Recent press reports suggest that some in the US are considering whether there should be strategic purchases of Ericsson or Nokia in order to bolster their ability to compete against Chinese manufacturers in 5G networks. Their argument flows along these lines:
- 5G will become a critical part of the national infrastructure on which much of the activity in the country will rely.
- Chinese companies are inherently untrustworthy as a result of their links to the Chinese government.
- Therefore we cannot let Chinese companies play a leading role in providing equipment for 5G networks.
- But there are few other suppliers and they are often seen as inferior to Huawei.
- Hence, we must intervene to strengthen these players so that they are able to compete effectively and provide leading-edge equipment.
However, this argument is flawed in so many ways.
5G is critical. Proponents of 5G argue that it is much more than just another generation of cellular technology and that it will be transformational. Some suggest it will be more important to society than the arrival of electricity. But this is wrong. 5G will be just another generation – much as 4G was an incremental improvement over 3G.
5G is based around three types of service. The first is enhanced mobile broadband. This is exactly what is being deployed today, with consumers offered higher speeds than are available on 4G networks. It is an evolution – the clue is in the word "enhanced" – and not even one that consumers will greatly benefit from, since 4G provides more than adequate data rates for the vast majority. The fact that most operators are offering 5G at no incremental cost says it all.
The second part of 5G is the Internet of Things (IoT) – connected devices. Yet there is no IoT element in the 5G specifications, simply the assumption that 5G will adopt the 4G IoT solutions. These are more than adequate for the foreseeable future, and they have not exactly been a stunning success for the mobile operators.
The third part is low latency – the idea that a reduction in the system latency will give rise to many new applications. Perhaps. But there is little sign of this so far. Likely applications are small scale (such as a few connected factories), and there are alternatives such as wired connectivity and Wi-Fi. Indeed, many Wi-Fi connections already offer latency well below 10 milliseconds – a level 5G may not achieve for many years.
Of course, 5G will be steadily implemented across urban areas and progressively most new phones will be 5G-capable. But these phones will also work on 4G, which will remain the way that most people get their outdoor connectivity for many years. And the phones will also work on Wi-Fi, which carries something like 80% of all user data. What would happen if, say, a country's 5G network suddenly failed? Phones would drop back to 4G and Wi-Fi. Most users would hardly notice the difference. IoT devices would remain on 4G NB-IoT systems. There might be a bit more network congestion in dense areas, resulting in less high definition video streaming. That would be slightly inconvenient but far from a critical network failure.
Perhaps, at some future point, there will be applications that are critical to society and can only work on 5G. In that case, a network failure would be critical. But we are far from this point.
Chinese companies are not trustworthy. I am not qualified to judge whether these companies can be trusted. But it is worth noting that Huawei has been at the heart of many 4G networks for a decade. For at least five years, and probably more, taking down a 4G network will have a much greater impact than taking down a 5G network. If trustworthiness is a concern, then migrating 4G networks to new suppliers is more important than constraining the suppliers of 5G. And if eavesdropping is a concern, simply encrypt data – as most do.
Ericsson and Nokia can be strengthened by acquisition. The third flaw is to assume that Ericsson and Nokia are incompetent or unable to raise capital, and that acquisition or strategic investment will change all this. Most acquisitions fail. Even when they succeed, they result in a period of disruption just at the time when focus is needed. It is difficult to be certain, but the reasons Huawei appears to be performing better include access to lower cost labor in China, access to a large home market where competition is reduced and possibly some governmental subsidy. If there was a way that Ericsson and Nokia could be strengthened, it would likely be through governmental grants or tax relief around R&D and employment of engineers. Of course, there are myriad reasons why this is problematic, and I am not recommending them – just noting that acquisition or investment would probably not succeed.
The equipment supply market is unchanging. The mobile network supply market has been static for some years, after a period of earlier consolidation. Growing a new Ericsson or Nokia would be difficult and very time-consuming. But there are signs that the dynamics of network supply are changing and that new entrants may play growing roles. There are two broad concepts that might lead to change – open RAN and private networks.
Open RAN, or O-RAN, is the idea that basestations could become commoditized computing platforms with an open interface allowing software to be sourced from other players. The O-RAN project has strong support from mobile operators and from OTT providers such as Amazon and Facebook. Recently, Vodafone placed a tender for its entire set of European basestations to potentially use O-RAN standards. O-RAN supports new entrants since it allows companies to specialize (and so not have to build a complete 4G/5G network offering). Just take a look at how many equipment companies there are in the O-RAN Alliance – something like 120. Not all will become suppliers, but players like Mavenir are making impressive advances.
Private networks are looking increasingly important in 5G. Many of the potential new applications are highly localized – for example factories, hospitals, sports stadiums and airports. Many venue owners would prefer to own their own solution rather than rely on an operator providing coverage. In some countries, spectrum is being set aside to assist this, including "industrial spectrum" in Germany and the CBRS multi-tier approach in the US. Such private networks require small-scale core solutions which are much simpler to provide than a national-scale switching platform for mobile network operators. Companies like Athonet, ipAccess and Parallel Wireless have solutions in this space. It may be that most of the areas where 5G becomes part of a critical infrastructure will fall into this category – and hence there may be a wider supply base to choose from. And the good news for the US is that many of the new players in both the O-RAN and private network space are US companies.
What to do
My first piece of advice would be to step back. Look through the hype. Try to understand whether the emperor does indeed have new clothes. Ask whether 5G really is transformational and if so where and when. Ask where 5G will become a single point of failure.
My next observation is that there are broadly two approaches to getting things done – market forces and centralized planning. Broadly, market forces work well when there is uncertainty, as many different innovations can be tried, and the best emerge through competition. Central planning can work well where there is stability and little need for the wasted effort that comes from multiple entities doing the same thing. The mobile communications sector has been relatively stable for a decade, with little technological divergence and the same set of suppliers and operators. But it feels like a period of change is upon us, with operators starting to merge, with new approaches to network provision, and new regulatory concepts. The role of innovation may be growing, and the US is fabulously good at this.
In conclusion, there is no need to do anything. There is no imminent problem – just far too much belief in 5G.
— William Webb, CEO, Webb Search