Industry Voices—Madden: 5G investment won’t happen with net neutrality

Train tracks - hany1974/iStock/Getty Images Plus/Getty Images
Railroads served to drive business in the United States. (hany1974/Getty Images)

In 1862, President Lincoln signed the Pacific Railroad Act, leading investors to throw money into the transcontinental railroad. The railroad fundamentally altered the economic structure of the USA, reducing the cost of a coast-to-coast trip from $1,000 to $150. What if Honest Abe had required any new railroad to run only one kind of train? Everyone would have to ride on slow freight trains, and the lucrative passenger business would have been doubtful. Would Leland Stanford and other investors have built the railroad?

The legal principle behind net neutrality is the government’s desire to prevent any monopolistic behavior that might happen in the future. That logic would have derailed investment in the Panama Canal, GE, Ma Bell, Microsoft and Intel. The U.S. economy could be as lifeless as Costa Rica’s.

In this country, we have had our trouble with monopolies such as Standard Oil and US Steel that dominated their markets. Anti-trust actions to break these giants up were probably the right thing to do. But there’s a key difference in the case of Comcast or AT&T becoming a future media/telecom powerhouse. In the past, the government took action on giant companies after the anti-competitive behavior became a problem, not before. When you break up a strong company like Standard Oil, you’re left with several strong pieces that remain competitive for a century. When you restrict new ventures, you get nothing but unemployment.

Today, markets are global. The U.S. government needs to consider the competitiveness of U.S. companies against foreign competitors, not just against American rivals. During the 1990s, Motorola and Lucent were solid competitors in the telecom market, together shipping 40% of 2G telecom equipment with major exports to Asia, Europe, and Latin America. Chinese rivals Huawei and ZTE were start-ups with weak engineering capability.

In 2014-2016, the Chinese government stepped up and pushed the deployment of 1.6 million 4G base stations. American carriers have deployed 250,000 4G base stations. Today, American mobile telecom suppliers are extinct, and Huawei and ZTE control more than 50% of the market for 4G equipment.

The Chinese Ministry of Industry and Information Technology is now considering a giant investment in more than a million 5G base stations. They have a mountain of dollars to spend, and China Inc. is putting their trade surplus to work in broadband infrastructure.

In the 5G cycle, China is aiming at American chip companies like Qualcomm, Analog Devices and Qorvo. A massive investment in 5G through Huawei and ZTE over a five-year period could be the incubator that Chinese chip companies need to catch up with American technology. If we don’t invest heavily in 5G, our chip companies could be in trouble on the global market.

During World War II, President Eisenhower saw the value of the autobahn, and he re-created that infrastructure with the Interstate highway network in the ‘50s and ‘60s. That was a great move for the U.S. auto industry, making Detroit more competitive worldwide. The big boys (Ford, GM, Chrysler) blossomed, but also thousands of smaller suppliers of tires, spark plugs, tail lights, and fuel benefited in a wide expansion of the auto industry. Of course, we also enjoyed the obvious benefits of improved transportation infrastructure. When are we going to realize that we’re not competitive with other countries when it comes to broadband infrastructure … and we’re likely to be left behind in the trade wars of the 21st century?

The shift from 4G to 5G will drop the cost of each gigabyte of data dramatically, from $1.25 to $0.16. Sound familiar? That’s very similar to the impact of the transcontinental railroad in 1869—which fundamentally transformed our economy.

We should do everything possible to encourage American companies to invest in fiber networks, 5G networks and artificial intelligence. We can still beat China, because their top-down investments are crude and ham-handed. Political mandarins in Beijing can never compete with venture capitalists on Sand Hill Road for tech savvy.

Net neutrality has been in place for the last two years, and many people think that the rules have had no impact. Not true. Broadband investment in the USA grew from $64B in 2009 to $78B in 2014 (annualized growth of almost 4%), but after the February 2015 ruling by the FCC, broadband investment dropped 0.9% in 2015 and 2.4% in 2016. It’s personal for me and for other entrepreneurs in Silicon Valley—in 2016 Google gave up on its plan to deploy fiber in San Jose because the sheer weight of local and federal regulatory hassles made the ROI unacceptable.

Broadband infrastructure is essential to the 2050 economy. Heck, it’s essential to the 2018 economy. I don’t expect our government to prop companies up, but at least Uncle Sam should stop blocking the superhighway.

Joe Madden is Founder and Chief Analyst at Mobile Experts Inc. He provides market intelligence on next-generation wireless technology to companies such as Nokia, Ericsson, Qualcomm, Intel, Broadcom, Qorvo and 200 others.