The "China Situation" and 5G are playing out like a fascinating business/political/industrial policy chess match. This would be the stuff of a Richard North Patterson novel or a Ryan Murphy Netflix series. But this is serious business, with far-reaching potential consequences and hundreds of billions of dollars at stake.
In thinking about how this might play out, I’m taking a classic B-school business case approach of constructing three possible outcomes: base case, optimistic case, and pessimistic case. The optimistic scenario is what’s best for the continued advancement of 5G, and therefore positive for key industry stakeholders and consumers. The pessimistic scenario would mean delays in 5G advancement and innovation, with broader negative implications for the industry’s supply chain, from networks to devices.
There are three intertwined issues here: overall U.S.-China trade policy; a 21st century "arms race" focused on tech leadership in areas such as AI and 5G; and concerns about privacy and data security, with Huawei as the moment’s cause célèbre. We also have to understand that there are many layers and complexities here. This is not the U.S. vs. U.S.S.R. 1970s/80s Cold War, with each superpower in their respective corner. China is a hugely important market for nearly every major U.S. tech supplier. And it’s an important center of manufacturing for all manner of device/network gear and components, and a linchpin of the global supply chain. There are 350,000 Chinese students currently attending U.S. universities. The concerns of the current U.S. administration are very much justified, but the bloviating and posturing ignore many of the nuances and interrelationships.
Base Case. My base case scenario is that this is a short-term crisis that gets solved, in some shape or form, during 2019. On trade, that means that the U.S. and China agree to a new framework and that we don’t get dragged into a damaging, retaliatory trade war. With regard to Huawei (and related firms/situations), we see a sort of middle ground. The company’s overtures in the U.K. recently were less an admission of wrongdoing than an acknowledgement that there is room for improvement, and that measures both actual and symbolic need to be taken to assuage the concerns of the West. Given the allegations and potential upcoming trials, Huawei’s prospects to sell gear in the United States in the foreseeable future are dim. But if Huawei and other Chinese firms are banished from North America and Western Europe markets, with no mechanism to get back in, they (and the Chinese government by proxy) might take down a lot of others with them.
So, my base case means finding some form of middle ground: developing a series of steps and safeguards that Chinese (and other firms) need to undertake to make us more comfortable with installing their equipment and selling their devices. And vice-versa, if needed. A road map, of some sort. This might take some time to fully define, and longer still to fully implement. But it would not significantly impact markets or delay the 5G timetable.
Worst Case. The negative scenario could have a profound impact on the economy and many companies in the tech-verse. If the current rhetoric and threats devolve into a full-scale trade war, the entire global supply chain would be affected. This would impact everything from the 5G timetable to the evolution, availability, and supply of smartphones and other popular consumer gear. And if Huawei and others are out-and-out banished from a significant swath of the global network equipment market, the short-term market share gains enjoyed by firms such as Ericsson, Samsung and Nokia would be countered by: losing at least some of the potential China market; impacting manufacturing and availability of components; and dampening innovation overall.
Best Case. The first component of a "best case" scenario is that the U.S. and China reach some sort of a trade agreement in the coming months. Despite all the posturing, there are teams of actual adults working on this, and I’m cautiously optimistic.
The second component of a positive outcome would be some framework for addressing issues of data security and privacy that would result in less draconian measures than are currently being contemplated. Clearly, there’s a race for supremacy between the U.S. and China in critical areas such as 5G and AI. But it does not necessarily have to be a zero- sum game. This could be an important opportunity to define the proper safeguards that would allow participation in each other’s markets, while protecting against untoward actions by firms and governments. Is it Pollyanna-ish to think that we could come up with some sort of "trust but verify" mechanism, which Reagan and Gorbachev accomplished in the previous Cold War?
Even with progress here, there will continue to be fundamental differences between our societies and governments. Just as we might not deploy small cells in the same number and time frame as China, zoning and aesthetics be damned, we also (hopefully) won’t go there with "Social Credit Score" and other Big Brother schemes that AI could further enable.
So perhaps a more positive, bigger-picture outcome would be that this is less of a "nuclear" arms race and more like Apollo-Soyuz, which accelerated innovation and created many positive, long-term benefits for business and society.
Mark Lowenstein, a leading industry analyst, consultant, and commentator, is managing director of Mobile Ecosystem. Click here to subscribe to his free Lens on Wireless monthly newsletter, or follow him on Twitter @marklowenstein.
Industry Voices are opinion columns written by outside contributors—often industry experts or analysts—who are invited to the conversation by FierceWireless staff. They do not represent the opinions of the editorial board.