GEOPOLITICS OF 5G

5G In Times Of Trade War: Split In Web World Likely

Surya Gangadharan New Delhi 21 May 2019

The U.S.-China trade war has seen a fair amount of blood spilled in terms of tit-for-tat tariffs, the ban on Huawei and ZTE from operating in the U.S. market and Washington’s plans for curbing Chinese investment. The trade war could have a huge impact on the coming 5G revolution, dividing the world into Cold War like blocs—one led by the U.S. and the other by China—each offering non-interoperable 5G networks.

This scenario was detailed in a white paper by the New York-based Eurasia Group, an independent political risk consultancy. It came out in November last year but bears iteration, given the ongoing trade war.

Titled The Geopolitics of 5G, the white paper credits China with “first mover advantage” as it readies for commercial scale deployment of its domestic 5G network in 2020. It says the U.S. and “like minded allies” will push hard to exclude Chinese networking equipment suppliers from their markets, underscoring the national security risks posed by deploying Chinese hardware.

It warns that the push for “China-free 5G alternative” could see delays in 5G deployment in some countries as backup suppliers are forced to invest in new manufacturing capacity and human capital. A bifurcated 5G ecosystem could lead to two politically divided and potentially non-interoperable technology spheres of influence—one led by the U.S. and supported by technology developed in Silicon Valley; another led by China and supported by its cadre of highly capable digital platform companies.

A split into China and non-China camps could lead to some minor inter-operability issues but more likely would result in lower economies of scale and higher transaction costs. The white paper says the U.S. has an advantage in terms of innovation capacity but China will benefit from its head start in applications and use cases as it builds out its domestic 5G ecosystem and Chinese companies compete for market share abroad.

In a bifurcated world, third countries will face difficult choices about whose 5G network technologies and related application ecosystems to adopt. Governments are likely to come under pressure from the U.S. and allies to avoid dependence on China for 5G. Developing countries that are more sensitive to cost will find Chinese technology and related enticements—for example, infrastructure and project financing available through the Belt and Road Initiative—hard to pass up, particularly if China gains an edge in related technology applications. The U.S./China-exclude camp has no comparable initiative to extend its technology influence globally.

The white paper notes concerns in the West that China’s role in the development of standards that underpin 5G networks will enable it to manipulate and bend the ecosystem for surveillance purposes. In 2017, China held 10 per cent of the patents relevant to standards, which is expected to go up to about 40 per cent. While theoretically this gives China enormous power, the paper says that standards once agreed upon are required to be adhered to in a transparent manner. Equipment can be supplied by any manufacturer anywhere in the world provided it meets the agreed standards.

There are likely to be many winners in 5G but, on balance, the U.S. tech industry with its strong competitive instincts and innovation-driven thinking could be among the leaders in both 5G technology development and 5G enabled applications.

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