February 25, 2021

US facing 5G conundrum


Former Google boss Eric Schmidt, now serving on the US Defense Department’s innovation board, in a blistering opinion piece for Financial Times, derided last month’s record breaking 5G spectrum auction of about $81 billion by the US Federal Communications Commission (FCC) and called it a “digital setback” for the country’s technology future.

Affronting celebrations of 107 Auction that issued 280MHz in C-band spectrum for 5G, Chairman of the US National Security Commission on Artificial Intelligence (NSCAI) warned investing in 5G mobile telecommunications networks should be America’s “urgent priority” to catch up with China, which is “already far ahead.”

More than two decades earlier, 3G auctions in Europe ruined the European operators after they collectively spent $129 billion on buying licenses for third-generation networks. The excessive payments triggered crushing debt burden on the companies, eventually bankrupting a few and sapping research spending.

Schmidt drew parallel between the FCC and European 3G auctions and alarmed higher price and weak digital services as a result of “over the odds” payments could push the country toward “lost digital decade,” Europe was yet to recover from while China would soon have a national network with speeds of 1 gigabit a second.

His worries aren’t unfounded. Even though auction transferred big bucks to the US coffers, massive capital outflows from the sector would stall deployment of 5G in the country since the US telcos would have $81 billion less to spend on 5G infrastructure, probably leading into “disinvestment and downsizing."

The US is likely to fall behind China in fifth-generation technology as auction lacked provision to build crucial digital infrastructure and also because a true 5G network required more than 280MHz spectrum, as said Schmidt. What’s more, industry will inevitably shift this huge cost to American 5G users, which would further complicate 5G deployment.

With China’s head start, Schmidt continued, the next generation of technology giants — and the products and services they build — are not going to be European or American but Chinese. Estimating that a C-band network covering 80% of Americans will require one million new cell sites and $70 billion, he said “there will be no 5G and no base on which to build 6G. America’s digital economy will become an also-ran.”

AT&T, Verizon and T-Mobile are the big three US wireless companies that are in the process of building out 5G networks in the US. Whereas stocks of the first two, dominating American industry, have been chronic long-term underperformers – former US President Donald Trump’s ban of Chinese companies caused 5G rollout delays as domestic service providers were busy in finding replacements and arranging funds for expensive substitutes.

The analysts estimate C-band auction would cost three companies between $10 billion to $35 billion each. The staggering outlays will ironically limit the ability of cash-strapped operators to deploy equipment quickly, which Nokia head of sales in North America Ed Cholerton says would put the US at disadvantage to China and others who do not seek to pad their treasury with license fees.

Beijing, in the meantime, continues to make a mark in 5G. China is not only leading the US in fifth-generation technology, it has outsmarted America with more 5G subscribers not just in total but per capita , more 5G smartphone sales at lower prices and more widespread 5G coverage with faster connections than the US. In a year or so, China had built more than 700,000 5G base stations – surpassing the original target of half a million with over twice the number of base stations outside the country – against the US expected to have merely 50,000 base stations at the close of 2020.

American companies have been building nationwide 5G networks but they are only incrementally faster than 4G or super-limited and face jurisdiction issues. As compared, China has installed thousands of large cell towers and tens of thousands small cell antennas in local communities and cities for 5G service delivery. While the US is in the process of clearing its 280MHz spectrum, China is projected to assign on the average of 660MHz spectrum by the end of 2022.

Hailing China’s rapid 5G deployments was advancing domestic economic development and industrial transformation as well as boosting development of the global industrial chain – Qualcomm China Chairman Frank Meng said mobile communication and semiconductor were two of the most globalized industries and his company wanted to strengthen cooperation with its Chinese partners.

Trump singled out China’s technology companies in an effort to stop Chinese 5G growth and global expansion irrespective of his acts could hobble the worldwide 5G global supply chain, slow down deployment in the US and possibly shatter the market. But in the end, tech experts are seeing the auction as “the penultimate nail in the coffin of US global technology leadership.”

Schmidt last year sought White House to figure out a right strategy for the China-US relationship, what he called a “rivalry partnership” to collaborate and compete with each other without inciting tension or inviting retaliation. While Biden is keen to cooperate with Beijing on climate change and North Korea, he needs to add 5G to his wish-list as well to fix Washington’s fifth-generation conundrum.

*This is one of my opinion pieces (unedited) that first appeared in "New Straits Times":