The Prime Minister is on the cusp of a momentous decision. Should this government allow Britain’s next-generation “5G” networks to be built with equipment from Huawei?
The stakes could not be any higher. Our wireless networks are vital organs of the modern economy, and will only become more crucial as we move to 5G. And Huawei is a company supported by, and to at least some degree under the control of, the Chinese Communist Party.
This is the same Communist Party that has all but banned depictions of Winnie-the-Pooh because some people have made invidious comparisons between the Bear of Very Little Brain and China’s supreme leader.
And that’s a comic and admittedly somewhat trivial example of Beijing’s systematic suppression of political dissent and freedom of expression. The Chinese state spends millions every year to keep the Chinese internet safe for the Communist Party. Given the importance it places on controlling political discourse at home, it would be foolish indeed to bet the future of our communications networks on the assumption that, given the means, China would never be tempted to deploy those capabilities to spy on or meddle with communications abroad.
Simply put, the Chinese Communists see the internet as a mechanism of control, not a tool that supports the free flow of information. And in any case, the free flow of information is viewed by Beijing as a threat, unless the information in question has been scrubbed and vetted by its censors in advance.
Boris Johnson appears to understand all this, as well as the sensitivity of the issue to allies such as Washington. “Let’s be clear,” he said. “I don’t, as the UK Prime Minister, want to put in any infrastructure that is going to prejudice our national security or our ability to co-operate with Five Eyes intelligence.”
But in the same remarks on the subject, he offered what could be seen as a kind of counsel of despair. Speaking of Huawei, the Prime Minister said, “If people oppose one brand or another, then they have to tell us what’s the alternative.” The implication is that he’s been presented with no (acceptable) alternative to letting Chinese-backed firms construct some of the most important communications infrastructure in the country.
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The idea that there’s no alternative, however, rests on the silent assumption that we have to build 5G networks more or less the way we built 4G, and 3G and so on—with retail carriers controlling competing and overlapping networks, shackled to expensive long-term spectrum leases for which they’ve paid up front. The cost of all of this often can’t be effectively amortised over the useful life of a wireless network, so the carriers turn to vendors (such as Huawei) for government-subsidised low-cost vendor financing.
In the case of the Chinese equipment makers, at least, this vendor financing can often be secured for terms of several decades—long after the networks they financed will be obsolete. This loss-leading strategy is hard for any competitor to confront, which is why the technologically excellent European equipment makers Nokia and Ericsson are steadily losing market share to the Chinese.
We cut this Gordian knot by moving past the old idea that competition has to happen at the infrastructure level via the same carriers that it does at the consumer level. Just as a wholesale electricity market has led to huge economic efficiencies, one or more wholesale wireless providers would open up competition, lower barriers to entry and push wireless service farther out into currently underserved areas.
Key to closing the gap that Beijing, via Huawei (and ZTE), is exploiting is to change the defunct wireless industry business model that has been based on one-off spectrum auctions. These deliver one-off windfalls for the government of the day but saddle mobile carriers with so much debt that it has made them indolent. They act as though the business model for 5G is more or less the same as it has been for previous generations of wireless (e.g. 3G and 4G). It isn’t. The status of all the major carriers as debt-burdened rent seekers has driven them into the arms of Huawei & Beijing’s “Digital Silk Road” agenda.
The big shift for 5G will be as much about business models as it is about technology. Permitting the rollout of wholesale 5G networks that clear all their capacity, 24/7, at any price right down to almost zero and pay for the spectrum they use on an ongoing royalty basis, rather than a onetime up-front payment, breaks the need for and dependence on the subsidies Huawei and ZTE use to get their kit in the door.
The government could instead solicit urgent proposals, for a privately funded, privately operated, U.K. wide secure, 5G wholesale, carrier-neutral network, and allocate a significant block of Ministry Of Defence (or other) spectrum for use by that network. You would have a number of serious bidders that would submit strong proposals, without Beijing backed suppliers in the mix.
Such an initiative will cause consternation inside the mobile carrier oligopoly and will end up catalysing the financial and organisational restructuring that will have to happen anyway. Better do it now and keep Beijing on the side-lines, than see it happen later when removing the risk may be near impossible.
Introducing a serious wholesale 5G model would also, crucially, improve the return on investment in wireless infrastructure, which would free the network builders from the shackles of below-cost Chinese vendor financing. It’s not that subsidised credit wouldn’t still be nice to have. But it wouldn’t be necessary. The Prime Minister would have his practical alternative to Chinese wireless hegemony.
Declan Ganley is CEO of Rivada Networks, a US-based communications technology business with offices in the US and Ireland.