Panelists discuss the state of the U.S. 5G industry, including its progress relative to Chinese competitors and the status of public-private cooperation in achieving universal 5G.
BEIM: Welcome to today’s Council on Foreign Relations Virtual Meeting on “The State of U.S. 5G.” My name is Nick Beim. I’m a partner at the venture capital firm, Venrock, and I’ll be presiding over today’s discussion.
As quick background, 5G has emerged as one of the most important strategic areas of international technology competition from both an economic and a national security perspective, and it’s an area where China has taken a significant lead. Today we’ll take a look at why 5G is so important, where the U.S. currently stands in 5G development and deployment, and what policies we should pursue to compete more effectively. We’ll also ask what lessons can be learned from our 5G experience that are helpful in thinking about our broader technology competition with China.
We have a terrific group of speakers including Robert Blair, the director of the Office of Policy and Strategic Planning within the Office of the Secretary of Commerce who previously served as the U.S. special representative for international telecommunications policy; Diane Rinaldo, senior vice president at Beacon Global Strategies, who previously served as the acting administrator of the National Telecommunications and Information Administration and the acting assistant secretary of commerce for communications and information; and Adam Segal, the Ira Lipman Chair in Emerging Technologies and National Security here at the Council, who is also the director of the Council’s Digital and Cyberspace Policy Program.
Robert, if you could help kick us off, explain to us what is 5G and why is it so critical, both economically and from a national security perspective?
BLAIR: Excellent. And thanks for the question, and thanks for having us all, especially on today when I think we scored a major victory with the British announcement that they will be excluding untrusted technology from their 5G infrastructure. I was there speaking with them not four months ago when they were in a very different place, but today we think they took the right—a step in the correct direction, and we’re looking to them to provide additional leadership around the world to make sure that untrusted technology is not used in other countries.
Back one—5G. Let’s just focus on 5G very, very quickly. I’m sure that most of the audience here is fairly familiar with what 5G is. And I think it’s probably useful to baseline it to 4G and 3G, the two major systems that we use today. So under 4G, we’re able to do things like this telecommunications process. During COVID, many of us spend time at home, our kids are tele-educating, there’s some telemedicine that’s happening, and all of those are based upon the ability to speak and transmit information quickly over our telecommunication infrastructure. And that includes things like streaming movies, having teleconferences and the like.
What 5G will enable us to do is it’s a step function in usability. So it will allow greater speeds and larger pipelines of information flow. It will allow much quicker transmissions, a lower latency which will enable things like autonomous vehicles, and it also allows for many, many millions of end-user devices to be connected at any one time. So we’re going to be moving away from focusing purely on communication to truly facilitating an entire economy. There are many different estimates of how much this will help our economy in the United States. One fairly mid-range estimate is by AEI, and by the fifth year of full deployment of 5G, 5G itself will support over a trillion dollars toward our economy and over three million jobs.
So once one begins to understand how important this will be for our economy, one begins to understand the national security implications. We’re kind of moving to a situation in telecommunications where, you know, traditional espionage is kind of small ball. The ability to get on to somebody’s phone line—telecommunications line and listen to what people are saying, that becomes fairly easy and fairly non-consequential. When you can control or even just imply that you can control and entire nation’s transportation system. or an entire nation’s economy, an entire nation’s ability to transport natural gas around the grid safely and securely, you begin to understand from a strategic perspective how tremendously important it is to have trusted technology within one’s telecommunications system.
BEIM: Diane, help us understand the recent history of emerging telecom standards for 3G, 4G, and LTE, and what lessons can be learned that are relevant to 5G.
RINALDO: Thanks, Nick. I appreciate the question.
So 3G really kicked off where we are today. It was the introduction of mobile data, the mobile internet, which has led to increased speeds, lower latency, and what we’re really looking for is that precision data as we move to 5G.
But moving to 3G was also that light bulb within industry; the chance to come together and work on common technical specifications. And what that would allow is for scale and for a better user experience. And if you’re using your mobile device in New York City, you know, you want to be able to fly to Paris and use it seamlessly as well. So coming together in the standards bodies, such as 3GPP, allowed for industry to come together to create those technical specifications to allow for roaming that allows us to have the freedom that we do today on our phones.
You know, how it’s transformed to where we are on 5G, you know, this time we’re starting with a specific goal in mind. It’s the RAN layer; it’s opening up the interfaces between the radio, the software, the hardware. We’re allowing for additional competition, which will in turn increase innovation, lower prices, with the cores being built in a more modular way with network slicing and mobile edge access computing. And what that does, it allows the manufacturer to have more control at the edge which will allow for additional security. So it’s really turning that user experience.
So I would say that 5G, for the first time since 3G, is taking that pivotal turn where we’re—you know, that demand side is truly pushing down on us, allowing for additional security as well as creating the ecosystem that is going to drive our next economy.
BEIM: And did the U.S. lead in 4G and LTE give us a big business advantage in terms of dominating handsets, dominating the applications that drove the 4G revolution?
RINALDO: Absolutely. And that’s what we want at the end of the day. It’s building the network and seeing what happens on the other side, seeing that output. With the 4G, I was working at the House Energy and Commerce Committee, and the conversation was around the carriers and building the network. This is the first time we’re talking about equipment manufacturers, how equipment is being made, trusted vendors, and also, what is that next, big item, that next big app that’s going to drive the economy. So that’s what we’re looking for, and the goal at the end of the day is to see what comes next.
BEIM: Adam, where does the U.S. stand relative to China in the key dimension of the 5G race?
SEGAL: Thanks, Nick.
So with all sort of science and technology numbers coming out of the China, they both illuminate and probably distort what is actually happening on the ground, but on pure numbers, as you said, China seems to be in some ways ahead. So if we look at base stations, users, and investment, the numbers are all pretty impressive, so six hundred thousand base stations by the end of the year. On average, Chinese companies are installing ten thousand base stations a day, and the expectation is that by 2025 China will have between five (million) and five-and-a-half million base stations ensuring nationwide 5G coverage.
Users—by this June, according to MIIT, China had thirty-six million users. The estimate is that, by the end of this year, they’ll go up to about 125 million users, so bringing us to a penetration rate of a little bit under ten percent.
And on investment, we’ve seen lots of signaling from the Chinese leadership that they are going to use 5G as a symbol of the United States’ inability to damage or punish China, so this year China Telecom, China Mobile, and China Unicom invested about twenty-five billion in 5G, and between 2020 and 2025, total investment around 160 billion. And it’s not just in the networks and in the base stations. They are also thinking about it in the ways that Robert and Diane described—you know, how does 5G help us move toward the Internet of Things, self-driving cars, database—and so this new infrastructure plan that came out of the two sessions where—talking about 1.4 trillion renminbi investment involves a whole range of possible uses.
On the global side, as Robert said, you know, today a significant announcement out of the U.K., but still Huawei seems to have around ninety-one contracts globally to roll out 5G equipment there. Now all of this is just the kind of hardware and the raw numbers, and as Diane was implying, the uses are going to be incredibly important, security is going to be important, and we’re still waiting to see how China is going to roll that out, and what that’s going to mean in competition with the United States.
BEIM: So on the dimension of equipment manufacturing, help us understand how far ahead Huawei is; their market share relative to Western vendors, their technology advantages, their subsidies from the Chinese government. It seems to be one of the most challenging aspects of our competition with China in this area.
SEGAL: Yeah, so, you know, the estimates are generally that Huawei can provide equipment at about a third of the price. Chinese subsidies historically have played a large role in that ability to provide cheap equipment. Equipment is generally considered reliable, you know, and fairly technologically advanced. Huawei is now in the top five in R&D spenders, you know, competing with Apple, and Google, and others, so we should not believe that it is only just on cost. They are significantly moving up the value chain.
You know, a lot of this happened because, in the ’90s and other times, we—you know, the market decided that there was not much value in manufacturing; that the value was going to be in services. And so there a number of mergers and acquisitions that allowed, at the time—you know, Lucent, and Alcatel, and others—that didn’t seem to be strategically important, and now, looking back, we are seeing that those were decisions that we probably would have—we would reconsider.
So I think, as you laid out in your introductory comment, it is forcing us to rethink about how we want to use government tools to ensure we have certain types of manufacturing capabilities inside the United States.
BEIM: And help us understand the potential consequences of Huawei dominance of equipment provision for 5G from a security perspective. How significant is the security risk?
SEGAL: Yeah, I think Robert did a good job of laying it out. I think, you know, we have talked—in the first kind of argument about Huawei, we primarily talked about espionage. That is a threat; it’s not the major threat. I mean, encryption of information would significantly reduce that. Besides, we know the Chinese have lots of other ways to access networks, and so the—I think that has been not the main focus.
As Robert pointed out, though, there will be significant possibilities of disruption of major critical services if we are, you know, using it for self-driving cars, Internet of Things, smart cities, smart ports—all of those do really open some significant vulnerabilities. And, you know, to be quite frank, we know from the Snowden revelations that access to domestic telecom equipment providers provides intelligence agencies some level of insight that they would not have normally, and we would expect the Chinese to take advantage of it as well.
BEIM: Diane, how did China get so far ahead? And how does 5G fit into their broader domestic and global strategies?
RINALDO: Sure. So I would say that—I wouldn’t say that they are far ahead; it’s all in how you characterize it. And I’m always cautious on when people characterize this as a race. We don’t want to put speed and cost over security and functionality. And so what we are doing is we have four major carriers—DISH being the latest to announce that they are building out a nationwide network using open-RAN solutions with Mavenir and Fujitsu, as opposed to China, who built out in a patchwork system. So while, yes, they may have ten thousand base stations in one area, they are focusing on only certain sectors of their country as opposed to our four carriers who are looking at this more holistically. And again, right, that’s where you are getting the functionality of a complete 5G network in bringing that user experience to bear.
BEIM: Robert, what is the 5G strategy of the U.S?
BLAIR: Before I go to that, I want to foot stomp what Diane just said. I think that whomever one wants to say is ahead, you can find data to support that. And if we’re looking solely at base stations and users, then China will likely always be ahead. They control nearly half the global market for these goods and services. It’s going to be impossible, as we disaggregate where the market it, to overcome that so-called lead.
But we’re not—we’re not striving to just spread 5G across the United States and across Western countries. What we’re trying to do is build a system which preserves the basic principles that our countries are built upon: the ability to protect our privacy, the ability to know that we’re not being surveilled, the ability to—without our knowledge—the ability to ensure that we can express ourselves freely across internet systems and not have somebody attack our websites, drive us out of another country—as happened to the NBA for a short amount of time.
So I would argue that a much better metric is to take a look at how non-Chinese countries are adopting or changing their adoption rate of untrusted gear. So we’ve seen repeatedly countries saying, no, thank you, to Huawei, ZTE, and other untrusted gear, and that rate of change is increasing—has been increasing dramatically over the past three years. So I would push back fairly strongly that China’s winning this race. I would say that Western democratic principles are beginning to win the race. There’s still quite a ways to go, but now that we’re talking about this as a national security issue—not as a commercial issue—then that has, I think, very much changed the tenor of the debate in Europe.
Now what is our overall strategy? Our overall strategy has, say, three basic prongs. One is domestically to roll out a secure infrastructure. The second one is to help our allies and partners overseas have a secure telecommunications infrastructure, and thirdly, to take a look at standards in R&D to make sure that we are preparing ourselves for that next step—call it 5G-plus if you are looking at virtualization of software to find networks, or 6G, which is going to be dramatically faster, and even lower latency rates, and broader dissemination across the planet.
And different parts of the U.S. government have different pieces of that. Commerce is very much involved, as Diane well knows—in every piece of that—and it’s truly a pleasure to be able to be a part of a constructive process that is building relationships across the Atlantic, across the Pacific, and really getting to the core of what it’s going to take to make sure that the internet that my children inherit is one that actually helps provide for their privacy and for their freedom of speech and expression.
BEIM: And Adam, how would you assess the U.S. strategy? What does it get right? Does it get anything wrong? And what does it leave unaddressed?
SEGAL: Yeah, I think we’re gathering steam. I feel like we’re really at a point now where, as Robert said, we can point to several strands of activity where—you know, the White House issued its 5G strategy, the Defense Department just issued its 5G strategy. We see strong congressional support with bills like that from Senator Warner about providing alternatives. We’ve seen a lot of action on the security side.
I think some of the problems have been the kind of cohesiveness of messaging. You know, we’ve certainly seen, for example, some parts of the administration pushing O-RAN, and then, you know, Attorney General Barr coming out, giving a speech saying that’s a pie-in-the-sky dream, and we’re not going to go that route.
I think the issue of money is still a big one, right? Even if we take the Chinese numbers with a grain of salt, which I totally believe that we should, you know, quantity does have a sense of quality to it after a while, and even if they are running out smaller, provisional-level test cases—you know, a province in China can still be two hundred, three hundred million people—and if they manage to develop applications, you know, that just cover Beijing, or Shanghai, or the, you know, tri-city area, we’re still looking at markets of eighty (million) to ninety (million), to 120 million people.
So I think, you know, the issue on the U.S. side has been kind of a more kind of cohesive messaging and some scale on the numbers side.
BEIM: Diane and Robert, what other policy steps should the U.S. consider to catch up in areas where we’re behind in 5G—whether it’s deployment, or market share and equipment manufacturing? And I’m curious to hear your thoughts if it’s still possible for us to develop the kind of lead that we had in 4G and LTE.
BLAIR: Diane, do you want to take it or do you want me to go ahead?
RINALDO: No, I’m happy to. So I think that there are different opportunities that the government and private sector can work together. One thing that the coalition of—the Open-RAN Policy Coalition has been supportive of is the legislation introduced by Senators Warner and Burr that creates funding sources for research and development for new technologies, the next development of RAN, the idea of standardizing interfaces between hardware, radio, and software to inject that additional competition and drive innovation.
Now I think also public-private partnerships are important. Though all this is a private-sector, market-based approach, it helps to have the government provide support in the ways of doing things, like the Pentagon is currently working on 5G test beds. Governments around the world are large consumers of data and users of networks. It’s important that we work together. And while this is private sector driven at the end of the day, you know, governments can do things to help nudge in a positive direction.
BLAIR: So back in April, before things got really bad with COVID, the president was on the cusp of holding a summit at the White House for virtualized—it’s for the future of 5G, and a large portion of it would be virtualized software to find networks, and a large portion was going to be working with Eriksson, Nokia, Samsung, and other already established, predominantly hardware manufacturers, and hardware-defined network operators, bring them in, talk about what they—we—as an ecosystem can do to work with smaller disruptors like the Mavenirs, and the Altiostars, and Airspans, working with cloud service providers and existing telecommunication providers to bring that ecosystem of innovation together and really drive forward an American alternative to untrusted technology. It’s something that I heard repeatedly when I was traveling: well, you don’t want us to put in Huawei and ZTE; OK, fine. We get it. But what else? What do you have instead?
So we are continuing that—it’s a very active conversation with many names that you would recognize who are recognizing the value of 5G, but not just 5G for its own sake; 5G for that stimulation of innovation for the apps, for the Internet of Things, for these innovations that we haven’t even begun to think of yet. And that’s where the excitement is going to come.
There is a large role for the U.S. government to play in helping to support some of that innovation, and I know NIST is involved with working with new standards that will help provide security for some of these new Internet of Things applications. We’re also taking a look at how the—say, the stack of technology that leads to the ultimate ICT piece of equipment, how we can ensure that each piece of that is safe and secure, and that will help us, as well, provide for standards that will help other manufacturers step up, spring up all over the world to produce trusted ICT equipment.
Now the Semiconductor Manufacturing Initiative that we have been working on here is also a part of this process. Apple is a major consumer of TSMC chips. Intel, and GlobalFoundries, and there are two or three other foundries in the United States—all see the possibility of dramatically expanding their semiconductor manufacturing capability, partially in response to the race to 5G, and 6G, and beyond. So the U.S. government—Commerce working with State Department and others—are trying to pull together, working with Congress, a set of initiatives that will help lay the groundwork to make sure that we have a robust semi manufacturing—semiconductor manufacturing process here.
So we’ve got both a horizontal approach, working with existing disruptors, and then also a vertical approach at this point to try to bring together that innovation ecosystem. We are making great strides on it. We’re continuing to push every day to make it happen, but it’s a rich policy debate and one that has very real implications for the recovery out of COVID and the next generation of our economy.
BEIM: Maybe another angle on this challenge is, if we could go back in time and re-architect the U.S. push to 5G, what should we have done differently? And I’ll throw out a few potential ideas, curious to hear the panel’s thoughts.
One is recognizing the threat of another country meaningfully leading us in this area, losing domestic manufacturers of telecom equipment such that we have to rely on European manufacturers, maybe being slow to auction mid-band spectrum and really recognize that that was going to be what was going to be driving 5G adoption in part of the rest of the world, and many other things.
It’s always easy to look back in retrospect, but those may be some of the most interesting lessons, and I’m curious how you guys would think about what we could have done differently.
BLAIR: I have a couple.
RINALDO: Well, I—
BLAIR: Oh, Diane, do you want to go ahead? I don’t mean to just step in.
RINALDO: No, no, no, no, no. I was just going to say—so to give my old boss a little credit, Mike Rogers, in 2011 first—was the first policymaker to shine light on this issue, so it’s something that we have been discussing, but it has just been a little bit of time at having the conversation, and by that time, the evolution of 4G had occurred, so as we’ve geared up to 5G, the conversation has percolated once again.
I would also say the spectrum conversation is an incredibly important one. It’s kind of, what came first, the chicken or the egg. And while we’ve had many discussions around spectrum and increasing the pipeline, we are in the position we’re in because the United States is so dominant. We have so many unique and dynamic users in the spectrum bands that it gets hard to shift the tables after a while.
So I think we have to come to an agreement that, yes, it is hard, and it’s not going to get any easier, so we need to have a process in place to ensure that we can increase and continue to increase the pipeline as we move forward to 6G, as well.
BLAIR: I think, Adam, that your—sorry, not Adam—Nick, that your focus on making the pivot a little bit earlier to the threat is spot on.
We looked at this as a free market problem for too long, that we thought that the free market—and I’m a Republican; I believe in Republican economic theory, and the orthodoxy of the Republican economic approach, and small government, et cetera, et cetera, that the free market works. I do believe in all those things.
But we didn’t recognize—as a country, let alone as a Republican Party—that there is no free market in this, and even—and that the entire dominance that Huawei and ZTE were building partially, yes, was based on subsidies, but it was also based on consistent and pervasive theft of intellectual property which we are actually generating here in the United States. And if you take a look at the FBI’s China project recently, they’ve got some very interesting and damning indictments of Huawei, specifically in what they’ve been doing over the years. So we should have seen earlier on that this is not a free market problem, and once you recognize this is not a free market problem, then you can bring in different resources and different approaches.
That argument that it’s not a free market, that we need to be taking a national security approach to it, is one that the Europeans have only very recently begun to really take on board, and what they’re also concerned about is the privacy of their data. So we didn’t take a nuanced enough approach to our allies to help them understand both the threat of what the Chinese are doing, but also the inability of traditional steps that we might normally take to address that particular threat. So that’s one area: that we didn’t the arguments quite right for what the threat actually was.
But part of that is not really in our—it’s really not our fault. The awareness in the United States government of how seriously the Chinese were using every tool of national power to establish dominance in this space and other spaces—which we could talk about perhaps for different seminars—has really grown over the last year, year and a half. And part of that’s the use of technology for surveillance within their country against the Uighurs in Xinjiang and other minority groups across China. The greater knowledge of what they’re doing with that data in building what they call social credit scores, surveillance systems which actually tag each person within their database with who they’re talking to, what they’re saying, whether they are saying things on line which are shizhad (ph), whether they are on their shi (ph) app frequently enough; the crackdown in Hong Kong and the use of technology for that crackdown in Hong Kong; and also the extent to which they were willing to use internal legal mechanisms, like the National Intelligence Law, to coerce their domestic industry to cooperate with Chinese security apparatus.
As we began to learn more about these things, we became more aware and could share this information with our colleagues overseas. So the argument that this is a national security issue only became truly ripe over the last six months. And I think COVID was also a change in mindset. It allowed—I think it required a re-evaluation in each country about what is really the most important thing for that country to be concerned with. Is it economic efficiency—getting the cheapest thing into their system—or is there a deeper truth and a deeper principle that should be also part of that equation? We need to be protecting our country’s health—economic health—our national security, and that additional angle, that re-evaluation of what a country should be including in its decision about what technology to bring into its system, I think, was partially behind the U.K.’s change over the last several months. I haven’t had a chance to sit down with my colleagues there to be sure, but I think that was pivotal.
One last thing: Standards. We did not engage in a strategic way in standards—both treaty-based standards, like the organizations like the ITU, and voluntary standards-based organizations like 3GPP and IEEE and a few others. We didn’t get involved in those in a strategic enough way, working underneath or with our private sector, which really has the bulk of U.S. representation at these.
The Chinese were doing so very, very efficiently and very aggressively, and now have expanded from the Made in 2025—Made in China 2025 industrial policy to China Standards 2035, establishing standards that actually support a China-friendly, not just for ICT but for biopharmaceuticals and other sectors, which we need to take a very hard look at and make sure we’re prepared to address directly.
BEIM: Let me ask you one last question and then we’ll jump to questions. 5G is part of the broader landscape of technology competition with China, which has a significant impact on our economy and our national security. What else do we need to do better or differently as a country in this competition?
SEGAL: Well, I think we’re engaged right now in a fairly broad discussion about what it means to support a competitive economy. And we’re seeing a whole range of ideas being thrown out and the nature of competition from China. So, you know, as Robert said, you know, if he’s a Republican, loves free markets, but he’s now reconsidering, as a lot of Republican senators are now, the role of industrial policy and support for certain types of technology and competing with China, I think we’re having a broad kind of thought about how that policy should be played out, who should support it, how much money should go to it, how it should be involved.
And the other main thing I think we’re rethinking is, unfortunately I think to the wrong spectrum, is—end of the spectrum—is how open we should be, and what are the main drivers of the U.S. innovation system? And so we see a lot of discussion about how do we keep technology flowing out, which is an important perspective, but also we seem to be doing significant damage to ourselves in some restrictions on students and others that I think will have a long-term effect.
So there seems to be a very broad discussion now about innovation policy, which we—you know, before was really on the margins of national-security thought and economic policy more broadly anyway.
BEIM: Many thanks, all.
At this time I’d like to invite members to join our conversation with their questions; a reminder that this virtual meeting is on the record. The operator will remind you how to join the question queue.
OPERATOR: (Gives queueing instructions.)
Our first question will be from Kayla Tausche.
Q: Hi. This is Kayla Tausche from CNBC. I’m thrilled that you guys are tackling this topic.
I wanted to ask a few different questions. The first is, Rob, for you; the likelihood that the U.K. decision causes other countries, like Germany, to follow suit, and how soon we could see some of those things happen.
And then, for anyone, I would be curious. You know, around the conversation of affordability, that’s one reason why Huawei has gained such popularity. And you mentioned the Chinese subsidies being able to help it in that effort. But what is the U.S. government talking about in terms of incentives for corporations in the West to help them provide these services in the same cost frame? Thank you.
BLAIR: So for the first one, Kayla—and it’s good to hear from you—the conversation in Europe is more dominated by what the EU’s toolbox, which came out last year—I think in December the actual toolkit came out—how it provides each country with the flexibility to determine what sort of untrusted technology—how they would define trusted and untrusted technology.
Now, the fact that they included that as a potential metric was a huge step in the right direction, to recognize that there’s a difference between technology that could be trusted and should be seriously considered and that that isn’t trusted and should either be strictly contained or excluded altogether.
The U.S. government engaged in something called the Prague proposals, which have signed up several European countries to a fairly—I would say a fairly straightforward list of criteria that we should be considering that—we all should be considering and evaluating the trustworthiness of technology. And that initiative continues.
What the U.K. decision does is provides greater impetus to those other discussions. It’s not determinative, but it’s definitely directionally positive. And we expect that it will kind of open more countries to a stricter interpretation or a more stringent interpretation of what’s trusted and untrusted than had they continued with their earlier including Huawei into their—you know, the less sensitive parts of their networks.
On the second piece, so we’re doing several things, not so much along the lines of providing subsidies, but we are making untrusted tech either unavailable or much, much more expensive through some of our Commerce-related activities. We are—and not just in the United States but also overseas. The foreign direct product rule, which squeezes the ability of Huawei to use TSMC to bring in chips for its—mostly for its backbone, but also for its handsets, will raise the cost of Huawei gear internationally. And that is one way that we’re trying to level the market.
Another way that we’re trying to do so is by—you saw the FCC recently said that users of its universal service fund could no longer use those monies to buy untrusted gear from Huawei or ZTE. But it could continue to use those funds to buy trusted gear. So we’re not taking the same approach, but we’re taking multiple steps that are appropriate for our country to level that economic playing field.
SEGAL: One way to think about what other countries may follow on the U.K. decision is to pull out while the U.K. seems to have made this decision. And Robert kind of alluded to or listed both of them. One is the U.S. sanctions on Huawei have, you know, severely threatened Huawei’s supply chain. And the U.K. intelligence looked at that and said, all right, we no longer know where Huawei is going to supply its products from, and we can no longer assure the security of that based on that sanctions tool.
And then second is clearly the downturn and deterioration of relations between the U.K. and China, driven by Hong Kong and COVID and all these other things.
So those two factors may be repeated in some place like Germany, where the intelligence agencies would make a similar argument. I think they’re unlikely to be repeated in lots of emerging economies, which aren’t going to be as concerned by the supply-chain issues or the security issues and are going to be doing more to balance their relationship with Beijing.
OPERATOR: Our next question is from Sunil Bharti Mittal.
Q: Thank you very much. I’ve enjoyed this subject and session very much. Being a longstanding user of our telecom technologies, I share the views that have been expressed on this panel.
The tragedy of this whole discussion is that for long years the U.S. just did not, you know, wake up to the reality that the technologies were shifting eastwards. And we saw the demise of Motorola, Nortel, Lucent, first-rate U.S. companies which were really participating in the telecom—or in the space and efficiently providing enough choice to the customers. And over the last two decades I’ve seen, slowly but surely, all these are giving way to the European initially and then, of course, eventually landing in the Chinese lap with Huawei and ZTE picking up significant amount of share. The fact is, we did not go into the, you know, Chinese equipment out of real choice, but it was because of lack of choice, because all these, you know, U.S. companies and some of the European companies, like Alcatel and all—and Siemens and Italia, the Italian company, all disappeared.
So what is left really now for the world to choose is from Ericsson and Nokia. And they’re not particularly very strong companies as they used to be a decade back, let’s say. Their R&D spending has been low. Their market cap are, you know, very, very low. Nokia almost came back from their abyss. Thankfully, it’s back in the reckoning now. And we use all these three technologies. Thankfully, Chinese in our system is less than 30 percent and we are confined up to only 4G. And once we get directions from our government to start to move on to—move away from the Chinese equipment, we will do so like the U.K. has done today.
But I think the U.S. needs to really step up. And I’ll have the opportunity of communicating and speaking to Mr. Blair about this. We want U.S. companies—nudged by, perhaps, the state—whether it is IBM or it’s Cisco or some other tech companies, to pick up an Ericsson or a Nokia because they really need support, financial support. They need to be embedded into a much bigger and a better house to serve the world. Otherwise, we will really have a vacuum in this space, and that is not good for the, you know, digital world that we’re all hoping that we will achieve through a 5G technology.
Another example I’ll give you is submarine cables. We should not only be confining our discussions to 5G but should go now beyond that. There’s a big consortium which has been formed to put up a South Asia cable going all the way to Western Europe. A Chinese company has been selected. We have got a nudge to move to the U.S. company. We have gladly done so. The U.S. company is significantly more expensive—(inaudible)—than the Chinese.
And this is where my earlier question was also alluding to the same thing. Commercially, it becomes unviable. And we don’t also want to have a situation where, when the Chinese go away, Ericsson, Nokia, anybody else left in the game doubles their price of supplies to markets like India, Africa, where (outputs ?) are $2 a month. So this is a real conundrum we face, and we really need the U.S. help.
RINALDO: I can take that. Thanks, Sunil. I appreciate it.
So there’s actually a lot of innovation occurring in this space. The idea of OpenRAN or disaggregated networks is driving networks today. With Rakuten and Dish, Reliance Jio, there’s innovation occurring throughout the world. And it’s being driven by American companies as well as our technological allies around the world.
You know, the idea of disaggregating and standardizing interfaces were really going to drive competition in the radio and the software-hardware space. So whereas you could have the Nokia hardware, the Altiostar software, and CommScope radio to bring together and to better optimize your network, you could have a Fujitsu and IBM as an integrator to bring it all together.
So this is happening now, and we’ve really seen a lot of momentum in this space and look to innovate our way around this issue of what do we—you know, the common concern of the policymaker, what do we do if we wake up one day and there’s only one player in this space? And Nokia and Ericsson are players in this OpenRAN debate as well.
BLAIR: It’s good to hear your voice. I believe we had lunch when I was last in India. So I’m glad that you’ve made yourself known on the call.
To build upon what Diane is saying, we within the government have a very discrete, as in specific, understanding of this push toward virtualized networks and software-defined networks, the way ORAN might or might play in that. So those are two different discussions; but then how we bring along Nokia, Ericsson and Samsung, depending on the market, in a way that’s supportive, opening up market share, supporting them, perhaps, in markets where it would have been difficult to support them in the past because they’re not U.S. firms.
So we have DFC, the Development Finance Corporation, we have Ex-Im, the Export-Import Bank, each one of which—and within Commerce we have our International Trade Agency, which has export-promotion capabilities as well. Each one of them has different U.S. content requirements in it.
And we’re actively taking a look at, for strategic purposes, where those content requirements may need to be readdressed or adjusted. So we do not want to take the foolish step of pushing so hard toward virtualization that we cut our trusted hardware providers off at the knees. So we’re actively working on that problem set, using our agencies.
We’re also, as I said earlier, working with existing Cloud providers, computer manufacturers, software manufacturers here in the United States, to drive forward that virtualization option so it’s not five years down the road; it’s 18 months to two years down the road, or even shorter, depending on who you’re talking to.
Diane brought up Rakuten. Rakuten has a virtualized network already set up in Japan. They’ve established a presence here in the United States. And we’re very eager to learn from the sort of value a virtualized network might have in areas like the rural Midwest, where there is no 5G network, and laying cable and doing some of the other things that one might need to do for a hardware-defined network would be cost-prohibitive.
Our next question will be from David Sanger.
Q: Thanks very much. And thanks to all of you for doing this. It’s been a great conversation.
Rob, I wanted to ask you about whether or not the United States and its European partners see the greater risk here that the infrastructure gets into Chinese hands, and thus could be cut off or disrupted at a time of conflict, which is what I hear from all of my, you know, hard-power national-security sources, or what you hear when you go up in Congress, which is the Chinese are going to intercept our conversations and steal our data, at which point I usually make the point that they’ve done a pretty fine job of that at 3G and 4G.
So, you know, 5G is not necessarily going to change it all that well, but it would make a great argument for foolproof encryption, which the administration has at various moments been arguing against because they want to get law-enforcement access. So just sort of play with those two for a moment.
BLAIR: It’s a great question, David. And I’m not surprised it’s coming from you.
The peer-to-peer encryption debate, I frankly cannot speak on here. It’s an ongoing discussion within the U.S. government about what our policy is. There are times when you’ll hear one message and there are times when you’ll hear a different message. And I’m not going to muddle that water—muddy that water in this conversation.
But, yes, on the first part of it, we hear both. And as Adam and I both talked about earlier, we’re not as concerned of—we’re extremely concerned of anybody hacking our system, stealing our data, our intellectual property, our personally identifiable information. We’re concerned about all of that. But that has been going on for some time. It just gets a lot easier if you’re able to suck in that much more data that much more quickly.
It's the harder power—it’s not even them demonstrating that they can do it. It’s knowing that they have the willingness to do it and perhaps, if we don’t make the right decision, the capability. Once we have that knowledge, we have to incorporate it into our national-security evaluation and analytical process, which means they’ve already changed the way we have to think about things. And that’s a loss in itself.
But what we hear from the Chinese over and over and over again is that they’re willing to do things that we would never be willing to do to achieve national-security objectives. When I was in Berlin talking with our colleagues in the Bundestag there, the Chinese ambassador was having a powwow with many of the Chinese academics who were in universities in Germany. And he said—and I don’t think it was meant for the record, but it got back to me very quickly—he said it’s too bad that the Americans are taking such a hard line over Huawei. Over 2.5 million Americans run Huawei code on their pacemakers. It’s be horrible if they couldn’t get an update.
And now there are many different ways one could read that, but the message was very clear that nothing is off the table if we’re going to continue to push. They’ve threatened German car manufacturing. They’ve threatened the ability to finish up a nuclear-power plant and high-speed rail line in the U.K. They will point at and use any technique and leverage that they have in order to spread—to maintain access for Huawei and ZTE.
That in itself should be demonstrative for everybody how important spreading this technology is for the overall objective of China spreading its ideology around the world. So it’s not just the espionage. It is very much the hard national-security concern of having untrusted tech underlying the very economy that our entire country is going to be relying upon over the next 10 years. That for me is—that’s the nub of it all.
Our next question will be from Kate Moore.
Q: Hi there. This is Kate Moore from BlackRock.
I wanted to ask a question about the coordination between private companies and the government in terms of building out our 5G ability, specifically—and I think it was maybe Diane, but I can’t quite remember from my notes.
You know, we talked about four different private networks getting built out. It strikes me that one of the advantages in China is the coordination. To what extent do you expect private coordination within the U.S.? And any additional comments on any PPP or, you know, sort of incentive programs, I would be very interested in.
RINALDO: Sure. So I will just say from the outset that, in building out our networks, it needs to be private-sector-led. And the coordination is happening at standards bodies in how we come together on technical specifications in roaming agreements between the individual companies. But it’s important that private-sector funding continues to drive our next generation. That’s where we’re going to gain all of our innovation.
So there—again, right, so when I was talking about public-private partnerships, I was talking about it in the way of OpenRAN and how can we come together and work to promote next-generation options that are going to improve our networks, things that we can export around the world in the discussions about, again, right, if not them, then who? So those are the types of things where industry can come together and work with government on.
BLAIR: I think one of the areas that the government has already been very helpful is showing that there’s a strong interest in virtualized technology, in virtualized networks. Until a few years ago, that was something which was kind of on the outside of the discussion around ICT.
And as we’ve seen this market shift, our ability to go out there and reach out to the Intels, the Microsofts, the Dells, the folks who have—the Amazons—the folks who have the computing capability, who have the Cloud services capability, to be able to say to them, you know, this is an area that the U.S. government is interested in looking at; maybe you guys should be looking at it as well.
So from an R&D coordination component, I think there’s already been strong interaction between the public and the private sectors.
In terms of deployment, the only thing I would add to what Diane just said is that we have—and Diane knows this better than I—the Department of Commerce has been working with AT&T on something called First Step, which is a—it’s a communications infrastructure for first responders. And it is spreading all across the United States to—in areas where—because first responders need access to communication everywhere—we don’t want another repeat of what happened after 9/11, where we just—first responders couldn’t talk to each other.
We’re building it out across the United States in very rural areas as well as in urban areas. That infrastructure will be there for the private sector to use, for non-first responders to use, when it’s not needed. That is an area where it’s both in the interest of the government and in the private sector to do something in close coordination, but it’s not something which was done to drive markets. It wasn’t done to try to fill an area where the private sector was already going to go because the market was pulling it there. It meets a very specific national-security need, so it’s appropriate for the—(off mic)—private sector to work together very closely.
SEGAL: I’ll just add that probably one area where we do need to see better coordination, especially if the U.K. decision cascades throughout the West, throughout Western and Eastern Europe, is we will see the Chinese refocusing, redoubling down on Belt Road Initiative and the digital Silk Road. And so we will need to have better coordination through the Export-Import Bank and the FTC in support for U.S. firms providing alternatives in those markets.
OPERATOR: Thank you.
We will take our next question from Hani Findakly.
Mr. Findakly, if you could unmute yourself.
It appears we are having some technical difficulties, so we will be moving on. Our next question is from Jeff Bialos.
Q: Hi there. This is Jeff Bialos here. I’m a partner in a law firm in Washington. In a prior life I was a deputy of the secretary of defense for industry. Good discussion today, and always nice to see a former fellow Cornellian on the panel in Bob there.
SEGAL: Me too.
BLAIR: And Adam. That’s right; Adam as well. Adam Fletcher (sp) too. I saw—
SEGAL. Yes. (Laughs.)
Q: So two comments, briefly, and then a question.
One is, look, I guess I always thought government’s role was to facilitate industry’s development, not pick winners and losers. And so I do have some pause and concern because when we’ve tried to do that, we haven’t been good at it.
Two, we talk about who’s ahead and behind. I always hear that from people at the Pentagon. Woe is me, we’re falling behind. What’s the metrics? Has anybody done detailed metrical analysis and what it means to fall ahead or behind in these things?
But those aren’t my questions. My questions are, one, when you look at the security risks in particular, I take it from this conversation and other things that I’ve read and seen there’s no willingness or ability to mitigate now. In other words, the risk of a, you know, disruption, the risk of surveillance, I take it that there’s an assumption here we just can’t mitigate, even through testing and other things.
Two—and this is for Bob—if you can mitigate it and we can address those risks, I also take it from the administration that you still are concerned about the Chinese, not from that pure narrow security standpoint but from a broader standpoint, that 5G has significant economic consequences. If you de-bundle those things, you could solve the security through testing, through other measures.
And some (reliance on businesses are ?) striking, because, you know, if Huawei was found to have done that, nobody would ever buy from them again. There is a business incentive that people—(inaudible)—look at in terms of these things because if a company has significant ties in the United States and we’ve taken action with that—(inaudible)—market.
And my third question, which is related to the first one, is, what’s the endgame here? And you seem to be hellbent on decoupling from China in 5G, in power, and other areas. And is that the endgame, we just end up with two worlds and two technology flows? Or is there some basis for a combination? What’s the endgame?
I’ll stop. (Laughs.)
BLAIR: That’s—the endgame problem I’m not going to be able to give you an answer to. Let me just provide some context on it, because I think it’s incredibly important strategically to have an idea where this is going.
We don’t look at Huawei as being a problem in itself. We look at Huawei as being a problem in how it’s being used by the Chinese Communist Party. We see Huawei as being a symptom of an underlying drive for authoritarianism to be spread, or at least the acceptance of authoritarianism to be spread outside of China.
Now, if the Chinese are authoritarian to their own people, then that’s a problem. And we will always stand up for human-right violations wherever we see them. We’ve done so with the Uighurs in Xinjiang. Then we’ve come out with some very strong guidance recently about who businesses should be doing work with. We’ve come out with very strong action. And we’ll come out with more on Hong Kong and the treatment of what we consider to be peaceful protesters for standing up for their own human rights in Hong Kong. We find those to be reprehensible actions.
However, we also believe that the Chinese people have the right to choose what their—what form of government they have. So we’re not treating Huawei as a commercial problem that can be mitigated. We’re treating Huawei as a national-security problem that has to be beaten.
Could we technologically beat it? You know, it’s possible. But then we’d also have to be allowing it access to our market. What value is that to American security to allow it access to our market?
Here’s a—and to whether we can mitigate it, here’s an angle to it as well. So if you’ve got a router that’s remotely managed and it needs a patch, that patch might happen hundreds and hundreds of times a day. Now, that patch might also have thousands—so each patch might have thousands of lines of code in it for that particular router. We don’t have, at least at this point, the ability to check every line of code for every patch that every router gets remotely in order for it to continue to operate. And that’s happening thousands of times across the United States.
So we made the strategic decision that these are such weighty problems for national-security reasons, we’re not going to try to mitigate them. We’re going to say no. We’re going to protect our people. We’re not going to allow this stuff in.
SEGAL: I mean, I think if you look at the original U.K. decision, they believed in mitigation, right. The NSCC report basically said, yes, if we keep Huawei at the periphery, if we only allow them 35 percent penetration in the market, if we continue doing the inspections that we have through the Huawei GCHQ center, we believe mitigation is possible.
Now, the use of the sanctions commerce list at FDPR seems to have rebalanced that decision on mitigation. But that’s why I think the U.S. was not doing—was not convincing a lot of its friends and allies that mitigation wasn’t possible, because the British said, well, yes, in fact, we can do it.
I think the end point—I think the problem is, as you said, is the goal complete decoupling, and are we going to be in a position where the U.S. sees all Chinese technology progress as a risk? And I don’t think we want to be at either of those places.
I think there is a national-security argument to be made for 5G communications, semiconductors, some types of private personal information, biohealth data. Then you start, I think, getting out at the outer edges. You probably have to make stronger arguments about why we don’t want to sacrifice those economic benefits from exchange and cooperation versus whatever limited security benefits we might get.
BEIM: Well, we’re coming up on the hour, and—
BLAIR: Could I just add one thing there? Because the British decision I find fascinating. They claimed that they could mitigate the threat. But if you actually read the reports that GCHQ and the Huawei evaluation center came out with, they very clearly stated that they couldn’t guarantee that they were mitigating the threat. So there was always a different subtext under way that we can never get our hands around. So I’m very encouraged that they finally made the right decision.
BEIM: Well, it’s 2:00. And I just wanted to thank everyone for joining today’s virtual meeting. And many thanks to our speakers.
Also I wanted to let you know that the audio and transcript of today’s call will be posted on the CFR website.
Thanks very much.
RINALDO: Thanks, Nick.
BLAIR: Thanks, Nick. That was great.