Free Markets, National Security, Global Competition, and 5G
The Other 5G Controversy
(Note: companies that could be impacted by the content of this article are listed at the base of the story [desktop version]. This article uses third-party references to provide a bullish, bearish, and balanced point of view; sources are listed after the Balanced section.)
In an article dated February 4, 2020, The Wall Street Journal reported that the White House is working with U.S. technology companies to create advanced software for next generation 5G telecommunication networks in order to counteract the dominance of China’s Huawei Technologies, which holds a leading share of the market for 5G wireless equipment. Huawei is a Chinese global provider of information and communications technology infrastructure and smart devices. It has faced skepticism in various markets, notably the United States and in Europe, that reliance on its infrastructure equipment could pose cybersecurity threats. With the importance of 5G wireless technology for digital cellular network development, many believe that the United States and its allies should discourage the use of components manufactured by Huawei or other companies subject to influence by adversarial foreign powers. On February 6, 2020, U.S. Attorney General Bill Barr went so far as to suggest that the United States government and its allies should purchase controlling stakes in Ericsson and Nokia to help build stronger international competitors to Huawei. While Huawei has been the center of controversy, the central issue is one of ensuring global supply chains and technology are reliable and uncompromised. Should the U.S. and its allies disqualify Huawei in the 5G race?
Huawei could represent a threat to national security. Because of their faster speed and broader application, 5G networks could play a role in managing sensitive data and critical infrastructure. It is only fair to ask which companies should be supplying the technology. Some believe links between Huawei and the Chinese government represent a threat and could allow the Chinese government to advance its objectives at the expense of democracy, particularly in times of conflict.
Huawei represents a competitive threat. Huawei has been aggressively winning market share globally as a supplier of 5G technology. The company’s dominant position in the large Chinese market already positions them with a significant share of the global market. There is a risk that as they gain greater market share globally, Huawei will enjoy greater economies of scale and supply chains relied upon by non-Huawei customers could be disadvantaged.
Privacy concerns. Some are concerned that the Chinese government enjoys access to all data held by Chinese companies and that Huawei represents a threat to the privacy and security of communications and data. According to a February 2019 article in Forbes, Robert Strayer, Deputy Assistant Secretary for Cyber and International Communications and information Policy at the U.S. State Department, is worried that a country that uses data in the way China has, including to surveil its citizens, should give one pause about the way that country might use data in the future.
Taking a stand together. While the United States and its allies don’t always agree, taking the lead in 5G development could represent an opportunity for the United States and its allies to collaborate and support technology innovation that benefits democratic nations and their stakeholders.
Government has no business picking winners and losers. Some believe that governments have a poor track record of private sector intervention and have no business picking winners and losers. They believe that private enterprise tends to generate more effective solutions in a free market economy. The Houston Chronicle reported that Trump economic advisor Larry Kudlow pushed back on the Attorney General’s proposal by stating that “the U.S. Government is not in the business of buying companies, whether they’re domestic or foreign.”
Government involvement could stifle innovation. Rather than being propped up with government intervention, companies tend to be more innovative in a competitive environment. During an interview on CNBC’s Squawk Box which aired on February 7, 2020, Randall Stephenson, AT&T CEO stated that he did not think it is a good idea for governments to be taking positions in private companies to develop private solutions and thought that governments had not demonstrated a good track record in this regard. Mr. Stephenson thought it was better to use innovation such as software solutions or software defined architecture to win rather than rely on government mandates to win. According to an article in the Houston Chronicle, Vice President Mike Pence believes that the “best way forward” on 5G relies on private enterprise and not government takeovers.
Threat of retaliation. The Chinese Embassy in France recently released a statement that it had noted recent report in several French media that authorities were planning to take restrictive measures against Huawei in the deployment of 5G in France. The Embassy issued a veiled threat by stating that it does not want to see the development of European companies in the Chinese market affected because of the discrimination and protectionism of France and other European countries towards Huawei.
While the issues of national security and ensuring the global competitiveness of companies based in the United States and in allied countries that supply critical products and services are valid, how to best achieve both objectives is subject to debate. While the idea of the U.S. government purchasing ownership stakes in companies that compete with Huawei represent one extreme, there are many paths to reduce customer reliance on one suppler avenues. According to the Wall Street Journal, one proposal is to have U.S. telecommunications and technology companies establish common engineering standards that would allow 5G software developers to run code on equipment from almost any hardware manufacturer thus separating software from hardware versus integrated equipment. Thus, the best path forward for 5G will likely entail greater public and private collaboration rather than direct government intervention with the government doing its part to ensure free and fair trade, including protecting intellectual property rights.
U.S. Pushing Effort to Develop 5G Alternative to Huawei, Wall Street Journal, Bob Davis and Drew FitzGerald, February 4, 2020.
Barr’s Call for U.S. Control of 5G Providers Quickly Rebuked, Associated Press, Tali Arbel, February 7, 2020.
Why is 5G Important? Verizon.com, Personal Tech, November 5, 2019.
Barr Urges US Stakes in Nokia and Ericsson to Stall Huawei, Financial Times, Kadhim Shubber and Kiran Stacey, February 6, 2020.
Huawei Security Scandal: Everything You Need to Know, Forbes, Kate O’Flaherty, February 26, 2019.
We’ll Never Make Huawei ‘Safe’. It Must be Stripped from UK Networks as Quickly as Possible, The Telegraph, Iain Duncan Smith, February 9, 2020.
Statement by the Spokesperson of the Chinese Embassy in France on the question of Huawei and 5G, Chinese Embassy in France, February 9, 2020.
China Just Issued Stark New Threats Over Huawei: This Time Nokia and Ericsson Are in its Sights, Forbes, Zak Doffman, February 9, 2020.
AT&T’s Stephenson Stands by Promise to Remain CEO Through 2020 But Refuses to Look Beyond That, CNBC Interview, Squawk Box, Matthew J. Belvedere, Joe Kernan and Beck Quick, February 7, 2020.