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CHAPTER III - China as a Threat and Driver of U.S. Spectrum Policy

China’s efforts to lead in 5G have fundamentally changed the ways in which countries approach wireless technology. “China totally changes the rules for leadership of the next generation,” said one participant who went on to say that with its “Made in China 2025” strategic plan, “China has put a marker in the ground” to lead the world in 5G and other technologies. This participant suggested that the implementation of this plan essentially is the “equivalent of Sputnik going up in 1958.”

It was recently reported that China is set to release another plan, “China Standards 2035”. Online publisher TechCrunch states that the plan sets global standards for the next-generation of technologies and was developed to “seize the opportunity” that COVID-19 creates. The Chinese government’s focus on the combination of 5G and Artificial Intelligence (AI) technologies means that the United States needs to figure out a way to become the leader in the area, similar to the way it did it in the space race. Given the current COVID pandemic, what can the United States learn with regards to technology and innovation? The answer to this question can help the U.S. stay ahead in setting standards for emerging technologies.

What does it mean to win in 5G? The focus on 5G is a matter of global competition, which is really a nation-state competition, stated Dennis Roberson, Professor at Illinois Institute of Technology and President & Chief Executive Officer at Roberson and Associates. During the 2G and 3G expansion, the United States lost its whole infrastructure business; other countries and regions developed their own digital standards and spectrum bands to spur technological innovation. Germany, Sweden, and Finland, among other countries, were the first in 2G and gained widespread adoption in their respective countries. The United States won in “4G because it had the intellectual property of Qualcomm… the operating systems of Android and iOS, and the best applications,” suggested Blair Levin. In addition, Verizon decided that an early and robust 4G roll-out would be a significant differentiator for the country. The stakes are different with respect to China. It is one thing to lose 3G to Western European vendors, said one participant. It is another thing for non-democratic counties to dominate the industry.

If one looks at the competitive space now, it is very different than 10 to 15 years ago, when Chinese vendors were not taken too seriously. These vendors are now much more strongly positioned in the 3rd Generation Partnership Project (3GPP), a standards organization which develops protocols for mobile telephony, and other standards bodies. They are also well positioned in the Intellectual Property domain with ownership of a huge treasure trove of patents that have been included in the standards (i.e. Standards Essential Patents). Plans to supersede China’s buildout of emerging technologies will continue to be a top priority for U.S. government agencies.

Infrastructure and Applications
Infrastructure and applications that work on the aforementioned backbone became a topic of concern for conferees. A participant posited that “the Western world must provide enough infrastructure and devices so that it can lead this next generation of applications, and not be dependent on the Chinese stack.” Paula Boyd, Director of Government and Regulatory Affairs at the Microsoft Corporation said that the “focus on 5G dominance is appropriate, but…when we focus on 5G, we should think not just about solving for the technology, but about what it can do” for communities. There needs to be an infrastructure that “will deliver the ability for Americans to get access to cloud services, and for those cloud services (e.g., healthcare, gaming, commerce) to grow,” said Boyd. She continued that PCAST may not have been thinking about economic growth in this way, but today the focus should be about driving economic growth in cloud services and applications—that is part of how to think about measuring success and the end goals to achieve. Jennifer Manner, Senior Vice President of Regulatory Affairs at EchoStar Corporation, noted that 5G is not just about terrestrial wireless, but that getting service to everyone will require other technologies including satellite, High Altitude Platform Service (HAPS) and unlicensed spectrum (e.g., Wi-Fi).

4G deployment is an example of infrastructure driving economic growth, particularly in the application space. According to Preston Marshall at Google, “If you think of cellular in two pieces, the infrastructure and the edge, American companies totally dominate the edge.” “The software applications throughout the world are American apps, largely because U.S. carriers deployed 4G,” noted Marshall. He went on to say that “everyone incrementally adopted the U.S.-based ecosystem.” In the end, the economic system that wins ultimately drives the world market and wins the wealth creation that comes with it. In other words, the United States must lead in 5G-dependent innovations, whatever they are.

The concept that wealth creation occurs at the edge rather than with network operators is a fundamental issue, and a “great breakthrough of the PCAST report,” stated Jonathan Adelstein, President & Chief Executive Officer of the Wireless Infrastructure Association. The externalities are enormous, and “the benefits go to somebody other than the company that actually made the investment,” said Adelstein. China is pushing on an area where the externalities are vast. If China can lead in 5G, it can create material benefits of growth in the Chinese economy, as well as potentially depriving the United States of domination at the edge in terms of applications. If China can dominate in both 5G and AI, it is also likely to be the place where the next generation of applications are developed because the platforms will be Chinese, rather than American.

Mark Gorenberg, Managing Director of Zetta Venture Partners, noted that “China has doubled down on winning the AI race, [which] is very dependent on data, and [that] all of these devices are gathering lots of lots of data.” Thus, the core view of China may be that “the more Chinese ubiquity in the world, the more likely China is to lead in AI” and its cascading technologies, stated Gorenberg. He added that the United States may be ahead in non-consumer applications of AI, such as “enterprise use of data for core applications like marketing and sales, and language translation.”

Techniques Used by China
China is positioning itself in multiple ways to be the driver of the next round of wealth creation. Dennis Roberson stated that Chinese branded phones dominate the global market for smartphones, although not the U.S. market. Both Huawei and ZTE are in the top 5 infrastructure providers globally (see Figure 2).

FIGURE 2: Figure 2. 2G/3G/LTE Mobile Infrastructure Market Share 2018

Source: Emma Charlton, “5 Things To Know about Chinese Tech Giant Huawei,” World Economic Forum, July 3, 2019, available at https://www.weforum.org/agenda/2019/07/5-things-to-know-about-chinese-tech-giant-huawei/.

China uses many techniques, including government backing of its national technology companies. The Chinese approach is to have companies compete within China on a start-up idea, and once there is a winner, the Chinese government then takes that company out to the rest of the world, stated Mark Gorenberg. For instance, China is selling mobile handsets in Africa and Latin America, noted Blair Levin, and the United States is not. To the extent that leadership includes having other parts of the world follow, China is far ahead in Africa and Latin America, and even Western Europe is not fully aligned with the United States. Additionally, Chinese companies have mastered the technique of appearing in force and on every key delegation or committee in international settings, such as the World Radio Conference (WRC), or 3GPP. This is a technique that Motorola formerly used to help achieve U.S. dominance in certain spheres, and Huawei is now using it to great effect. Dennis Roberson said that “China has really come to the fore,” it established 5G as a national objective and is “marching down the path to implement” it.

Because the United States is not politically organized in the same manner as China, there may be a disconnect between the goal to reach, the desired outcome, and the actual investment. For the last several years, the race to 5G and the need to beat China animated U.S. wireless policy, commented Phillip Berenbroick, Policy Director at Public Knowledge. And yet, there seems to be underinvesting in international processes, such as the WRC process, which would be an appropriate place for the United States to show leadership and to gain trust and play a leadership role for the rest of the world.

Another area of underinvestment may be in research capability. Roberson noted the loss of research capacity in the United States, compared to Europe and China. Europe has research projects that engage academics, organized by the European Union (EU) and funded through EU funds. With the loss of Lucent and its world-famous Bell Labs, and Motorola’s wireless operations, along with the demise of Motorola Labs to a European vendor, the United States no longer has ability to deploy industry-funded projects that meet national interests. Furthermore, although the United States achieved many successful outcomes at WRC- 19, competitive corporations inside the United States are simply not organized to influence the WRC and other international processes in the manner that China is. In fact, as WRC-19 pointed out, even securing a coherent U.S. position on various WRC matters is extremely difficult with various government agencies at odds with one another.

In addition to controlling its industry, China has a timeline driven by Made in China 2025, which caused one participant to inquire about the timeline in which the Chinese are making spectrum available for 5G, and whether the United States is operating with sufficient speed and urgency. If the United States is interested in condensing timelines, one suggested approach would be to expand sharing of the spectrum currently used by federal agencies. The Citizens Broadband Radio Service (CBRS) is one example of reallocating federal spectrum rights. The question remains if we can take that framework and push it down in the band, to expand the 3 GHz frequencies available for commercial use and/or apply it to other bands.

China is “winning because they see the overall investment in people, infrastructure and applications, and they see them as interconnected,” said Nicol Turner-Lee, Fellow at the Center for Technology Innovation at the Brookings Institution. China has an integrated plan for acquiring technology, training its people, building its companies and creating a platform for applications. Turner-Lee said that in speaking about the new PCAST, the focus should be to move away from the concept that spectrum policy is about making sure that mobile carriers have a good supply of spectrum and rather it is about creating the environment in which innovative technologies can thrive, and Americans receive the full array of services and applications that are possible.

A Matter of National Security and National Competitiveness
China presents a national security issue as well as an economic issue of national competitiveness. Security concerns are eminent with regard to their technology. Preston Marshall said that a discussion about security cannot simply focus on Chinese companies like Huawei, because there are other supply chain issues. Specifically, the parts that Huawei uses are by in large the same parts that Nokia and Ericsson use and these parts are predominantly produced in China. So, there are security concerns about backdoor exploits and the ability to cut off services when using any infrastructure equipment that has components made by Chinese companies.

Spectrum policy issues are vital to national defense and homeland security in other ways, too, noted Dale Hatfield, Adjunct Professor and Executive Fellow at the University of Colorado at Boulder. Spectrum policy “is not just about getting people connected, but making sure that the Department of Defense, for example, has the radars it needs to defend the United States,” and making sure the U.S. has the remote sensing needed to assess global warming, said Hatfield.

 
 
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