What is the impact of the US lagging on 5G?
What is the impact of the US lagging on 5G?
5G is much more than a faster way to stream Netflix. The technology is pivotal for networks to support the Internet of Things (IoT), driverless cars, and much more. China may have the upper hand on the US where 5G is concerned. The question is if the US can make up that lost ground – and how the situation may impact companies.
Last year, roughly 15% of North American telecoms connections were 5G. China recorded approximately 30% of 5G adoption. Moreover, the 2021 Fastest Mobile Networks testing showed T-Mobile as the only nationwide US carrier offering 5G markedly faster than 4G.
Prominent voices in the TMT (technology, media, and telecoms) industries criticise what they perceive as the US failing to narrow the gap with China, highlighting that the US risks losing competitive advantages.
However, the question is if America is really lagging on 5G - and if so, what consequences that might have for its companies.
Is America losing ground on 5G?
Former Google CEO Eric Schmidt did not mince words when he strongly criticised US efforts to build 5G networks.
In a Wall Street Journal opinion piece, he, and co-author Graham Allison, a professor of government at Harvard, warned of the US losing out on the future of 5G technology.
Statistics seem to back up at least some of the claims:
- The 100,000 5G base stations deployed in the US are just a tenth of the million installed in China.
- China has spent $50 billion on 5G infrastructure and is on track to invest an additional $100 billion over the next five years. In comparison, the US government's principal public initiative for expanding 5G, the Innovation and Competition Act, authorises spending $1.5 billion on building 5G networks until 2026.
- Schmidt and Allison note that average 5G data rates in the US are around 75Mb/s compared with 400Mb/s for urban users in China.
How China and the US differ on 5G
While the above may indicate the US and its companies are being outgunned, the truth is somewhat more nuanced.
For example, while China is leading the way on 5G connections today, the US could soon catch up. Analysts predict that 63% of North American connections will be 5G by 2025, compared to 52% for China.
One reason is that US consumers generally have greater spending power than their Chinese peers and consequently more likely to invest in 5G phones and services. Simultaneously, US telecom providers see increased competition for future 5G revenues, spurring faster network rollouts. This is partially tied to the emergence of cloud-native 5G, which could become a game-changer in the US and worldwide.
Finally, the two countries are pursuing vastly different 5G strategies. China's leading investors in 5G networks are, in essence, state-owned, while private companies drive US 5G network development.
Data: Mergermarket. Analysis and graph: BDO Global.
The differences extend to M&A activity. Mergermarket M&A data shows that US telecom companies have made ninety-two 5G-related acquisitions over the last ten years. In the same period, Chinese telecoms have made twenty 5G acquisitions, almost exclusively within the country’s borders.
The US still at risk from 5G delay
For the time being, US 5G penetration rates and data speeds remain second to China’s.
Speed matters – including for network rollouts. Early access means Chinese companies have more time – and incentives – to innovate and build 5G-enabled solutions.
Streaming-based e-commerce, gaming, media, smart city infrastructure and many other areas need 5G’s fast, low-latency connectivity to realise their full revenue potential.
This is where China currently holds an advantage over the US. It is why Schmidt and Allison’s warning about 5G performance is linked to the future of technologies like AI, IoT, green energy, high-tech manufacturing, autonomous vehicles, VR, and metaverses. A future Qualcomm estimates will see $12.3 trillion of “5G-enabled” growth by 2035, at which time the telecoms 5G value chain will be worth $3.5 trillion.
Broadly speaking, China is currently particularly strong in network infrastructure and microchip foundries. These represent the top and bottom of the 5G technology stack. On the other hand, the US is generally ahead of China regarding mobile devices, operating systems, and microchip design - the middle of the technology stack.
However, the situation is by no means static. China has been making advances, especially regarding its chip capabilities.
Splitting the future 5G market?
With the above in mind, lagging 5G deployment can lead to competitive disadvantages for the US – although its rich TMT ecosystems and consumer base indicate that it might catch up on the home front relatively quickly.
However, the two countries are simultaneously participating in a global competition for the future of 5G.
Both are working on distributing their technology worldwide. China mainly by cultivating new relationships and dependence on its equipment, funding, and economic partnerships; the US through economic and intelligence-sharing partnerships, including encouraging partners to restrict the use of Chinese 5G technology.
Central to this competition, and the future of 5G, are international standards, an area of intense Chinese focus.
China submitted 830 technical documents related to wired communications specifications to the International Telecommunication Union last year, the most of any country and more than the next three - South Korea, the US and Japan - combined.
Setting standards would likely mean that Chinese telecoms and technology players would gain an edge in developing infrastructure, chips, and software for 5G – and thereby a strong position for future revenues. Because 5G powers not just telecoms; it turns wireless networks into critical infrastructure for all industries.
The developments represent a textbook example of the rise of techno-nationalism BDO USA identified as a significant trend for 2022. In the short to medium term, two competing 5G landscapes will likely emerge: one centred around the US and its allies (particularly in Europe) and the other around China.
For telecoms and companies in other spaces reliant on 5G for future growth, such as technology and media, the situation has a range of 5G-related consequences that must be addressed, including:
- Legislative: Securing compliance and adhering to differing and evolving laws and regulations governing 5G.
- Standards: Solutions must consider several competing (and sometimes perhaps contradictory) standards.
- Business models: Companies continuously monitor market value propositions and include flexible product and service specifications approaches.
- Supply chain: Comprehensive resilience throughout the supply chain with fall-back options.