By Ravish Bhatia
Ravish Bhatia is a Yenching Scholar at Peking University, China and an electronics and communications engineer by vocation.
In December 2017, if you had spoken with anyone from Shenzen, the Silicon Valley of China who was involved in the telecommunication or electronic industries, you would know he/she was excited. This was the kind of excitement you would find only in the eyes of delusional artists, young children, and Bollywood villains. 3GPP (3rd Generation Partnership Project), the international telecommunication body responsible for framing the standards to be adopted by the International Telecommunication Union, finalised the 5G standards for non-standalone systems, ahead of schedule on 22nd December, opening the floodgates to a tsunami of technological use cases. With only two months in effect to that news, last week, Airtel, along with the Chinese giant Huawei, conducted its first 5G test in India. It so appears that the data speed that 5G promises is being outpaced by the pace of development of this mega-industry, especially by the Chinese firms—this is both good and bad news for India.
A case study in perspective
In the June of 1956, with the US economy turning a new chapter post the Second World War, the Eisenhower administration decided to pass the Federal-Aid Highway Act. The law authorised the construction of a network of interstate highways and roads that spanned a total length of approximately 41,000 miles across the nation. The goal was to improve coast to coast transportation and make it easy to evacuate cities in case of an atomic attack. What followed during the 1950s and 1960s was the rise of the American automobile industry. This, in turn, helped other industries in the command area of the automobile sector and a few related industries such as insurance, oil and gas, tooling, and services to flourish. Together, they contributed to an increase in net consumption and growth of the overall economy.
An upcoming technological boom
In the advanced information-based economies, physical devices, home appliances, and other electronics operating using network connectivity would depend on ultra-reliable and low latency communication. The backbone of such communication would be 5G technology. If the electronics industry is considered analogous to the American automobile industry, 5G technology is the Interstate Highway System that would be needed for the rise of the internet-based and advanced electronics industries. Essentially, 5G would provide the scalability and reliability required to profitably implement business use cases such as autonomous vehicles and large-scale robotic manufacturing that are presently only deemed as use cases for the future. It would be responsible for connecting machines, humans, robots all through the cloud. (The significance and applications for 5G are also wonderfully explained in this short video by the World Economic Forum.)
Thus, whoever captures the 5G market first would be in a much stronger position to compete in the electronics and internet-based industries of the future. Presently, it seems that China is taking the lead in this race.
A tough race to win
The two key companies that are considered front-runners in terms of scale and market presence are Ericsson and Huawei. Even though at present Ericsson leads Huawei in terms of the number of patent applications, it is facing extreme financial constraints while its flush Chinese counterpart has pledged roughly USD 600 million on R&D focussed explicitly on 5G wireless development (between 2013 and 2018) and is filling multiple patents in Europe. China’s three major mobile carriers plan to spend USD 180 billion on 5G networks over the next ten years and ZTE Soft is roughly expected to budget USD 336 million in research and development of 5G. A report in the South China Morning post based on a study, published this November, suggested that mainland China is expected to pump in approximately USD 411 billion between 2020 and 2030. Launching the telecommunication networks commercially by 2020 is a key industrial policy under Made In China 2025 and Beijing wants its technology to be included as part of worldwide standards.
Now, after last year’s release of 5G NSA standards by 3GPP, the race to license 5G is on. If China takes the lead in patents and equipment manufacturing for rendering 5G services, as is presently being expected by those in the industry (Sunil Mittal, Chairman of Bharti Enterprises, at the Mobile World Congress 2017 held in Shanghai, was quoted as noting that China, Japan and Korea would lead the 5G rollouts worldwide), it raises some questions and concerns for India.
The first is more political in nature. India is actively trying to revive its manufacturing sector and modernise its urban planning with an emphasis on the construction of smart cities and intelligent governance systems. If the 5G revolution happens in China, India would require importing this high-end technology to facilitate a more advanced and productive economy domestically. This would possibly raise the same question that Indian policymakers have asked for so long now—is it safe and secure to deploy Chinese technology?
For example, major electricity grid systems used in building smart cities and for urbanisation, in general, would require intelligent wireless systems with high transmission speeds. If India is dependent or gets an economically more profitable deal in importing the equipment needed to set up such electricity grids from China, will it be open to doing so? Of course, this scenario is hypothetical but if it were to come up, then the government must analyse beforehand the danger to privacy and communication and contemplate a contingent political and economic policy.
The second question is more economic. Manufacturing in the future would be undertaken by robots as the marginal productivity of labour decreases and investments in technological innovation improve overall profits. As India strives to encourage high-end advanced manufacturing domestically as part of its Make in India Initiative, at some point it would need to import high-end advanced manufacturing technologies. If these machines are based on Chinese networking components (in case Chinese companies set the patents and standards for networking systems and IoT technologies), India’s manufacturing would indirectly be dependent on Chinese technology and China can take measures, such as increasing prices for these machines, against any trade protective measures that India would like to take in order to protect its domestic manufacturers. In such a situation, India’s favourite and quite frequently used policy of imposing protective measures would not do much benefit.
A call for action
This is not a cynical doomsday prediction; instead, a potential case study that Indian policymakers and businesses should look at closely. As China begins to take the lead in setting the standards for 5G and a host of technology dependent on 5G wireless networks, it will become harder to protect our domestic producers from Chinese companies with deep pockets and better technology. The advent of such technologies and their profitable commercial deployment is still a few years away, but the question is if that is enough time for India to make a structural shift in its technological capabilities.
We need to encourage investments, joint ventures, and collaborations in R&D not just from the west, but also from China to move upwards in the manufacturing value chain, especially with respect to the IOT based industries and get access to technology—the development of which is being led by China. Competing with China would require creative thinking—both in terms of foreign policy and domestic economic policy. Actions such as the government’s recent hike in customs duties might have some political returns but would do little in the advanced industrial economies of the future.
Featured Image Source: Pixabay