US National 5G Plan Could Come at High Cost - Analysts

The Trump administration is reportedly weighing an unprecedented proposal to get the US federal government to build and operate a nationwide 5G network to protect the nation against possible espionage from China.

According to the memo presented to senior officials in the Trump administration, it argues that the United States needs to building a centralized nationwide 5G network within three years, because "China has achieved a dominant position in the manufacture and operation of network infrastructure," stressing that China has become the dominant malicious actor in the information domain.

The United States has long accused China of being the culprit of state-sponsored hacking activities targeting US companies. The FBI has added a number of Chinese military hackers to their wanted list over cyber espionage charges.

Chinese companies, including Huawei, which allegedly has close ties to the Chinese military, have faced heavy scrutiny from US authorities. A deal between Huawei and US wireless carrier AT&T fell apart in the last minute under political pressure, US press reported earlier this month.

CHEAP CHINESE EQUIPMENT

The proposed nationwide 5G network plan in the United States could bring much higher cost, as telecommunications equipment from Chinese companies, including Huawei and ZTE, built its dominance the global market thanks to lower prices, experts told Sputnik.

"The price for purchase and operational maintenance of Chinese telecommunications equipment is much lower, compared to competitors. The primary competitive edge of Chinese technology exports is still cheap prices. If the United States wants to pay a high price, out of national security concerns, that’s also understandable," Ai Bo, a professor who specializes in 5G Spectrum research at the Beijing Jiaotong University, told Sputnik.

According to industry analysts, Chinese network equipment vendors, such as Huawei and ZTE, have established a dominant position in the global market in recent years.

"Huawei has a dominant market share in the global telecom equipment market. If you just focus on telecom network equipment, Huawei’s market share globally is close to 40 percent. ZTE is at 4-5 percent. Nokia and Ericsson, each of them is about 11 percent. That’s for 2016," Edison Lee, a Hong Kong-based equity research analyst focusing on China telecom services at global investment bank Jefferies, told Sputnik.

The analyst explained that the competitiveness of Chinese vendors in the global telecom equipment market is exactly what worries the US authorities.

"I think one of the worries of the US government may be that when they look at the telecom equipment market, there are only four major players left. Today, the four guys are Huawei, Nokia, Ericsson, and ZTE. I think when the [wireless] operators start to evaluate the vendors, some of them may eventually find that Huawei has a very good expertise and technology at very reasonable prices. And maybe ZTE has acceptable products at even cheaper prices. If you leave it to the market, I think the US government is afraid that eventually somebody is going to choose Huawei or ZTE on a commercial basis," Lee said.

LEGAL HURDLES

In addition to higher cost, the Hong Kong-based analyst argued that the proposed plan of a nationwide 5G network could also face other legal hurdles and lawsuits in the United States.

"If the US government has concerns that they don’t know what the Chinese companies have done with the equipment, then nobody can argue with them. If the single biggest concern is security, then, of course, they would like to do that [build a nationwide 5G network]. But the cost associated with it is that you don’t allow consumers to have choices, you don’t allow free market competition. It could attract lawsuits. All the wireless operators in the United States that spent billions of dollars buying spectrums in the past were told they could do whatever they want with the spectrums. If they’re told now that they cannot build 5G networks with those spectrums, why would have they paid billions of dollars? They could sue the US government," Lee said.

The expert noted that even the chairman of the Federal Communications Commission opposes the idea of building a nationwide 5G network in the United States.

"I oppose any proposal for the federal government to build and operate a nationwide 5G network. 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, who was appointed by Trump, said in a statement.

US HYPOCRISY

While accusing countries like China and Russia of cyberespionage, the United States does not have a clean record when it comes to cyber infiltration activities against other countries. In 2013, former US National Security Agency (NSA) staffer Edward Snowden exposed sweeping cyber surveillance activities the United States has been involved in. US journalist Glenn Greenwald revealed in his book "No Place to Hide" in 2014 that the NSA planted bugs in internet routers built by US vendor Cisco to eavesdrop on internet communications globally.

Ai, the Chinese scholar at Beijing Jiaotong University, argued that if China applies the same tactics against US companies and their products, Chinese consumers would probably have to all stop using their iPhones.

"If you believe all equipment has backdoors, I think you need to stop using any kind of devices [produced by a foreign vendor]. For consumer devices, if Apple also has installed backdoors, should all the Chinese iPhone users give up their devices right now? I don’t think this [backdoors] is an issue. It’s more of an excuse," he said.

Lee, the Hong Kong-based industry analyst, pointed out that telecom equipment from Chinese companies such as Huawei and ZTE has not been found to have such security flaws in the European markets.

"The European Union has been using Huawei equipment for a long time. So far, no problem has been raised. The UK operators have been using Chinese equipment. But the UK also has a mechanism in which the UK government has an organization that examines the equipment before they’re installed. So far, it has not raised any red flag. It’s easy to point out the risks. Has anything been done to prove it? I do not think so," the expert said.

The industry expert added that US chip maker Qualcomm has been a primary provider of chipsets for communication devices such as smartphones in China and it is impossible for Chinese authorities to retaliate in a similar way because the chipsets are an essential component of the handsets.

Qualcomm announced last week in Beijing that it has signed a Memorandum of Understanding with Chinese smartphone vendors including Lenovo, OPPO, vivo and Xiaomi for the multi-year purchase of Qualcomm’s RF front-end solutions.