives from frequencies used for transmitting the data, namely those below 6GHz. Sub-6 infrastructure will be easier and cheaper to develop, since it operates on a longer wavelength, meaning larger network coverage, as well as less interference. This means the existing 4G infrastructure can be upgraded rather than built from scratch, offering a significant increase in speed, though not as huge as mmwave. Just as is the case with mmwave however, there is a tradeoff; since the lower frequency spectrum is already used by a multitude of different systems and devices (such as Wi-Fi, existing 4G networks) there will be far fewer available frequencies to be distributed. This problem is particularly ominous in the US, where large swathes of sub-6 frequencies are also reserved for military use. Sub-6 is also said to offer only somewhat improved speeds as compared to most advanced iterations of 4G.
The likely outcome is that most states that can utilize both sub-6 and mmwave will try to employ a mélange of both of the frequency spectrums, with mmwave available predominantly in the most urbanised areas, which are both abundant in infrastructure where 5G base stations could be mounted, and where the density of population warrants the major expenditure needed for mmwave deployment. Sub6 could in turn be used in less urbanized areas, alongside most advanced evolutions of 4G technology such as either true 4G, or LTE-A.
The aforementioned key characteristics of 5G networks may have tremendous impact not just on individual mobile users, but on industries, militaries and societies around the world. Since it is not only mobile phones but virtually any appliance, from wearable items to industrial machinery to pieces of infrastructure, that can connect to a single system, sending and receiving instantaneously large amounts of data via 5G, this network of continuously communicating devices – known as the internet of things (IOT) indeed offers endless possibilities. To name just a few – the ability to send massive amounts of data with very little latency paves the way for innovations such as remote surgeries. Here, a HD video link will be needed (provided for by eMBB), coupled with very low latency (URLLC). Then there are autonomous vehicles, and a broad array of solutions under the umbrella term of “smart cities”. Urban areas saturated with 5G cells could enable autonomous driving on a massive scale. A massive amount of devices simultaneously connected to 5G networks and minimal latency could mean that not only would vehicles be able to exchange data (and act on the basis on whatever data they receive to effectively avoid accidents), but it would also open up the possibility of the V2X connections. V2X stands for vehicle to X (such as vehicle to vehicle, infrastructure, pedestrian etc.). This in turn could alleviate traffic congestion (by optimizing speed and as well as sharing traffic congestion data), minimize the number of traffic accidents, with ultra low latency and massive data streams allowing almost immediate action of autonomous vehicles. According to the Boston Consulting Group, the autonomous vehicle market alone could be worth $42 billion by 2025. Smart cities could also mean a revolution in communal services since everything from sewage to grid could be managed by a single system with a high degree of automation.
As mentioned above, 5G will unlock the potential of the Internet of Things. And again, while the majority of news items in mainstream media focus on different home appliances communicating with one another, the true impact of 5G will affect industrial production and supply chains. The impact 5G will have on the Industrial Internet of Things (IIoT) is immense. Countless devices, sensors and robots connected to a single system and communicating with one another (device-to-device, machine-to-machine) making the most of broadband, low latency and massive connection density within a single factory space could spell the dawn of the fourth industrial revolution. Likewise, it could allow for continuous and automated gathering of data related to machine workloads, malfunctions, and energy saving, thus greatly simplifying maintenance and preventing disruptions in the production process. Combining IIoT, automated driving and smart cities could in turn revolutionise supply chains and provide a whole new meaning to the idea of “just in time” manufacturing. Enabled by 5G, crucial information can be relayed, routes can be calculated according to real time traffic information, the amount of stock needed can be ascertained.
5G (photo:. Pxhere)
Needless to say, the very same advantages also apply to military applications of 5G. Huge throughput could be a game changer as far as situational awareness on the battlefield is concerned. High quality live feeds can be provided to command elements, and composite data can be obtained from different sensors and other sources of data (satellites, soldiers’ live feeds, radars and so forth), helping to minimize uncertainty and dissipating the fog of war. As in the case of IIoT, 5G could also transform military supply chain management. The ability to streamline deliveries, take immediate stock of spare parts, and consult technicians by relaying high-def video may revolutionise supply chain visibility and maintenance. Training may also be heavily affected, with the new technology enabling wide scale use of AR/VR for training purposes. Last but certainly not least, the same characteristics that enable autonomous driving (low latency and massive connection density) could also enable drone swarms guided either by human operators via video relay or AI, with which 5G will create a synergistic effect.
How much exactly is up for debate; GSMA indicates that by the mid-2030s, 5G may generate an additional $2 trillion added to the global GDP and nearly $600 billion in revenue; Qualcomm on the other hand predicts an unbelievable $13 trillion. Comparing this to the “measly” $445 billion that was generated globally by the 4G shows just how impactful for the US and the global economy the advent of 5G will be. To put things into perspective, Donald Trump’s plan to revamp the entire US infrastructure is projected to be worth an estimated $2 trillion.
The only thing left is to win this race, and reap the benefits. The question is whether or not it will be the US that does so. A look at how the competition for dominating the previous generations of mobile tech unfolded can help provide some answers as to how the race for 5G may unfold. There seem to be a few critical factors that affect overall success when it comes to gaining advantage:
Bleeding edge R&D, which translates to being first to develop working technical standards and equipment, and then utilizing those to roll out economically feasible commercial networks. Once this is achieved, the standards have a good chance to be adopted in other countries, and possibly worldwide. This was how European companies like the Finnish NOKIA were able to dominate the second generation of mobile networks (2G). Finland was the place where the 2G was first commercialised and where the 2G standard (GSM) was developed. In due time, NOKIA would grow to occupy 80% of the global mobile device market, and at one point represented 70% of the Helsinki stock exchange. The GSM standard would then be adopted throughout Europe, laying the foundation for the success of companies that dominated the handset and cellular equipment manufacturing sector in the 1990s (Germany’s Siemens, French Alcatel, Swedish Ericsson). This in turn translates to revenue, not only via purchases of mobile phones and telecom equipment, but also via IP (intellectual property) royalties – which could be perceivably far greater this time around, since they will be charged not only for mobile phones, but all devices able to connect to 5G networks. This was one of the enablers of the US’ success when 4G was being rolled out in the late 2000s, with the US leading the charge. A further synergistic effect was added when US carriers invested $117bn in 4G infrastructure. On the other side of the spectrum, Japan is a good example as to what happens when a standard that any given country has developed fails to gain foothold globally, a situation which is sometimes referred to as a “Galapagos system”. While Japan was for a while a running mate to the US in terms of the development of 4G, it soon faltered due to developing and sticking to a country specific standard which was not adopted elsewhere. This too was the case with a Chinese attempt at developing its indigenous 3G standard, rather than adopting a foreign made one.
Yet another crucial factor is having a good legal framework, allowing bureaucratic processes to be streamlined. This too can make or break mobile technologies. For example, one of the reasons for the US’s lacklustre performance with 2G was that it made a mistake that typically results in losing any mobile telecommunications race – it did not set universal standards, causing interoperability issues between providers and significantly increased capex required for developing infrastructure that was not shared between telecommunication companies. Likewise regulatory bodies such as the FCC failed to react to the onset of new technology in a timely manner, mandating analog 1G networks to be kept operational in the US longer than necessary. By the time 4G technology came about, FCC had learned its lesson and instilled a number of measures simplifying the legislative procedures (freeing up frequencies, establishing stop clock measures for installing infrastructure such as base stations). Europe’s failure to translate its 2G domination into successful implementation of 3G also stems from the inability of regulatory bodies to adapt laws to an evolving technological landscape.
S&F Hero: 5G, geopolitics and Crowe Memorandum (Podcast)
Autor
Albert Świdziński
Director of Analysis at Strategy&Future.
Strategy&Future
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