Nationalized 5G network ‘costly and counterproductive,’ says FCC chairman

The chairman of the FCC issued a statement today against the notion of a 5G network built and operated by the government. “Any federal effort to construct a nationalized 5G network would be a costly and counterproductive distraction from the policies we need to help the United States win the 5G future,” FCC Chairman Ajit Pai said.

Pai’s statement is likely a reaction to an article in Axios detailing a proposal by a senior National Security Council official to have the federal government build and operate a nationwide 5G network within the next three years. The 30-page proposal, published in Axios, argues that the United States is losing in the 5G arena to China, and that “networks are the dominant competition space.” The proposal argues that the government should build the network in order to ensure “security” and “prosperity” for Americans.

The document counts the effort as “the Eisenhower National Highway System for the Information Age.” It proposes the network be built by the government and leased to wireless providers like AT&T and Verizon.

“I oppose any proposal for the federal government to build and operate a nationwide 5G network,” Pai said in his statement. “The main lesson to draw from the wireless sector’s development over the past three decades—including American leadership in 4G—is that the market, not government, is best positioned to drive innovation and investment. What government can and should do is to push spectrum into the commercial marketplace and set rules that encourage the private sector to develop and deploy next-generation infrastructure.”

And, according to Recode, the Trump administration is distancing itself from the proposal, arguing that it is just a suggestion by a staff member and not reflective of an imminent announcement. 

“Right now we’re in the very earliest stages of the conversation," White House press secretary Sarah Huckabee Sanders said when questioned about the memo, according to The Hill. "There are absolutely no decisions made on what that would look like, what role anyone would play in it. Simply the need for a secure network."

The NSC’s proposal to President Trump would of course represent a dramatic change to the U.S. telecommunications market. After all, all of the nation’s major wireless network operators are already making moves to build out their own respective 5G networks. Indeed, Verizon has said it will deploy fixed 5G offerings in three to five cities this year, while AT&T has promised to offer mobile 5G services in up to a dozen markets by the end of 2018. T-Mobile, for its part, has said its forthcoming 5G network will be nationwide by 2020.

Moreover, as Axios points out, Chinese network equipment vendor Huawei has already been effectively banned from the U.S. telecommunications market on security concerns; the company has argued against the notion that it would aid Chinese spying.

But China players too have been working to build out a 5G network in that country. For example, a China Telecom Group executive said capex of $280 billion between 2020 and 2030 is “acceptable,” according to a November Jefferies note, and he estimated the number of base stations for 5G will be two to three times that of 4G.

Trump is scheduled to give his State of the Union speech tomorrow.

It's also worth noting that Pai wasn't the only person to speak out against the proposal to nationalize a 5G network:

“There is nothing that would slam the breaks more quickly on our hard-won momentum to be the leader in the global race for 5G network deployment more quickly than the federal government stepping-in to build those networks," wrote USTelecom President and CEO Jonathan Spalter in a statement. "The best way to future-proof the nation’s communications networks is to continue to encourage and incentivize America’s broadband companies -- working hand-in-glove with the rest of the internet ecosystem, and in partnership with government, to continue do what we do best:  invest, innovate, and lead.”

"“The reason it is so important for America to lead the way versus China is because, unlike the communist government in Beijing, Americans cherish economic and personal freedoms. We’re not beating the Chinese if we sacrifice what makes our government so different from theirs," FreedomWorks President Adam Brandon said in a statement. 

"It does not appear likely to us that this recommendation could be accepted or evolve as government program that would be implemented as described," wrote BTIG analyst Walter Piecyk.

"We still have to question how a government sponsored 5G network would impact the fixed broadband service sector, which is the cableco’s key long-term value driver. Of course, there are still a lot of uncertainties on how far this will proceed. We suspect it will face significant pushback from the industry including the FCC," wrote the analysts at Wall Street Research firm Scotiabank.

"The key message for investors is that this development, which is potentially the most significant government policy affecting stock market values in our sector since the 1996 Telecommunications Reform Act, is not self-executing. That is, while the announcement puts a very significant cloud over the terminal value, and therefore the stock value, of all ISPs, the effort, much like the 1996 Act, will play out over a long period of time and the market will make a number of adjustments as it recalibrates the probabilities of the effort succeeding," wrote the Wall Street analysts at New Street Research in a note to investors. "While this plan has a number of political and execution risks, and it is months away from obtaining Presidential approval, the existence of the plan means that all investments in incumbent ISPs are a bet on whether, how and to what extent, the plan succeeds. From an investment perspective, the initiative carries the risk that it would significantly commoditize the delivery of bits, providing an advantage to those with better brands and marketing abilities, while taking certain advantages away from those who today enjoy a market edge due to their superior, existing networks. It also means that the current plans of the incumbent carriers to invest in next generation networks have to be reconsidered to consider the risk of government activity in space."

Article updated Jan. 29 with additional commentary and reports.