Editor’s Corner—China will almost certainly win the race to 5G. Here’s why

Mike Dano

Another new report released today comes to the same conclusion that a number of other analyst firms have previously stated: China is going to beat the United States in the race to 5G.

“China’s five-year economic plan specifies $400 billion in 5G-related investment. Consequently, China and other countries may be creating a 5G tsunami, making it near impossible to catch up,” according to Deloitte’s new “5G: The chance to lead for a decade” report.

That statement comes days after the GSMA Intelligence research firm stated that “China is expected to become the world’s largest 5G market by 2025, accounting for 430 million 5G connections or one-third of the global total.”

And Mobile Experts pointed last week to an imminent “China surge.” The firm’s principal analyst, Joe Madden, said that "for most of the world, 5G deployment will be spread over many years and will solidify slowly over time. China is the exception.”

This is all-important because, for better or worse, the Trump administration has positioned 5G as an issue of national security. The United States’ role in 5G was a primary reason Trump moved to block Broadcom’s hostile takeover of Qualcomm: “A shift to Chinese dominance in 5G would have substantial negative national security consequences for the United States,” wrote the Committee on Foreign Investment in the U.S., headed by Trump appointee Steven Mnuchin, in a detailed letter on the proposed transaction.

But what exactly is China doing in 5G? At least right now, things in the East are relatively quiet.

Specifically, China has not issued 5G spectrum licenses. The country’s three main, government-controlled operators—China Mobile, China Unicom and China Telecom—haven’t yet announced their infrastructure vendors. And the country’s wireless executives haven’t yet engaged in the kind of 5G one-upmanship that U.S. wireless executives are already deep into. (Neville Ray, I’m looking at you.)

But that’s likely to change, and soon.

China’s 5G launches

“The Shanghai MWC last week shows that China is firmly moving ahead with its plan to commercially launch 5G in 2020,” wrote Wall Street analyst firm Jefferies in a note to investors issued last month following the close of the Mobile World Congress trade show in Shanghai. “Both CT and Unicom indicated their plans would be to build a 5G Standalone network. CM took a leadership role by launching the ‘5G SA Takeoff Initiative’ with major equipment makers globally, and also publishing the ‘5G Device Guideline’ with detailed spec requirements and procurement timetable.”

The Jefferies analysts also speculated that the Chinese government is setting the stage for a major merger or joint venture between China Telecom and China Unicom, a move that would likely make the country’s move toward 5G speedier and more efficient. In 2014, the government created China Tower (currently headed toward a massive IPO in Hong Kong) by combining the tower operations of the country’s three big carriers.

“They have too many state-owned companies,” Mobile Experts’ Madden explained, adding that the Chinese government has been working to reduce the number of state-owned companies in other sectors to two. “It’s just a mess, so what they want to do is reduce the number [of wireless providers]. On the surface it looks like they compete with each other, but they really don’t.”

But, Madden noted, time is running out for China to get moving if the country’s wireless executives are going to oversee both a major merger and a rollout of 5G in the next two years.

Interestingly, Trump may have added an extra layer of motivation to China’s rush toward 5G via his administration’s actions against ZTE. “That has really put the fear of God into those in China,” Madden said, pointing to the U.S. government’s short-lived but highly effective ban against U.S. business with China’s ZTE. Chinese officials now “realize more and more how dependent they are in the U.S. economy and suppliers,” Madden said.

As a result, Madden said that those in China may embark on a more unified and controlled move toward 5G, an effort that will likely rely heavily on China’s domestic suppliers like ZTE and Huawei.

Indeed, possibly as a result, suppliers outside of China, like Ericsson and Nokia, continue to view the country’s 5G opportunity with what comes across as a fair amount of trepidation, to say the least. “While there is certainly opportunity in China, we are approaching it with prudence,” Nokia CEO Rajeev Suri said during his company’s recent quarterly conference call with investors, according to a Seeking Alpha transcript of his remarks. “We value our customer relationships there and remain impressed by the speed and scale of their shift to new technologies. At the same time, we see risk that sales in the country could be dilutive to margins. Should that be the case, you can expect to see us continue to play to win in China, but with a focused, very deliberate way.”

Dwarfing the U.S.

That trepidation is particularly noteworthy considering the sheer size of China’s 5G opportunity. As Deloitte’s report notes, China Tower counts 1.9 million wireless sites compared with 200,000 in the United States. And last year, China Tower added 460 sites per day, “implying U.S. tower companies and carriers added fewer sites in the last three years than China Tower added in three months.”

Determined Deloitte: “We conclude that the United States underspent China in wireless infrastructure by $8 billion to $10 billion per year since 2015.”

To be clear, the Deloitte report appears to fit well into the U.S. wireless industry’s political strategy. The report states that “reducing the cost and deployment cycle times for small cells will help remove a major obstacle to network densification and allow carriers to add desperately needed low-cost capacity to our nation’s wireless networks”—a statement that lines up almost identically with FCC filings on the small cell topic by the likes of CTIA, AT&T and Verizon.

Nonetheless, Deloitte's conclusions about China’s move to 5G—particularly when compared with similar findings from Madden, Jefferies, GSMA Intelligence and others—shouldn’t be ignored. After all, both Huawei and ZTE remain major suppliers on the global stage. (Huawei is the world’s largest mobile network equipment supplier even without much business in the United States, and just this quarter it surpassed Apple as the world’s second-largest smartphone maker.) And China Mobile is far and away the world’s single largest mobile network operator in terms of customers, counting just over 900 million subscribers. That’s almost triple the number of people who live in the United States.

Thus, it’s clear that any move by China toward 5G will be huge, regardless of the timeline. And if early indications are anything to go by, China’s early moves to 5G will likely start soon, and they will likely be significant. — Mike | @mikeddano