Full speed ahead

Almost 20 years ago, when European governments were selling 3G licences for tens of billions of dollars, China was just beginning to make its way in 2G telecommunications. Its government only gave out a trio of 3G licences a decade later, after regrouping its telecoms sector into three state-owned giants – China Unicom and China Telecom, alongside the dominant cellular player China Mobile.

The long delay was partly due to Beijing’s insistence on developing a homegrown standard for 3G known as TD-SCDMA. China Mobile was tasked with achieving this national mission but as a latecomer to the 3G stage, Chinese firms ended up having to pay punchy royalties to patent holders abroad.

Most of the industry standards had already been set by foreign firms: American chipmaker Qualcomm, for one, recouped a percentage of the price paid for each phone that used its CDMA patents (including TD-SCDMA). This so-called ‘Qualcomm tax’, industry analysts say, became an even costlier burden as China grew into the world’s biggest telecom market. Today, Beijing doesn’t want its telecoms firms to pay any more of these ‘tuition fees’. As the country enters the 5G era, domestic firms such as Huawei have been pushed to set industry standards of their own. And in a bid to get ahead, China was one of the first countries to roll out commercial 5G services last week.

How did the 5G launch go?

South Korea switched on what was said to be the world’s first fully commercial 5G service in April. The Korean telcos say they hope to sign up five million users by the end of this year. But in the face of the escalating tech and trade rows with the United States, the Chinese tried to get ahead of the rest by issuing four 5G licences in June to its trio of telecom carriers, as well as China Broadcasting Network Corp (CBNC). And at PT Expo China, an annual exhibition of communication technology in Beijing, a ceremony was held last week to launch the country’s 5G service officially.

Sharing the stage were the bosses of China Mobile, China Unicom and China Telecom, as well as the head of China Tower, another SOE giant set up in 2014 to pool some of the carriers’ spending on network infrastructure.

While China’s 3G plan coincided with an industry restructuring process aimed at encouraging greater competition, the 5G launch was underlined by a stronger sense of unity. The creation of China Tower is a clear indication that the state telcos are working more in tandem for the 5G rollout, for instance. The three rival carriers are also offering 5G data plans to customers that look pretty similar in terms of services. And more importantly, instead of competing across different technology standards (in 3G there was WCDMA and TD-SCDMA), the trio is adopting the same homegrown 5G standard.

Maybe that has helped the commercial rollout come two months ahead of schedule (the original plan was to unveil the new network in 2020). At least 50 major cities now have 5G coverage, although the build-out is still at an early stage and carriers will rely on their 4G infrastructure for the immediate future. Still, China expects to be the first country to introduce standalone 5G networks on a major scale next year, which will virtually eliminate lag times in data transmission.

There were about 80,000 5G base stations installed as of the end of September, mostly in the leading cities, although state news agency Xinhua reported the number is likely to rise to more than 130,000 by the end of this year.

Did 5G start with a bang?

Expectations for the new standard in China have been high and Xinhua is forecasting rapid take-up from customers – up to 600 million 5G users within five years, or 40% of the world’s total.

That would make China the largest market in absolute numbers of 5G users. Having the largest pool of connected consumers will then be helpful in lowering costs and in fuelling future innovations, as well as providing benefits of scale that should help Chinese firms sell more components abroad.

Since June, more than 10 million early adopters are reported to have completed the preorder registration process with the three major carriers in China. But perplexingly, there wasn’t much fanfare when the launch button was pressed at the PT Expo last Friday. Nobody was queueing up at the China Unicom branch that WiC visited in Beijing to experience the 5G rollout firsthand either. The handful of people who approached the designated 5G counter seemed curious, rather than ready to make a purchase.

Perhaps that’s because the carriers need to do more to make the case for the upgraded service. The speeds promised for data transfers are impressive, but customers will need more convincing to upgrade from 4G (which already offers quick and efficient data transfer) to more expensive 5G services.

Current 5G plans range from the cheapest from China Mobile at Rmb128 ($18.30) a month (with 30 gigabytes of data) to China Unicom’s Rmb599 plan (300 gigabytes of data). These are notably more expensive than the 4G plans on offer, which start at as little as Rmb10 a month.

Customers also need to live in a city with 5G network coverage and own a 5G phone that connects to the new service. There are about 20 such models already available, but again they are more expensive than existing smartphone brands.

For example, Huawei’s new flagship model Mate 30, which was launched this month, costs about Rmb5,000, which is beyond the means of more budget-conscious customers. Both Xiaomi and Vivo have said they will be launching cheaper 5G phones for Rmb2,000 but these handsets won’t be available until the end of 2020.

The telcos haven’t orchestrated a big 5G marketing push either. “It’s understandable for telecom providers to urge customers not to purchase 5G plans so soon, because a poor user experience would ruin the reputation of 5G and the telecom operators,” one analyst told Xinhua, who added that the November rollout was “a bit rushed”.

What difference will 5G make?

Speed is one of the biggest selling points. Smartphone users should be able to download a high-resolution movie (about 2 gigabytes) in seconds, while it takes minutes for 4G users to complete the same download.

Faster transmission speed should also be appealing to China’s huge community of hardcore gamers and for the providers of virtual reality technology.

However, while many of China’s internet unicorns from the 4G era have come from consumer-focused services like Toutiao, Meituan-Dianping and Didi, news portal Huxiu thinks that the most important 5G applications of the future are going to target corporate users.

“As the 5G battle kicks off, the consumer is no longer the main target of the mobile carriers, which have been vying to entice the best corporate clients and factories,” Jiemian, another news portal agrees. “The biggest [5G] data traffic will come from corporate demand.”

Another factor in what could be a cautious response from consumers is that many of the applications imagined by 5G’s proponents are as yet unavailable. One of the most talked about is self-driving cars, for example, which will navigate on the basis of instructions sent over 5G networks.

Of course, the advent of 5G brings the commercial launch of driverless cars a step closer. But the big three telcos at the PT Expo last week were focusing more on showing corporate clients how 5G could improve their businesses, such as ‘smart’ factories using connected robots, devices and sensors.

Another example was how hospitals have been experimenting with “5G-powered remote surgeries”.

“Two robots accurately planted 12 guide pins into the patients’ spines,” Beijing Daily also reported last month on a procedure in which a surgeon guided robots performing operations in Shandong and Zhejiang provinces.

“The signal transmission ran smoothly during the surgery without latency, despite the distance of over 1,000 miles,” the newspaper added.

In fact, hundreds of other applications will be made possible as data starts to flow across the 5G network in ever greater volumes, enabling advances in priority areas for the government such as artificial intelligence (AI) and the Internet of Things (IoT). That’s why Guo Ping, the current ‘rotating’ chairman of Huawei, described 5G technology as “the new electricity” at another tech conference this week.

Will Huawei be the big winner?

The Chinese government and its key SOEs are showcasing the 5G rollout as a statement of intent on their tech ambitions – as well as evidence of their ability to withstand American sanctions, such as those targeted at Huawei.

In spite of Washington’s increasingly antagonistic stance over the past 18 months, Huawei’s business has grown strongly at home, with revenues up nearly 27% to Rmb209 billion in the most recent quarter. Some of that is coming from 5G. China Mobile, for one, has awarded 49% of its 5G network equipment contracts to the Shenzhen-based giant.

Sales of Huawei phones in China have held up well too. According to market research firm Canalys, China’s smartphone market contracted in the third quarter by 3% year-on-year to 97.8 million handsets. Huawei’s sales jumped nearly two-thirds to 41.5 million units, or an unprecedented market share of 42%. ­For comparison Apple recorded its worst quarterly sales in five years, despite the September launch of the iPhone 11 series. The American firm now holds roughly 5% of the Chinese smartphone market, down from nearly 20% just a few years ago.

An aggressive diplomatic campaign by Washington to get its allies to shun Huawei hasn’t yielded much success either and Huawei is pushing ahead in countries that are getting less attention from the US government.

At last week’s ASEAN summit – which Donald Trump skipped for the second year running – Huawei’s vice-president Edward Zhou talked about serving the 5G needs of the 10-country Southeast Asian bloc and its market of 650 million people. Significantly the host country Thailand, one of America’s oldest allies in Asia, also agreed in February to let Huawei set up a test lab near Bangkok.

Is the US falling behind in 5G?

The Defence Innovation Board, a group with affiliations to the US Department of Defense, published a report in April outlining the commercial, competitive and security implications for 5G first-movers.

In the 1980s, leading European firms such as Nokia and Ericsson were able to roll out more advanced mobile devices at a time when the US was still trying to implement its own 2G network. But the European firms squandered some of their early lead, with costly auctions during the 3G transition, the Defence Innovation Board report suggested.

That saw Japan take over at the outset of 3G, with the US taking years to catch up. The report pointed out this represented a huge cost to American businesses, as thousands of jobs were lost and many tech firms failed. (It was only under 4G that the Americans reasserted leadership, through firms like Qualcomm and Apple.)

Today, the Americans don’t boast an equivalent to Huawei, especially in lower cost production of 5G equipment. Yet Adam Segal, a tech and security expert at the Council on Foreign Relations, writes in another report this month that the 5G race isn’t lost yet because the Americans have many strengths of their own. “The race metaphor is misplaced in 5G, it is often unclear who is ahead in a complex technology that is made up of many different components,” he said, suggesting that Washington should promote research and development in areas deemed critical to national security and fair competition.

As things stand, the Americans are ratcheting up the pressure on some of China’s leading tech firms. Last week the Committee on Foreign Investment in the US (CFIUS) even warned Bytedance that its 2017 acquisition of social media app Musical.ly (by its unit TikTok) could be overturned on national security grounds.

But the real challenge in the 5G area is coming from Huawei, which has been showing signs of diversifying its supply chain away from the US (ARM Holdings is the latest supplier to confirm that it will continue to work with the Shenzhen behemoth, according to Reuters, after ARM’s legal team concluded that its chip technology is of UK origin and therefore does not breach US restrictions; see WiC467).

But talk of winners and losers in 5G might seem a little premature so soon after the launch of a technology that could take the better part of a decade to bed down entirely.

Leadership positions could also fluctuate, as proven through the previous eras of new wireless standards.

But there’s still little denying that Chinese policymakers are looking at the 5G rollout in nationalistic terms in their determination to advance the new standard. And there was even an announcement this week that Beijing’s policymakers are laying the groundwork for an even faster ‘6G’ era. The technology was being treated as a priority at this “crucial stage” of the development of the nation, said Wang Xi, vice minister of the science ministry. The ministry would be drafting a roadmap for developing 6G, as well as exploring the possible applications of the technology, it added.

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