The private sector, of course, would be happy to remain neutral, acting simultaneously in the two largest national markets of the planet. But by their actions, Washington and Beijing have deprived businesses of such an opportunity, demanding that they take sides, writes Valdai Club expert Stanislav Tkachenko.
Depending on the data used, the size of the digital economy (ICT — information and communication technology) today ranges from 4.5 to 15.5% of world GDP. Nearly 40% of the value added in the ICT sector comes from the United States and China. It is no coincidence that sceptics have predicted a kind of “technological cold war” between the two countries for many years. And in 2020, such a war has unfolded on a full scale; it is now in full swing. At the same time, 5G mobile networks have become the main arena of the new global confrontation.
In this area, the business interests of the world’s largest transnational companies and the national security considerations of the two superpowers are closely intertwined. Other states are gradually being drawn into the conflict, faced with the need to choose between the United States and China. Private business has also failed to distance itself from the growing confrontation. The private sector, of course, would be happy to remain neutral, acting simultaneously in the two largest national markets of the planet. But by their actions, Washington and Beijing have deprived businesses of such an opportunity, demanding that they take sides, as in the Gospel of Matthew: “Whoever is not with Me is against Me, and whoever does not gather with Me scatters” (Matthew 12:30).
In 2020, the total volume of the global 5G technology market will reach $2.7 trillion. The economic impact of the global mobile ecosystem this year is estimated at more than $1 trillion. Additional indirect benefits and productivity gains enable the mobile industry to contribute nearly $4 trillion to the global economy (equivalent to 5% of global GDP). Mobile operators generate over 60% of the economic benefits of this entire industry. The remaining 40% is produced by other market players: infrastructure manufacturers and integrators, retailers and distributors of mobile products and services, manufacturers of mobile devices, as well as providers of mobile content, applications and services. By 2025, 5G technologies will be used by 5 billion mobile Internet users and 6 billion mobile subscribers. Properly this is the segment of the global ICT industry that is most interested in the stable and conflict-free development of 5G technologies.
Is 5G a Step Forward in ICT Development?
Despite the fact that fifth-generation communication is superior in quality and many quantitative parameters of assessment to everything that already exists on the market, ICT industry leaders have many doubts that investments in this area are attractive, both in the short- and long-term. The main constraint is the lack of a mass market for the next generation of ultrafast communications. Existing Internet of Things (IoT) technologies and artificial intelligence (AI) are relatively successful when relying on 4G LTE communications. The gain in the download speed of video content when using the 5G standard is more significant, but not all market participants are sure that it is worth investing hundreds of billions of dollars in the construction of infrastructure for a new generation of communications in the coming years if it’s merely for the convenience of users of online cinemas.
Opponents of the aforementioned sceptics argue that it is difficult to predict the synergistic effect of the introduction of 5G communication, but it is still possible. So, without third and fourth generation communications (3G, 4G LTE), the emergence of the current leaders of the global hi-tech business — Facebook, Netflix, Instagram, Uber, Airbnb, Netflix and Snapchat — would have been impossible. The biggest breakthroughs in connection with the introduction of 5G networks are expected in the “smart management” of the urban economy, primarily in such areas as transportation, lighting, and emergency response. It is also expected to yield fully automated production facilities, remote surgery, and the large-scale use of self-driving cars and drones.
Transnational companies as world leaders
The list of transnational corporations shaping the fifth generation technology market and occupying a prominent position is relatively small. These companies, according to experts, include the South Korean company Samsung, MediaTek Inc. and Unisoc in China, and Intel and Qualcomm in the US. Yet three companies are recognised as leaders in the development and commercialisation of 5G technologies: Huawei, Nokia and Ericsson. They hold tens of thousands of 5G patents. They also account for about 80 percent of all international fifth generation communications equipment sales.
The largest of these three today is the Chinese company Huawei. This company owns 28 percent of the global mobile communications equipment market, and implements the largest number of contracts for the construction of fifth generation networks in different parts of the world. In 2019, Huawei’s 5G business unit (Huawei Carrier) revenues exceeded $ 44 billion, while R&D spending reached $ 19 billion in the same year.
European states in this century have taken measures to reduce their technological gap with competitors in the United States and East Asia, which became noticeable after the end of World War II and gradually deepened until the beginning of the new century.
Ericsson is the continent’s largest provider of the technologies required for fifth generation communications. Ericsson’s 5G equipment is currently used in the construction of about 100 networks in 29 countries around the world. In the USA, Ericsson’s partners are the largest companies in the mobile communications sector — Verizon, T-Mobile, U.S. Cellular, and AT&T. In Europe, Ericsson’s partners include Vodafone (Britain), Deutsche Telekom (Germany), Telefonica’s O2 (Spain), and Telia (Sweden), which provide communication services throughout the continent, including in a number of CIS countries. The share of Ericsson equipment in the world market is now about 30 percent, i.e. almost equal to Huawei’s share. Given that large-scale international sanctions have been imposed on the Chinese company, Ericsson, according to experts, will become the main beneficiary if projects to squeeze Huawei out of the markets of the most economically developed countries on the planet are successful.
Another major player in the global market for fifth generation communication technologies is the Finnish company Nokia. In 2005, the French company Alcatel acquired Lucent, a leader in wireless technology, which inherited Bell Laboratories, its main research and development division, during the reorganisation of the American giant AT&T. Bell employees have received 9 Nobel Prizes for their research, including the 2018 Physics Prize for Arthur Ashkin for his research in quantum electronics. In January 2016, the Finnish company Nokia became the owner of Alcatel-Lucent. The new company, known as Nokia Bell Labs and headquartered in Berkeley Heights, New Jersey, USA, is now a recognised leader in R&D and 5G communications equipment. The main markets for this company are North America and Europe, where in 2018-2019 Nokia sold products worth about $7 billion per year.
Before the Donald Trump administration declared a technological war against China, in which Huawei became the first target of aggression, Nokia and Ericsson were not always successful in competing with Huawei products due to the higher prices and the often comparatively poor quality of their stations and equipment they produce. Therefore, today Huawei technologies are already used in dozens of countries. Even more countries in Europe, Asia, Africa and Latin America have launched the large-scale construction of fifth-generation networks using Huawei equipment or are expected to do so by the end of 2020, unless, of course, the pandemic postpones these plans to a later date.
The problem for companies like Nokia and Ericsson is that they are completely dependent on the market, and often on the impulsive decisions of board members and investors. The main thing is that, unlike Huawei, they do not have the kind of powerful government support behind them that Huawei and other technology companies in China get from the authorities.
China’s rivalry with the United States and its allies
Since 2018, the United States has been trying to organise a worldwide campaign to boycott Huawei’s products. Washington’s successes in this area alternate with failures in finding allies. Australia and Japan are among the clear and open supporters of the boycott of the Chinese company and its products, along with the United States. In Europe, the governments of Britain, the Czech Republic, Poland, Sweden, Estonia, Romania, Denmark, Latvia and Greece have decided to continue using their existing Huawei equipment, but abandon plans to purchase new Huawei equipment, instead favouring the “right” vendors, primarily Nokia, Ericsson, and Samsung ... In recent months, such large telecommunications companies as Orange (France), Jio (India), Telstra (Australia), SK and KT (South Korea), NTT (Japan) and O2 (Britain) have refused to implement the use of Huawei equipment in the construction of fifth-generation networks. The blow from European governments and companies from these countries has been particularly painful for Huawei, as Europe today is the largest market for the company’s products outside of China.
In May 2020, the Donald Trump administration put into effect the new rules proclaimed a year earlier, according to which Huawei is prohibited from conducting operations on the territory of the USA. Also, under the complete ban were sales by American manufacturers to Huawei and all its suppliers of equipment and computer programmes. These actions have already put Huawei in a difficult position. They could lead to serious disruptions in production cycles across the entire product line of this company, including not only the fifth generation communication stations, but also the production of smartphones, tablets, and computers.
More than 30 countries are currently participating in The Clean Network, initiated by the US Department of State, aimed at curbing the spread of products made by Chinese high-tech companies in the global market. The sanctions target not only the base stations needed to build 5G networks, made in China, but also computer programmes, applications, and even intercontinental submarine cables that provide Internet traffic.
But the protective measures currently being implemented by Huawei are also quite successful. Despite the active efforts of the US administration to exert pressure on African states, Huawei has not lost a single client state in Africa to date, implementing projects for the construction of mobile networks of both the fifth and earlier generations. Africa today looks like a true fiefdom of this campaign, as Huawei not only has top quality and competitively-priced equipment that is of interest to customers, but also the backing of the Chinese authorities. They actively assist African countries in obtaining loans or financial assistance from China for the construction of these networks.
Despite the negative impact of the COVID-19 pandemic on the economies of all countries, the development of 5G communication systems continues at an accelerated pace. It is expected that from the current level of penetration (5 percent of users), these networks will already be available to 55-65 percent of users in all regions of the planet in 2025, including both individuals and small, medium and large businesses. The desire to “bite off the biggest piece” of this ever-increasing “pie” is the main motive for the aggressive actions of all market players to conquer dominant positions.
Rostelecom and Rostec are negotiating with the Russian government to finance the development and production of 5G stations in Russia in 2023. The largest Russian operators (Megafon, MTS), deprived of the opportunity to use domestic equipment, are turning to the import of 5G technologies. Beeline, together with Nokia and Qualcomm, is testing a 5G pilot zone in St. Petersburg in the SevKabel Port urban space. The same company has tested the capabilities of fifth-generation communication networks at the Luzhniki stadium, using Huawei technologies. MegaFon was the first among Russian operators to announce the launch of international 5G roaming. In June 2019, MTS signed an agreement with Huawei on the use of this company’s equipment in the construction of 5G networks. The Russian authorities hope that national hi-tech companies will be able to become noticeable players in the market of fifth generation communication technologies. But so far, only the first steps are being taken in this direction.