A little more than a week ago we ran a column on China’s offensive to take control of the future of the Internet and telecommunications, by monopolizing the world’s access to 5G networks.
Since that article was published, two more countries—Saudi Arabia and Turkey—have jumped on the China 5G Express, powered by Chinese IT giant Huawei. So far more than 58 countries have signed up to either use or test out Huawei hardware in their future 5G networks. As we warned in that column, “Which companies and which countries design and invest in this new infrastructure, will have a hefty say in not only how 5-G transmits information, but also how others are to access the system. If it’s China, the results could be bad not only for American and European companies used to dominating telecommunications, but for freedom itself.”
Is there any way to stop the China 5G juggernaut? In fact, there is. It will require quick and forthright action by our Department of Defense; forceful leadership from this president and White House; and a U.S. willing to go to the Barcelona Mobile World Congress at the end of February with high-tech guns blazing, to upset China’s planned victory party.
Why the Department of Defense? Because the Pentagon is where the bulk of available spectrum is. Some of that spectrum it reserves for its own use, but it can allow plenty for commercial and non-national security related use, for a future 5G network.
What the Pentagon needs to do is to issue a public request for proposals for building a secure, nationwide, wholesale, carrier-neutral 5G network to be built and operated by the private sector using the Pentagon’s available spectrum. Its availability will be made to wholesale buyers large and small: cell carriers, oil and gas companies, electrical utilities, other companies like FedEx and GM who would love to get additional bandwidth capacity for their services, without having to pay middlemen for the privilege.
The Request for Proposals (RFP) would also make sure the federal government keeps title to the spectrum it leases to private operators, who would then build out the necessary infrastructure and monetize the spectrum via the wholesale marketplace. This way the government would get a constant revenue stream from its spectrum; what happens today, by contrast, is that it auctions off portions of the spectrum to whomever is willing to pay top dollar, who then prices access to the spectrum on a “take it or leave it” basis. This has increasingly turned our own wireless industry and big carriers into rent-seeking monopolies—and weakened our competitive free-market advantage over China.
What the Department of Defense will be doing is more than just improving how the government allocates spectrum. It will signal that the United States now has a new business model for building 5G, one that will very likely force companies and countries and banks currently doing business with Huawei and China on 5G to take a hard second look—and force many to halt any big policy decisions in markets that have not yet made a commitment to China in their 5G plans.
Why? Because the new wholesale market model clears capacity at any price, thus dramatically lowering barriers to entry. This prospective drop in price accompanied by a big jump in accessibility thanks to affordability makes a dog’s breakfast of the Chinese model for 5G expansion, which is built around a long slow erosion in costs, with an equally slow growth in customers and usage. Financial institutions like J.P. Morgan and Morgan Stanley, and other institutions like Softbank and Canada’s biggest pension funds who are co-financing much of the Chinese 5G Express once the Chinese have “de-risked” the project through their “generous” vendor financing and equity inputs, are counting on that gradualist model for calculating their return on investment—and to pay off the debt they’re accruing as the cost of joining up with the Chinese.
Once financial markets sense that the U.S. model for 5G is going wholesale, they’ll have to reassess their gains through Chinese retail carriers. Given the U.S.’s new model for 5G, and the size and reach of the American market, the DoD’s RFP will be a global game-changer.
China has made a multi-billion bet that the 5G game won’t change. The RFP will show them that they guessed wrong, and the companies and countries who were about to jump in bed with Beijing based on the same assumption will start looking to Washington for the new rules of the road on 5G.
Will this completely derail China’s 5G Express? Probably not. But it will buy time, valuable time—perhaps six months or more—for the US to convince other Western vendors (Samsung, Ericsson, Nokia, and others) to work with the U.S. in devising a better way to allocate spectrum for 5G, and to restore leadership for the future of IT to where it belongs, in America.
Bold, creative action is needed. Fortunately, this is what this president and administration are prepared to do, to protect American interests and to foil China’s bid to dominate the high-tech landscape of the 21st century, 5G included.
Unfortunately, time is short: perhaps only a matter of weeks, not months. China is already planning to take its victory lap at the congress in Barcelona, following formal signings with Saudi Arabia and other countries. However, a U.S. delegation armed with the DoD RFP can be there to spoil the party, and signal that America is coming back strong and tall, for the future of information technology and freedom.