5G Explained

U.S.: Falling Behind on Multiple Metrics Despite Newfound Success Against Huawei

While the U.S. has repeatedly stated its desire to lead in 5G, it is increasingly evident that it is falling behind other major economies in 5G development in terms of spectrum allocation, standard setting, and global influence. However, the U.S. still controls a key part of the global supply chain through its semiconductor industry, and as the world’s largest economy it still holds the most potential to disrupt the competitive landscape through its actions. The U.S. is disrupting the global 5G supply chain by enforcing stricter export controls on semiconductor sales to Huawei, through measures enacted by the U.S. Department of Commerce. The U.S. has had success limiting Huawei’s market penetration, particularly in Europe, but export controls are resulting in significant economic losses domestically. The U.S. has floated plans to become more competitive in 5G by subsidizing a domestic Huawei competitor, switching to a wholesale spectrum model, and, most recently, encouraging open-source software development to push Huawei out of involvement in core network functions for 5G networks. As of now, none of these measures has been adopted.

The U.S. framing 5G as a winnable two-country race between the U.S. and China oversells where the U.S. realistically stands on 5G and oversimplifies the state of the competitive playing field. As of now, numerous countries are effectively “ahead” of the U.S. in 5G development based on different measures. South Korea leads in the number of 5G subscribers, with 14 percent of its population, or nearly 10 million people, subscribed, compared to less than 1 percent of the population in the U.S. (17 percent of U.S. subscribers were still on 3G in late 2019), and it has also achieved the fastest mobile download speeds on its network. (The U.S. ranked twentieth, just below Sweden.) China is outpacing the U.S. in 5G base station deployment by a ratio of 14:1, with 690,000 base stations deployed compared to the U.S.’ 50,000. Despite U.S. 5G carriers’ advertisements of speeds up to 820 percent faster than 4G LTE, evidence is mounting that most U.S. carriers’ 5G speeds are still not significantly faster than 4G LTE, due primarily to limited coverage reach attributed to building 5G networks on the mmWave spectrum. If the U.S. truly wants to lead in 5G, by gaining a first-mover advantage in deploying 5G networks and building applications on top of them, freeing up more mid-band spectrum will be key. The amount of overall spectrum available on which to build the network creates an advantage in reaching 5G milestones first, but mid-band spectrum is the most optimal. On average, countries other than the U.S. are making four times as much mid-band spectrum available for 5G, with China planning to make seven times as much mid-band spectrum available.

The one area the U.S. can still confidently compete in 5G is in building core networks, and in app development on top of 5G networks. However, in both of these areas, they are also constrained by domestic spectrum policy. In order to develop globally leading applications, it is imperative to develop on the global spectrum standard—an area where the U.S. has fallen significantly behind China and other countries focused on developing on mid-band spectrum. Additionally, the U.S.’s push to develop on the mmWave standard requires more small-cell radio towers and thus a more extensive RAN—precisely the area in which the U.S. does not have a domestic company that can compete. The U.S. has recently made a push to free more mid-band spectrum, with the U.S. Department of Defense clearing 100 MHz in August 2020, but the U.S. still lags Asian and European competitors. It’s efforts to cut off Huawei also achieved better results in the second half of 2020, and the FCC and the White House have increased coordinated efforts for a comprehensive national 5G strategy. Despite this, options for the U.S. actually leading global deployment and development on 5G are severely constrained due to lack of spectrum, diverging spectrum standards, and a lack of a domestic Huawei competitor.

Europe: Moving Increasingly Away from Huawei

Europe is caught directly between the U.S. and China, while also trying to position itself as the global leader in 5G. Europe initially embraced Huawei’s presence, but since mid-2020 has pivoted towards pushing Huawei out of their domestic telecom markets. At the start of 2020, roughly 60 percent of EU governments still have either a memorandum of understanding or a commercial contract signed with Huawei. At the start of 2021, less than 30 percent of EU countries have signed Huawei contracts. With major bans being enacted in the UK, Sweden and France in 2020, and Germany still weighing a ban, Huawei’s future in Europe is more uncertain than ever. The decision to ban Huawei or opt for alternative carriers without officially enacting a ban, has not been easy. For Europe, the U.S.–China conflict over 5G means risking the security relationship they share with U.S., or their deepening economic ties to China, including the long-sought EU–China bilateral investment treaty, with the decision on 5G potentially putting European access to the Chinese market at risk. While initially it appeared, the economic interdependence would hold sway, given that China is the EU’s second-largest trade partner (after the U.S.), and the EU is China’s largest trading partner, the outbreak of COVID-19 has put significant stress on the relationship between many European countries and China. With a new administration in the U.S. signaling a likely return to multilateralism and a desire to re-invigorate U.S.-EU ties, Huawei’s position in Europe has significantly deteriorate since the start of 2020, when it appeared it would play a dominant role in Europe’s 5G development.

The big winners from increased EU-China tension are the European 5G equipment providers, Nokia and Ericsson, who have been able to boost their competitive position within Europe amid the crisis. As home to the two largest Huawei competitors, and many of the world’s largest economies, Europe will play a decisive role in determining which spectrum and technical standards are adopted. For U.S. companies, the major risk is that Europe fully embraces Chinese technical and spectrum standards, or comes out ahead and sets its own standards, which would leave the U.S. building out a 5G network that is not interoperable with the rest of the world. From the European perspective, Europe led in innovation on 2G networks and, with Huawei steadily losing 5G market share to European competitors, there is potential to be a global leader in 5G development and deployment. In this regard, it is better positioned than the U.S. to be able to build networks due to the presence of Nokia and Ericsson. However, Europe also suffers from a competitive disadvantage, similar to that of the U.S., in that coordinating spectrum policy, 5G infrastructure development, and 5G application development is difficult at a regional level due to the competing interests of different European countries.

Huawei's Penetration in Europe

Full Huawei ban

Huawei contract or memorandum of understanding — Restrictions in place or under consideration

Huawei contract or memorandum of understanding — No restrictions

Opted for alternative carrier(s)

Full Huawei ban

Huawei contract or memorandum of understanding — Restrictions in place or under consideration

Huawei contract or memorandum of understanding — No restrictions

Opted for alternative carrier(s)

China: Fighting to Hold 5G Advantage Against Increasing International Pushback

China’s widespread global infrastructure presence and role in standard-setting confers considerable influence over the software and apps that are able to run over its networks. The state-funded global success of Huawei, and China’s aggressive push to expand its technology across the world and gain clout in standards-setting organizations, had positioned it as the clear-cut leader in 5G development at the start of 2020. The Chinese Communist Party (CCP) has been forthcoming in its goals to re-shape the global economy around China, publicly releasing its BRI vision, which includes a plan to lead in cyberspace as well as physically reshape global commerce routes, including the Digital Silk Road. Controlling 5G infrastructure is key to China achieving its global industrial ambitions, and as such, a major focus of state-sponsored infrastructure investment. By funding Huawei’s expansion in the 5G infrastructure space, the CCP can ensure that Chinese national interests and Chinese companies are best positioned to benefit from the rise of 5G networks. China has used 5G strategically as a means of reinforcing existing economic ties and deepening economic and political engagement in regions such as Latin America and Africa. China has laid out a coherent vision for its 5G ambitions and has structural advantages executing it due to its state-centric economic model.

Despite a strong initial lead in the development of 5G infrastructure technology, freeing up significant amounts of mid-band spectrum, and launching 5G networks, China’s position has deteriorated significantly since the start of 2020. The U.S.-led ban on Huawei has gained significant traction, pushing Huawei out of markets where it had previously appeared poised to play a major role in 5G development. Compounding this issue, negative views of China have reached a historic high in many countries due to its perceived handling of COVID-19. (For a full breakdown and analysis of countries’ handling of the COVID-19 pandemic, see FP Analytics’ COVID-19 Index.) Another major weak point is China’s reliance on the U.S. semiconductor industry for the technology to operate its telecom networks, which the U.S. is attempting to exploit. These factors, combined with other missteps, such as the border clash with Indian troops, are challenging China’s dominant 5G position. With competition from Europe, South Korea, Japan and the U.S. gaining traction, China is struggling to maintain a lead in 5G which seemed insurmountable a year ago. Despite U.S. policies against Huawei incurring significant economic costs, the U.S. has so far doubled down, and appears unlikely to change course despite welcoming in a new administration.

While China has a significant lead over the U.S. in terms of domestic 5G deployment, it is at a competitive disadvantage is in its regulatory and entrepreneurial environment for developing applications on top of 5G technology. China’s entrepreneurial environment has improved significantly over the last decade, but its state-centric model still puts severe constraints on companies’ ability to flourish in China. For companies looking to develop on 5G, China ranks thirty-first in ease of doing business (Korea ranks fifth, and the U.S. sixth), and China’s restrictions on foreign firms entering its markets could make it difficult for multinationals to develop on its 5G networks. Additionally, the Chinese government has demonstrated an increased willingness to crack down on its private sector in 2020, highlighted by its actions to block Ant Group’s IPO in November 2020 —posing further challenges for the countries private sector. China is still undisputedly positioned to benefit from the development of 5G significantly more than from previous generations of cellular networks, and even in the face of increasing international challenges Huawei managed to increase its market share in telecommunications equipment by roughly 2 percent in 2020. While China’s overall lead in 5G has deteriorated some in 20202, there were also significant successes. The outbreak of COVID-19 catalyzed the rapid deployment of 5G technology domestically—China used 5G to track and contain the virus as well as improve medical care and service delivery —and China is now the global leader in domestic 5G subscribers, accounting for nearly 70 percent of global 5G connections.

Asia: South Korea and Japan Emerge as Serious 5G Competitors, While India Spurns Huawei

While the Chinese push to lead globally in 5G development has taken up most of the headlines, there are a number of other Asian countries with significant potential to shift the competitive landscape. Japan was the leader in 3G technology, beginning with the development of its i-mode mobile ecosystem in 1999, and it has ambitions to re-create some of this success with 5G. In 2007, Japan had emerged as the global leader in 3G with a 50 percent 3G market penetration. At the same point in time, the U.S. had a 3.5 percent market penetration, Germany had 12 percent, and Italy had 25 percent. That year, developers on Japan’s i-mode ecosystem were earning $9 billion a year. While Japan is currently still in the development stages of its 5G networks, with its 5G spectrum released at the end of 2019, neighboring South Korea was the first country to roll out its 5G services in April of 2019, beating the U.S. and China. South Korea launched its 5G services on a non-standalone 5G network (NSA), which builds on top of existing 4G infrastructure to increase data-transmission speeds. The U.S., China, and Japan have all followed similar strategies, hoping to build non-standalone 5G networks first, in order to develop technology and market leadership, and then move toward stand-alone (SA) 5G networks, which would enable the advantages of ultra-low latency and network-slicing functions, and facilitate a wider range of use cases for new devices.

In addition to being the first to launch commercial 5G services, South Korea is home to Samsung, the only other end-to-end 5G equipment provider, and the largest telecom equipment provider in terms of revenue. Samsung has struggled to gain market share in the 5G equipment space against Huawei, Nokia and Ericsson, but saw some growth in 2020 placing it ahead of ZTE in 5G base station market share. Japan also announced plans to fund its own national champion to compete directly against Huawei in the global 5G market in June 2020. While China should still be considered the overall leader in 5G, due to Huawei’s global footprint, its lead in patented technology, its presence in standards-setting organizations, and the state of its domestic 5G deployment, its lead is becoming increasingly precarious. South Korea is best positioned to benefit competitively if the U.S. and China’s confrontation continues to complicate their planned 5G rollouts, due being the first to rollout 5G networks and the advanced state of its domestic 5G deployment. South Korea also favors using high-band spectrum in its 5G networks, the U.S.’s current preferred standard.

The rest of Asia also presents a potentially key tipping point in the struggle between the U.S. and China. Huawei has had a long presence in Southeast Asia and was a major player in the rollout of 4G networks across the region, leading to Southeast Asia widely ignoring the U.S. ban on Huawei equipment initially. However, Huawei was dealt a major blow in the region when India decided to move away from Huawei in August 2020 following a border clash between troops in the Himalayas, removing them from Asia’s largest telecom market outside of China. Huawei also lost out to Nokia and Ericsson in a bid to build Singapore’s 5G network in June 2020. While Huawei maintains a steady presence in other Asian countries such as Thailand and Malaysia, exclusion from India’s telecom market was a significant blow, and increased regional competition from South Korea and Japan have the potential to further damage Huawei’s regional position.

Latin America: Continuing to Embrace Huawei, Despite U.S. Pressure

Chile, Argentina, Brazil, Peru, and Colombia have signed memoranda of understanding with Huawei, and Mexico and Bolivia have signed commercial contracts with Huawei, agreeing to allow Huawei to build out the core infrastructure in their 5G networks. The Chinese government has been investing aggressively in Latin America, with $110 billion in total FDI spent in the region between 2005 and 2018. Huawei has been part of this trend, investing $800 million to build a plant in São Paulo, Brazil—where Huawei has maintained a domestic presence for twenty-one years. The U.S. has aggressively targeted Brazil in its efforts to push Huawei out of global markets, and as of now, Brazil is considering legal options for banning Huawei but it remains unclear whether any action will be taken. In November of 2019, Huawei announced a $50 million investment in Latin America to help local developers build apps on its networks. Huawei has leveraged these longstanding relationships, along with prices 20 to 30 percent lower than those of competitors, into contracts with Latin America’s state-owned telecom companies. Given the current offering of Huawei equipment, and the stagnating economic conditions across Latin America, many state-owned telecom providers are faced with the option of using Huawei for their 5G infrastructure or waiting another two to three years to deploy 5G. One notable exception to this trend is in Uruguay, where the state-owned telecom provider, ANTEL, has signed a contract with Nokia to build out its 5G infrastructure. Overall, Huawei’s acceptance in Latin America is part of general shift toward greater economic integration with China. A lack of domestic 5G industry competitors ties Latin America’s 5G future strictly to China. While Latin American economies are unable to impact development of 5G significantly, their 5G rollouts could be hurt if the U.S. bans export of semi-conductors to Huawei.

Huawei's Penetration in Latin America

Huawei contract or memorandum of understanding — Restrictions in place or under consideration

Huawei contract or memorandum of understanding — No restrictions

Africa: Embracing Huawei, but Infrastructure Needs Are Daunting

Huawei has a long-standing presence in African markets due to its cost advantages and financing options. Huawei recently signed a MoU with the African Union to boost its 5G presence in Africa, and signed a commercial contract with South Africa, the first commercial 5G contract signed on the African continent. Huawei and ZTE built 50 3G telecom networks across more than thirty-six African countries. This trend continued during the rollout of 4G, with reports estimating that Huawei alone built 70 percent of Africa’s 4G networks. Kenya signed a $172 million deal with Huawei in April of 2019 to build a data center. Huawei’s longstanding presence in Africa will likely continue through the rollout of 5G infrastructure, with no major competitors positioned to step in and take its place. Much like Latin America, African countries’ 5G development is tied to China, and they do not have a significant ability to impact the development of 5G. Africa remains the region where Huawei is the most widely accepted, with only Eswatini signing on to the U.S. Clean Network initiative to ban Huawei. However, many African countries rank among those with the least developed telecommunications infrastructure, with 3G coverage still only reaching 75 percent of sub-Saharan Africa, creating significant hurdles for developing 5G networks.

Huawei's Penetration in Africa

Huawei contract or memorandum of understanding — Restrictions in place or under consideration

Huawei contract or memorandum of understanding — No restrictions

Opted for alternative carrier(s)