CELLULER NETWORK(INNOVATION)

INTRODUCTION
These are frenzied days for 5G. The transition to this next generation of wireless technology
presents unique opportunities and challenges that must be carefully thought through and addressed
if the United States is to maximize the successful flourishing of next-generation wireless networks
and the applications that rely on them. Policymakers are faced with complex technologies and
economic dynamics around 5G, wherein decisions have an outsized impact on long-term national
competitiveness and security.

Headlines feature consternation over the pace of 5G deployment, as well as the limited number of
5G equipment manufacturers and the risk posed by the continued rise of Chinese vendors,
especially Huawei. Some warn that unless the United States engages in a fast and extensive 5G
deployment, it will fail to gain a competitive edge in the applications that will leverage 5G networks. A
national 5G strategy needs to address both production and adoption issues.

However, any such strategy should also aim to support continued wireless innovation beyond the
next few years, while helping to ensure the development of future wireless technology (e.g., 6G) is
not ceded to geopolitical rivals, and ideally enables at least one U.S. producer to emerge and thrive.
The complex and interrelated nature of these policy considerations, and the considerable excitement
—perhaps overexcitement—around the technology itself, has contributed to a lack of clear strategic
vision from the United States. It is time for a reset.

A constant stream of op-eds, essays, and reports extol the virtues of next-generation networks and
emphasize the importance of “winning the race” to 5G. There are several different dimensions
through which 5G leadership or “winning” matters—some much more than others. The competitive
and security dynamics of 5G, especially as they relate to China and Huawei, have seen near panic
in some circles. Yet the ban on Chinese equipment in U.S. networks largely addresses short-term
security concerns. The longer-term challenge is whether the other major equipment providers—
Ericsson, Nokia, and new entrant Samsung—will be strong enough to avoid an eventual global
dominance by a Huawei that’s supported in part by unfair Chinese policies, especially if the
European Union forecloses any future merger between Ericsson and Nokia that might be required.

The challenge posed by an ascendant, increasingly global juggernaut championed and backed by
our primary geopolitical rival—Huawei—is real, if at times overstated. Next-generation wireless
equipment is connective tissue for emerging applications such as artificial intelligence (AI) and
automated smart-city controls. It makes little sense to allow control of such important infrastructure
to be influenced by a government that does not have U.S. interests at heart.

However, it is critical policymakers do not overreact to a perceived threat with steps that risk
undermining the advantages of the U.S. system, including a complex environment of dynamic
competition, voluntary industry-led standards development, decentralized and rapid innovation, and
a leading semiconductor sector. By and large, the system for generating and deploying new wireless
technology is working well. There is no need to panic. Instead, policies should double down on what
has been shown to work: strong support for our research universities and institutions; a strong
intellectual property (IP) protection system and support of the business models needed for the
entities bringing research breakthroughs to market; and encouragement of fair voting and healthy
institutional practices at standards-setting bodies such as the Third-Generation Partnership Project
(3GPP). At the same time, policy needs to strengthen support for both the current, successful
commercial U.S. wireless system and company efforts to deploy 5G systems throughout the nation.

The White House released a brief framework outlining a “National Strategy to Secure 5G.” 1 This is
an encouraging step, but this issue deserves more substance. That document is a beneficial initial
framing, but a more fulsome report should be more forward-looking and creative, especially in how
U.S. policy can encourage a diversity of secure vendors that are viable innovators. What we need is
a coherent and comprehensive national strategy for 5G, which should have the following
components:

 Deployment: The United States leads the world in successful Internet firms partly due to our early
deployment of broadband and wireless networks. While the “race” to 5G is clearly more like a 10K run than a
sprint, an early and broad deployment of 5G is critical. Two main levers to accelerate deployment are spectrum
and infrastructure policy:

o Spectrum: Demand for commercial access to the wireless airwaves that connect our devices
only continues to grow. The United States has led in allocating high-band 5G spectrum, but more mid-band
spectrum is needed.

o Infrastructure: Compared with previous wireless networks, 5G will require smaller and less
obtrusive—but much more numerous—cell sites. This “densification” will justify new rules around local
access to poles and rights of way, as well as support for buildouts in high-cost areas.
 

 Adoption: Just having the network out there is not enough—we must also make productive use of it.
Developing applications that take advantage of 5G breakthroughs is more difficult than in previous
generations, justifying support for digital transformation research and development (R&D), smart-city test
beds, smart manufacturing and agriculture, and government-agency adoption of 5G and 5G applications.

 Security and China: Given its potential pervasiveness, 5G must be secure and built with trusted
components. However, overreaction and poorly targeted policy risk accelerating Chinese technological
independence, hurting U.S. component suppliers, and undermining U.S. strengths. There are several aspects to
enabling a more secure 5G ecosystem:

o A ban on equipment deemed a security risk is likely justified, but should be based on clearly
stated policy and transparent risk analysis. Removing and replacing existing equipment in rural areas is likely
not worth the cost; it may well be better to wait for the natural upgrade cycle.

o The United States should work with like-minded allies to ensure a large-enough market of
trusted wireless equipment suppliers. The State Department should create an elevated position designed for
5G-related and other international concerns around security and emerging technologies.

o Policymakers should support continued wireless R&D, fair processes in standards-setting

organizations, and equipment interoperability. Also, U.S. technology leaders that support innovation in
wireless offerings need to be protected through strong IP rights, with a competitiveness screen applied to all
antitrust actions.

o Policymakers should help encourage the transition to virtualized radio access network
(vRAN) infrastructure, without unduly controlling the architecture of 5G networks as demand shapes the
deployment. Now is the time to start pilot programs designed to identify and addressing practical challenges to
scaling vRAN deployment, as well as signaling to the market that this is a policy priority of the United States.
WHAT IS 5G?
At one level, 5G is simply the next generation of wireless infrastructure. New generations of mobile
come in waves, requiring changes throughout the network. The first generation of mobile
telecommunications was focused purely on basic voice service. The next generation, 2G, was still
focused on voice, but made the switch to digital standards and enabled text messaging. 3G then
introduced data services, expanding the functionality beyond voice to include multimedia and limited
Internet access. It was not until 4G that a full specification based on Internet Protocol allowed for
functional mobile broadband, in turn serving as a platform for dizzying innovation in mobile
applications. These waves of technological changes have come in roughly decade-long cycles: 1G
mobile voice in the 1980s, 2G in the 1990s, 3G basic data in the 2000s, and 4G LTE data in the
2010s.

In one sense, 5G is simply the next step in this cycle. Yes, 5G will offer new-and-improved
capabilities (e.g., lower latency, higher capacity, and support for a larger number of connections). 5G
will see a much greater capacity of mobile networks, thereby driving down unit costs and increasing
consumer surplus, and likely expanding the dynamic competition between fixed and mobile network
providers. 5G will likely serve an important role in future digitization and automation of systems,
connecting smart sensors with AI.

The real hallmark of 5G (as well as other next-generation wireless standards such as Wi-Fi 6) is in
flexibility and adaptability. 5G can change various technical parameters to tailor connectivity to
different use cases. Whereas the LTE air interface for 4G was designed primarily for smartphone-
and tablet-oriented mobile broadband, the New Radio (NR) standard for 5G can adapt to a much
wider variety of uses, and may support an explosion in cheap sensors for machine-to-machine or
Internet of Things (IoT) devices.

5G is not a monolith. There are different component technologies to 5G—and different versions of it
will be deployed in different areas over time. Crucial policy decisions involved in a national strategy
for 5G turn on important, if somewhat obscure, distinctions of different parts or flavors of 5G
networks, such as the difference between the core and the edge of the network, and between stand-
alone and non-stand-alone networks.

Technology Components and Architecture

This section offers an overview of some of the wide variety of technologies and improvements that
will be incorporated into next-generation 5G networks. A basic understanding of the technological
components of 5G gives a better sense of the important policy decisions that must be made in order
to drive a more nuanced and strategic vision for U.S. networks.

New Radio Standard

At the center of any generation of mobile technology is what is known as the “radio interface,” which
allows the end-user device (e.g., a smartphone) to connect with the rest of the network over the air.
Throughout the country, mobile operators have deployed hundreds of thousands of base stations—
usually rectangular boxes a couple feet tall located on cell towers or on top of buildings. These base
stations use electromagnetic spectrum (i.e., radio waves) to send signals of encoded information to
smartphones or other wireless devices. Wireless networks are in actuality mostly wired, only going
“wireless” for the last few hundred or thousand feet. “Radio interface” (or “air interface”) refers to the
language phones, tablets, and other devices use to communicate with the base station in order to
access the Internet. For 4G, this radio interface technology is called Long Term Evolution, or LTE.
For 5G, the standard is NR—an apt, albeit not-so-creative, name.

The NR standard is developed within the standards-setting organization known as 3GPP. While
3GPP has agreed on the initial specifications for 5G, the body is constantly improving and adding
new features through new releases. The standard does not stand still. Equipment manufacturers
also offer their own non-standardized features, so the 5G air interface continues to evolve and is not
a single monolithic offering. The 3GPP standardization process is an important, if obscure, locus of
geopolitical strife over what innovations make it into the marketplace.

Massive MIMO and High-Frequency Spectrum

An important development in wireless communications is the use of multiple antennas on either end
of a wireless link. Transmitting and receiving data over multiple antennas—known as Multiple-Input
Multiple-Output (MIMO)—increases the capacity of the link, adds redundancy, and improves
performance wherever radio signals are bounced and reflected off buildings. 2

While MIMO of a smaller scale, say two or four antennas, is common today, one of the
breakthroughs driving 5G investment is Massive MIMO, which uses significantly more antennas.
Antenna size is generally proportional to the wavelength of spectrum used, so higher-frequency
spectrum allows for smaller antennas. Using higher-frequency spectrum allows devices to
accommodate hundreds of tiny antennas, dramatically increasing performance.

These advanced Massive MIMO antennas unlock the potential of spectrum previously thought
unusable for mobile communications.3 This extremely high-frequency spectrum, often referred to as
“millimeter wave” (mmWave) because its wavelength is measured in millimeters, offers the potential
for a tremendous throughput capacity, as there is a large amount of spectrum available that is well-
suited for small cells that reuse the same spectrum across different areas.

The massive amounts of bandwidth available at higher-frequency spectrum unfortunately come with
a trade-off: Higher-frequency spectrum generally does not propagate as far as lower-frequency
spectrum at the same power level. It is likely mmWave spectrum use in 5G systems will initially be
focused in areas of concentrated high demand, such as high-density urban areas.

MIMO, however, can also be used with spectrum that has better propagation characteristics. In
particular, so-called mid-band spectrum represents the sweet spot in terms of geographic coverage
and capacity for higher throughput—and mid-band spectrum of a certain frequency and higher can
successfully leverage the multiple antennas of MIMO, though mid-band spectrum generally does not
use as many antennas as the smaller-wavelength mmWave bands. This means, while there is no
single “5G band,” there is a particular range of frequencies—roughly 2.5 to 6 GHz—that are in
extremely high demand for 5G systems because they make best use of recent technological
advances.

Small-Cell Architecture
Historically, spectrum reuse has been far and away the source of most gains in increasing the
overall use of wireless systems. Techniques such as making smaller cell sizes or splitting cells into
different sectors allow for greatly increased capacity. Smaller cell sizes allow operators to essentially
“reuse” the same frequencies at each geographic site. This trend toward smaller cell sizes,
especially in areas of high demand, is not unique to 5G. But the next-generation deployment is
anticipated to greatly accelerate the trend toward small cells, especially wherever mmWave
spectrum is leveraged.
But this smaller-cell-size solution is limited as well. As cells get smaller and smaller, costs begin to
skyrocket. The expenses of additional equipment, backhaul connections, rights-of-way negotiations,
and the engineering to avoid self-interference quickly swamp the benefits and cannot easily be
borne alone by additions to consumers’ monthly bills. Policymakers can help alleviate some of these
costs by right-sizing regulations that historically may have been designed for large macro-towers.

Understanding Virtualization: SDN, NFV, vRAN, cRAN, and O-RAN

Access network operators are quickly adopting technologies to shift aspects of networking
traditionally performed by hardware into more agile software environments. The last few years have
seen a dramatic rise in the use of software-defined networking (SDN) techniques. SDN is a
technology that essentially separates out the control over the routing of network traffic, and allows
centralized software—rather than individually configured pieces of specialized hardware—to
dynamically adjust the network.

In the traditional mobile networking approach, the core network includes a variety of hardware
appliances designed for specific functions. These appliances include, for example, routers, firewall
devices, network address translators, session border controllers, gateways, and load balancers.
These pieces of hardware are necessarily fragmented and purpose built, with each individual
appliance requiring physical installation, configuration, and power. It is a costly and cumbersome
process to build or change a network with all these individual components, which slows the
innovation cycle.

Virtualization of these functionalities—known as Network Functions Virtualization (NFV)—represents

an important disruption of this system, wherein operators are transitioning to general-purpose
servers and switches throughout the network instead of purpose-built hardware that must be
individually installed and configured. The functionalities can then be provided in software at a lower
cost and with a faster pace of innovation. Generic, commercial, off-the-shelf hardware can be used,
resulting in a greater diversity of suppliers at a lower cost.

The new software-based control over networks also enables network slicing, which gives control
over logically separate data flows, and allows the network to tailor specific technical requirements for
different use cases. Network slicing also provides better performance, supplying resources on
demand and potentially enabling new business models beyond the classic mobile subscription.

These technologies allow for a far more dynamic network that can adapt to the needs of specific
applications on a granular basis. And while the corresponding changes to how networking is done
may seem obscure and technical, they comprise crucial changes to how networks—both wired and
wireless—will transition to 5G, and evolve beyond.

Key policy questions surround the virtualization of the radio portion of the network—known as vRAN
—such as it potentially helping to challenge the rapid growth of Chinese national champion Huawei.
There are some risks and challenges in transitioning to a more virtualized network, but there are also
opportunities for policy to carefully encourage market forces already driving the industry toward a
more open, less costly, and more innovative equipment ecosystem.

There are a slew of technologies—and abbreviations—related to vRAN. At its most basic, a vRAN
involves a separation of the antenna element of a base station from the processing for the baseband
unit and other components that prepare information to be sent out over the air. Like the virtualization
of other functions in the core of the network, the signal processing necessary to encode and decode
information can then be run in software on relatively generic hardware. Instead of a specialized,
integrated piece of equipment sourced and maintained from a single vendor, a vRAN might include a
wider diversity of companies specializing in the software that runs the cells’ functions, and generic
hardware similar to high performance servers.

A vRAN also allows for a related cloud RAN (cRAN), wherein the resources needed to do the
baseband processing are pooled together instead of provisioned individually for each base station.
While at not nearly the same scale as cloud computing, the basic idea is the same: It is dramatically
more efficient for several cell-tower base stations or small cells to share processing, memory, power,
etc., rather than have redundant systems for each individual cell. Today, the signal-processing
resources of base stations are generally inefficiently used, as they must be provisioned for peak
utilization of each cell. There are, however, some limitations to cRANs. The communication between
the signal processing and the radio antenna units must be in tight synchrony, so high-quality, low-
latency connections are required. Engineers will continue to improve the opportunities around
cRANs, although cRANs will likely only be used for clusters of cells in each area, rather than for an
entire network.

Figure 1: Mobile network architecture comparison

Open RAN (O-RAN) generally refers to the interfaces between different components of a vRAN
system, which can use open, interoperable interfaces and application programming interfaces, or
closed, proprietary interfaces. The term “O-RAN” was pioneered by the O-RAN Alliance, which is an
operator-led organization that pushes for more open interfaces in RAN equipment. However, other
organizations, such as the Facebook-led Telecom Infra Project (TIP) have been working along
similar lines. Whatever the exact term or specification, more open RAN interfaces will allow for a
wider number of potential vendors for both the software and hardware.

The term “virtualization” may be somewhat confusing, as it makes it seem as though the network
itself is immaterial, existing only in the cloud. This is not the case. Only the specific functions are
virtualized, and still must run on hardware, even if that hardware can be commoditized, commercial-
off-the-shelf components. Antennas and small cells still have to be deployed throughout
neighborhoods and communities; fiber fronthaul (connecting the radio antenna units to the baseband
signal processing equipment) and backhaul (connecting that signal processing back to both the core
network and the wider Internet or telephone network) must be installed. Advanced vRANs are no
less—and often more—dependent on the physical infrastructure. However, open vRAN equipment
features several advantages, with lower cost, faster innovation, more supplier diversity, and more-
efficient use of resources among them.

Edge Computing
Edge computing refers to the practice of moving computing resources closer to the edge of a
network. Mobile or multi-access edge computing can be thought of as the hosting of a miniature data
center much closer to the user, perhaps in the central office of a telco provider or even on the
premises in the case of sophisticated manufacturing or enterprise use cases.

As it is still in its early days, it is not clear exactly how edge computing will change the dynamics of
the broader tech and telecom sector.4 Edge computing is widely expected to bring large benefits to
data and processing-intensive applications that benefit from very low latency, such as virtual and
augmented reality, robotics control, and other industrial uses. Applications enabled by edge
computing are expected to benefit producers in the manufacturing sector through digital twin
technologies.5
A good example of how edge computing is likely to develop is Verizon’s announced partnership with
Amazon’s AWS to provide edge services.6 This partnership will enable developers to work with the
already highly scalable AWS environment to optimize performance for extremely low-latency
services. One potential use case is gaming, wherein Verizon and AWS are currently working with
video game publisher Bethesda Softworks.7 Similarly, AT&T has announced a partnership with
Google Cloud.8 Low latency is crucial to a seamless virtual or augmented reality experience. For
example, 5G combined-edge computing and high-performance augmented-reality glasses could
bring tremendous benefits to productivity throughout the economy, in addition to enhancing
entertainment.

Overview of Actors in the Dynamic Wireless Ecosystem

Wireless networks and their equipment components are complex systems with dizzying supply
chains. Nearly all of them are undergoing rapid transformation under the transition to 5G.  Consider,
for example, Apple—which represents just one company within a much broader system—and its list
of more than over 200 suppliers that provide components for its products. 9 It is important
policymakers have a rough understanding of all the different players participating in the complex
system that brings 5G to the market. This section offers a general explanation of those various
actors, many of which are small players making interesting contributions (which is necessarily an
oversimplification).

Foundational Technology
At the base of 5G, to enable efficient communication over the airwaves, there is technology that
requires tremendous R&D across a range of different fields. The coding algorithms to efficiently
detect and correct errors, for example, is an area of continued research and innovation. 10 The
channel modelling to study the use of different frequencies of spectrum sees ongoing work.
Materials sciences also continue to make contributions that, for example, improve antenna, chipset,
and battery performance.

There are many companies and research institutions that contribute to the foundational technology
of wireless communications. The U.S. company Qualcomm is a clear leader in developing the
underlying technology of 5G, especially technology related to efficient use of spectrum resources.
Numerous other companies involved in RAN-equipment development, such as Ericsson, Huawei,
Nokia, Samsung, ZTE, and NEC, are also major contributors. These firms offer proposals to
standards-setting organizations, such as 3GPP, to be incorporated into the 5G specifications. Often,
these proposals aim to get a firm’s patented technology incorporated as essential to the standard,
which would result in royalties to that firm for each device using the technology.

Discussions around supplier diversity and security concerns in the RAN-equipment

market have reached a fever pitch, though often the foundational technology and the
research that goes into developing a new wireless standard is not as widely considered.

These foundational technologies and techniques may be obscure to the everyday consumer, but are
critical to the basic and efficient functioning of mobile wireless communications. For example, there
is an important group of foundational technologies that deals with both the way in which information
is encoded before it is sent over the airwaves, and how errors are checked and corrected. 5G
wireless connections are designed to automatically optimize for a wide variety of use cases, from
battery-sipping moisture meters on farms to the streaming of ultra-high-definition videos to high-
speed trains. Some of these require very high reliability and throughput, while other connections
prefer communications to be as simple as possible in order to save on other resources, such as
battery life and processing power. To make these trade-offs efficiently, the foundational technology
must be flexible and scalable across a number of characteristics. Coding algorithms and error-
correction technologies, for example, continue to see innovations and developments—and the
selection of these foundational technologies for inclusion in the 5G standard is a major decision.

A firm understanding of the role of the various foundational technologies underlying continual
wireless innovation is notably lacking from U.S. 5G policy conversations. Discussions around
supplier diversity and security concerns in the RAN-equipment market have reached a fever pitch,
though often the foundational technology and the research that goes into developing a new wireless
standard is not as widely considered. Increased support for R&D that filters through U.S. research
universities, our National Labs, and the National Science Foundation (NSF) is critical to continued
breakthroughs in the underlying mobile technologies. It is also crucial that a long-term national
strategy consider both the business models needed to bring such inventions to market and the IP
framework needed to protect those innovations, and appropriately support well-functioning,
democratic standards-setting institutions that incorporate foundational technology.

Network Equipment
Network equipment obviously plays a critical roll in the overall telecommunications system. A healthy
and secure telecommunications sector depends on the suppliers of a variety of equipment inputs. In
many ways, several national policy goals are tied to network equipment suppliers. The pace of
innovation throughout the mobile communications industry, the integrity of the supply chain, and the
capability to enhance connectivity to boost productivity throughout a number of traded sectors are, to
one degree or another, tied to the equipment suppliers.

Over recent decades, the telecommunications-equipment industry has seen rapid consolidation on a
global scale. In part, this is due to economic forces driving companies toward achieving ever-greater
economies of scale—on both the equipment side as well as the purchasing side of the operators.
The two sides of this market—vendors and operators—typically work together through repeat
business, with a tendency for operators to stick with suppliers they know and trust. While the
equipment sector continues to make large investments in innovation, the considerable economies of
scale, relative concentration, and difficulty for small players to enter the market mean dynamic shifts
in the market move relatively slowly.

There are a variety of types of equipment within the network. Optical equipment used to transport
very large amounts of data between networks in different cities, routers and switches used to direct
traffic throughout the network, and equipment that translates between wired and wireless portions of
mobile networks all have their own subsectors of network equipment, with different companies
specializing in separate parts of the network.

While perhaps oversimplified, a key distinction is between equipment for the core and the edge of
the network. The core of the network is generally wired using fiber or coaxial cable, and contains
equipment that provides the functionalities of an individual company’s network, and then connects
users to the broader Internet or telephone network.

The edge of a mobile network refers to where the network signals transition from wired to wireless.
This component of the network is the RAN. An important focus for policymakers for a number of
reasons, RAN equipment is expected to represent the largest percentage of overall 5G deployment
cost.11 The RAN comprises 65 to 70 percent of the total cost of the network. 12 This market is also
where Huawei has achieved considerable success and market share.
After a series of mergers and acquisitions, the United States no longer has any sizeable companies
that provide RAN equipment. It used to lead the world in the production of telecom equipment
through AT&T’s Western Electric (and related Bell Labs), but overly aggressive antirust actions
coupled with a complete lack of industrial policy focus on the U.S. domestic telecom equipment
industry has meant the almost complete loss of industry capabilities. After AT&T spun off Western
Electric (later renamed Lucent), in response to the Department of Justice’s (DOJ) requirement
separating the company into regional Bell operating entities, a series of management failures and
strategic mistakes led to the Lucent losing significant market share. Lucent lost its way in part
because it mistakenly chased opportunities created in the wake of the 1996 Telecommunications Act
related to the artificial, and ultimately doomed, government-induced creation of market competitive
local exchange carriers (CLECs). Unlike foreign telco equipment companies, Lucent bet heavily on
the CLEC market—including providing generous financing for their equipment—and as a result had
to write off tens of billions of dollars of bad financing. It also didn’t help that Lucent was much more
aggressive in pursuing short-term stock-price inflation. Continued weaknesses led it to merge with
Alcatel to become Alcatel-Lucent, which in turn was purchased by Nokia. During that same time
period, in 2009, Nortel, a Canadian firm with significant employment presence in the United States
went bankrupt, suffering in part from Chinese IP theft and overaggressive prosecution by the U.S.
Securities and Exchange Commission.

The United States does have companies that make networking equipment, most notably Cisco and
Ciena, though they largely focus on optical and switching equipment for the network core rather than
the RAN equipment market. What’s surprising is, while Lucent and Nortel were falling off a cliff,
virtually no one raised the concern that North America would no longer have a viable telecom
equipment producer.

Figure 2: Global telecom equipment market share13

After the decline and fall of North American RAN equipment makers, leadership shifted to Europe—
particularly to Ericsson and Nokia. However, in the last two decades, Chinese champion Huawei has
grown extremely rapidly to become the world’s largest provider, in part due to a protected Chinese
market and Chinese government subsidies.14 Since the 2000s, Huawei has been able to gain
significant market share, in both China and elsewhere, by selling equipment at between 20 to 30
percent below the price of the other major providers—or approximately the same amount the
Chinese yuan has been devalued. 15 It also may have benefited from IP theft, especially from
Nortel.16 Chinese state-owned ZTE also provides RAN equipment, and Samsung of South Korea
has a small-but-growing presence in the RAN market. There are some small United States-based
RAN vendors, but they are generally focused on innovative new virtualization techniques, and do not
have large-scale manufacturing capabilities.

Huawei’s impressive economies of scope and scale have troubled Western security analysts who
fear continued economic pressure on trusted providers of RAN equipment could make a significant
share of the world’s telecommunications equipment subject to a geopolitical rival. 17 Huawei’s rise
has put financial pressure on the incumbents Ericsson and Nokia, which in turn has led to reductions
in each of their R&D budgets.18 Nokia has reportedly been exploring a merger or asset sales to help
shore up its financial position.19

Huawei, on the other hand, continues to pour large amounts of money into R&D. On a purchasing-
power-parity basis, it is now the largest investor in R&D in the world—although approximately 10
percent of that is provided by Chinese government grants. 20 In 2018, Huawei spent about as much
on R&D as Nokia, Ericsson, and Qualcomm combined. 21
Operators
Mobile network operators are the consumer-facing businesses in the wireless system. In the United
States, the major nationwide operators are AT&T, Sprint, T-Mobile, and Verizon. There are also
several smaller regional and rural carriers. These companies integrate a number of components and
services into their offerings. For example, they purchase network equipment, as well as services to
keep that equipment running and up-to-date with latest advances, from the providers. Operators
procure spectrum, typically through auctions held by the Federal Communications Commission
(FCC) or secondary-market transactions. They work with tower companies, such as American
Tower, Crown Castle, SBA Communications, and others, to rent space and get power for their
equipment.

Operators and their various contractors make a dizzying array of decisions regarding how networks
are deployed, the particular architecture that suits a neighborhood or area, and what spectrum to
use where and how. Operators must carefully design networks to avoid self-interference between
cell sites to efficiently serve the various levels of demand between neighborhoods. Deploying and
operating a mobile network is an incredibly complex undertaking, wherein basic decisions around
the design and architecture of the network are made under intense competitive pressure.

Devices and Components

Connecting to the operators’ networks on the device side are all the various smartphone handsets,
IoT sensors, and mobile connected devices. Global market leaders in the smartphone arena are
well-known brands internationally, while the Chinese brands are not popular in the United States.
They include Samsung (South Korea), Huawei (China), Apple (United States), Xioami (China), and
OPPO (China).22 Devices other than smartphones, of course, also connect to 5G networks. Laptops
and tablets feature 5G connectivity, but so do a wide variety of IoT devices, smart-city sensors, and
industrial and manufacturing equipment. Major providers of industrial IoT hardware include Cisco
(United States), Huawei (China), Ericsson (EU), TE Connectivity (EU), and Qualcomm (United
States).23

Each of these devices is made up of component parts sourced from a variety of suppliers. One of
the key components for mobile devices is the various semiconductor chips necessary for
communications, processing, and other functionalities, which, for smartphones, are sold to device
manufacturers as an integrated “system on a chip” that contains a processor, memory, and a
modem to enable connection to the network. Here again Qualcomm is a leader, both in chipsets and
particularly in designing the modems that provide connectivity. Huawei’s HiSilicon brand has a
strong production in an array of semiconductors, and has begun development of many chips that
were cut off from the U.S. market.

Operating Systems and Applications

Android and iOS, developed by Google and Apple respectively, are far and away the most popular
operating systems for smartphones. Estimates for the share of devices running some flavor of
Android worldwide are around 75 to 85 percent, with most of the remaining running iOS. 24 Android
OS is open source, so its large market share represents a variety of versions and flavors controlled
by different companies. Huawei has developed its own operating system, called Harmony OS, and
has begun to deploy it in a number of products, though notably not yet in phones or tablets. 25 Recent
U.S. export controls intended to thwart the ability of Huawei to use U.S. software only accelerated
this development.

New and Evolving Stakeholders

The new technologies and dynamics around 5G are bringing new entities into the mobile system.
Cable providers, for example, are a perhaps underappreciated stakeholder in the 5G ecosystem.
The exact role cable will play in 5G—collaborator, competitor—is not yet clear. In many parts of the
United States, cable companies such as Comcast and Charter have extensive high-speed networks
that provide quality backhaul services.26 In many jurisdictions, these companies are able to install
and power small cells on the strands of cable hung between pre-existing poles, and thereby
potentially avoid the lengthy processes and expensive fees associated with small-cell
siting.27 Although cable providers do have mobile offerings, much of that traffic today is routed via
the large Wi-Fi deployments the cable companies offer access to or otherwise relies on bandwidth
from mobile operators such as Verizon (via wholesale agreements).

There are indications the cable industry may in the future be an important user of the 3.5 GHz
Citizens Broadband Radio Service (CBRS) spectrum that is coming online, potentially building
systems on that lightly licensed spectrum. This more-flexible spectrum-access system might enable
a shift toward more private networks, especially for large enterprise campuses. The ability to access
clean spectrum at a low transaction cost through the CBRS spectrum could bring in new participants
to the wireless space operating at a smaller scale for specialized use cases and locations. 28

Virtualization is quickly disrupting established practices. The operational savings and new flexibility
are driving operators to transition to SDN and NFV soon. For example, AT&T aims to control 75
percent of its core network functions with software by the end of 2020. 29 Many companies relatively
new to the telecommunications sphere are helping in this revolution. VMWare is a major player in
virtualization across the board, and telecommunications is no exception. IBM is offering new open-
source telecommunications services through RedHat. A slew of small and medium-sized companies
are developing this technology and offering services. U.S. companies such as Mavenir, Parallel
Wireless, and Altiostar are gaining attention for focusing on equipment with open interfaces that can
leverage these new changes in networking.

The O-RAN Alliance, an association of companies exploring open specifications and interfaces
between components of RAN equipment, has received much of the attention on the potential
solutions for vRAN specifications based on open interfaces. The O-RAN Alliance boasts a large and
growing membership, initially championed by mobile operators. As of this writing, 22 mobile
operators are members, including the major network operators of the United States, South Korea,
Japan, India, China, and Europe. The Alliance is driving toward SDN solutions that would leverage
“white box” network architectures with generic off-the-shelf hardware. Other organizations, such as
the Facebook-led Telecom Infra Project, also have considerable momentum.

WHY 5G IS IMPORTANT: SEPARATING

HYPE FROM REALITY
To listen to some breathless accounts, 5G will do everything—potentially even having a hand in
curing cancer.30 Some have argued 5G will be central to U.S. military capabilities; others tout
remote-controlled robotic surgery.31 Some of 5G’s potential is at risk of being oversold. Gartner, in its
famous “Hype Cycle” of technological development analysis, put 5G at the very peak of hype in its
2019 report.32

With any new technology there is always hype, and at one level this is positive because it creates
excitement, motivating companies, consumers, and policymakers to support innovation. But too
much hype is harmful, as it risks leading to a backlash and cynicism from dashed expectations.
Overinflating the importance of 5G—making it a stand-in for a country’s overall technological
prowess—also invites bad policymaking made out of misguided national security or geopolitical
fears.33 In reality, what 5G can actually do is more than enough to warrant significant excitement
without going overboard with unrealistic hype.34

5G is being designed to meet three general types of use cases: enhanced mobile broadband,
massive IoT connections, and critical high-reliability and low-latency services. The goal is to have a
flexible network that can adapt to a wide variety of use cases throughout a number of different
vertical industries. Enhanced mobile broadband should see faster throughput (with gigabit-per-
second speeds possible), latencies as low as 1 millisecond, and a consistent user experience.
Massive IoT services within 5G are being designed for power efficiency and simplification to keep
device costs low, for longer ranges, and to support far-denser IoT connections. Connections can
also be tailored to maximize reliability, thereby facilitating investments in high-value use cases with
tight timing and low error requirements, such as precision manufacturing and large-scale industrial
robotics.

Although perhaps not as exciting as the exotic applications unlocked by super-low latency, the most
immediate benefit of 5G for the consumer market may simply be the massive additional capacity it
offers. New technology that takes advantage of previously unused spectrum means much more
bandwidth, putting strong downward pressure on the volume price of data plans once the capacity is
available.

FIXED WIRELESS TO THE HOME

Some initial deployments of mmWave spectrum have focused on home broadband connections. By
using the massive amounts of bandwidth available in high-frequency spectrum, wireless providers
are able to offer home broadband—wherein, for example, devices can be hung outside a window to
pick up mmWave signals from a nearby cell tower that might otherwise be impeded by walls or
reflective widows, and then beam Wi-Fi to the inside of the house—with performance characteristics
similar to existing wired options. These initial fixed wireless products are offered outside the original
wired footprint of wireless, such as AT&T’s and Verizon’s fixed-telco networks, and add an often
overlooked dynamic in broadband competition.35 The cable industry will likely play in important role
as a backhaul provider for 5G wireless networks.36 Cable companies also have wireless offerings of
their own, leveraging their deep Wi-Fi hotspot networks and partnerships with existing wireless
networks. 5G will drive interesting competitive dynamics, potentially deepening existing partnerships
through backhaul and reseller agreements, and accelerating cable networks’ transition to
independent wireless providers. Higher-performance wireless networks with greater capacity may be
offered to those willing to cut the cord entirely. This dynamic is expected to accelerate when the New
T-Mobile is able to deploy its combined Sprint and T-Mobile spectrum assets.37

More broadly, continued wireless innovation is also a relatively important industrial sector in and of
itself. While the United States does not have an equivalent wireless equipment manufacturer to
Ericsson or Nokia, U.S. companies do still supply devices and important components—such as the
variety of chips that go into handsets—as well as develop some of the foundational technology of a
wide variety of communications, while also providing much of the valuable software that relies on
these networks.

Ultimately, the most important aspect of 5G is its potential to drive productivity gains through the
variety of industries and sectors that can leverage wireless connectivity. While companies and other
organizations currently use 4G connections designed for mobile broadband, 5G will bring a number
of benefits and open up a broader number of use cases. One important advantage of 5G is low
latency. Another is the ability to combine a significantly larger number of inputs into the network with
finer grain control, allowing for tighter integration with a wide array of verticals throughout the
economy compared with 4G.
Several studies of 5G attempt to estimate its economic impact. The GSMA, an international mobile
trade association, has estimated 5G will contribute $2.2 trillion to the global economy over the next
15 years—or roughly 5.3 percent of gross world product (GWP) growth. 38 The GSMA estimate says
35 percent of those productivity gains from 5G technology will be in the manufacturing and utilities
sector, and 29 percent in the professional and financial services sector. IHS Markit estimated that,
by 2035, the 5G value chain alone will drive $3.6 trillion of economic output, and support 22.3 million
jobs.39

It is difficult to know for sure the ultimate impact of 5G as compared with such connectivity solutions
as 4G or previous IoT-focused protocols. A report by Accenture commissioned by the wireless trade
association CTIA estimates 5G will require infrastructure investments by U.S. telecom operators of
about $275 billion, and ultimately contribute 3 million jobs and $500 billion in gross domestic product
(GDP) growth to the U.S. economy.40 One reason for the considerable excitement about 5G is it has
potentially significant applications in a wide array of producer areas, including logistics, utilities,
manufacturing, city management, health care, and others. Some of the benefits are expected to flow
from smart-city applications. For example, 5G connectivity, combined with data analytics, could be
applied to the management of vehicle traffic and electrical grids, which could produce $160 billion in
benefits and savings through reductions in energy usage, traffic congestion, and fuel costs. 41

Arguably, the United States led in the last wave of Information Technology (IT) innovation in part
because it led in 3G and LTE, and because of good national policy, including regarding spectrum.
The 3G and 4G platforms enabled U.S. innovators to get into the market, first with innovative
offerings, and ultimately to scale those offerings and gain first-mover advantages around the world.

The long-term goal is a combination of 5G connectivity and AI, not just within the orchestration and
operation of networks, but to enable the coordination of decision-making at the application layer. As
researchers with Huawei have put it, “One of the most fundamental features among the revolutionary
techniques is in the 5G era, i.e., there emerges initial intelligence in nearly every important aspect of
cellular networks, including radio resource management, mobility management, service provisioning
management, and so on.”42

CHALLENGES AND THREATS TO AN

INNOVATIVE, SECURE WIRELESS
ECOSYSTEM
There are a number of challenges facing U.S. policymakers and private-sector actors in the
transition to 5G. Understanding each distinct challenge is the first step in crafting policies to
effectively address each task ahead. A relatively early and broad deployment is an obvious area of
focus, but a national strategy should also address acute security concerns related to the supply
chain, long-term wireless innovation, and demand-side adoption efforts to see 5G effectively
integrated with the economy.

Deployment
A swift deployment of 5G is important, but much of the media concern over the race to be the first
country to deploy 5G is misplaced. When it comes to the biggest impact of 5G—the overall
economic value creation—what matters is having a network of large-enough scale such that U.S.
companies are able to develop new applications and uses that require the capabilities of 5G. There
is something of a first-mover advantage, but it is not a significant setback if the United States is not
the first to achieve similar coverage deployment as other countries (as will likely be the case
considering the cost structure of America’s dispersed populations).

The aim should not be to deploy 5G as quickly as possible, but to set the conditions for successful
long-term innovation and growth of this important platform. All nations, including the United States,
are striving to be early in deploying large-scale networks. In the United States, there is no reason to
believe the three intensely competitive and financially healthy wireless providers—plus the hungry
new entrant, Dish—will not have the capability or incentive to deploy 5G networks to meet demand.
However, there are obvious policy levers to help accelerate deployment: infrastructure, spectrum,
and tax policy. As the first two levers have been widely discussed elsewhere and are not the core
focus of this report, we will only briefly address the policies to accelerate the deployment of 5G—the
table stakes of a national 5G strategy.

Chinese operators do not face the same impediments to deployment as those in the United States,
in part because of much higher population densities in China, and Chinese carriers being state-
owned enterprises that are “encouraged” by government to deploy quickly. It is estimated that
Chinese mobile providers have deployed about 15 times as many 5G base stations as the providers
in the United States.43

Equipment Supplier Challenges

Chinese companies are seeking to lead across the 5G ecosystem—in its foundational technology,
equipment, devices, and applications. China Mobile has set aggressive timelines for deployment of
next-generation wireless. This aim at 5G leadership has seen Chinese companies, such as Huawei,
take on a much larger role in standards-setting organizations, and in equipment design and
manufacture in a way that sees a much more outward, global focus compared with prior generations
of wireless technology.

THE THREAT OF FOREIGN DOMINATION OF RADIO AND THE FORMATION OF THE RADIO
CORPORATION OF AMERICA44
During WWI, the U.S. government took over most civilian radio stations. After the war, Congress
forced a reluctant Navy to give the stations back to their original owners. The Navy was particularly
concerned about returning the high-powered international stations to American Marconi, which was
majority owned by the British, who also controlled most international undersea cables.

The Navy then looked to prevent British oversea radio dominance through another route. In 1919,
General Electric (GE) developed a new breakthrough component for high-power transoceanic radio
—the Alexanderson alternator transmitter. GE was negotiating to sell its entire production to the
British-controlled Marconi companies, but the Woodrow Wilson administration applied pressure to
block the sale. GE resisted—as the British companies accounted for the entire sales of the machine,
which was expensive to develop—but worked with the U.S. government to develop a consortium
including AT&T, Western Electric, and others to buy out American Marconi in order to create an all-
American radio company: the Radio Corporation of America (RCA). RCA later fell into trouble after
DOJ forced it to license its television patents, even though the evidence showed their market power
had almost no negative impact on consumer prices, and actually spurred innovation. This misguided
DOJ action provided the crucial leg up for Japanese television producers, which in turn led to the
complete collapse of the U.S. television manufacturing industry. 45

The support of “national champions” to lead in 5G is explicit policy in China. The U.S. China
Economic and Security Review Commission outlined six major ways in which Chinese policy has
successfully created globally competitive telecommunications firms and reduced dependence on
foreign technology: (1) providing significant financial support; (2) utilizing localization targets and
government procurement to favor domestic firms; (3) promoting Chinese technology standards
domestically and internationally; (4) constraining foreign market access; (5) cultivating national
champions (e.g., Huawei and ZTE); and (6) allegedly engaging in cyber espionage and IP
theft.46 They could have added the policy from the 1990s and first decade of the 2000s that required
foreign equipment makers to “trade technology for market access,” which was responsible for
training thousands of Chinese engineers and managers. 47

In some ways, increased Chinese integration within the global telecommunications supply chain
could in theory be a good thing if it succeeds in providing increasing economies of scale, globally
interoperable equipment, low-cost roaming, and cheaper devices. But it must be remembered that
even a private company such as Huawei would not exist today absent protectionist and mercantilist
policies by the Chinese government. Moreover, the focus on Chinese participation in the
telecommunications supply chain must be considered in context, and may ultimately undermine U.S.
interests, as well as the broader wireless innovation ecosystem, unless tailored policy responses are
put in place. This will particularly be the case if Chinese equipment firms succeed in significantly
weakening or even putting out of business either Nokia or Ericsson. To date, the evidence is clear
that Chinese mercantilist policies generally have harmed innovation in developed nations. 48

Policymakers have to carefully understand not only the risks involved with using Chinese equipment
or allowing it to be used by our allies, but also potential Chinese dominance of the global industry,
and tailor our responses appropriately.

Short-Term Security Threat

Security of 5G networks has been an intense focus for Washington, but unfortunately, much of the
discussion has taken on the character of fearmongering over staid risk analyses or thoughtful policy
approaches to mitigate what risk exists. Part of the challenge is much of the policy direction is from
government officials who are able to view to classified briefings the rest of the policy community
does not have access to. Operating without similar knowledge as to the scope and scale of the
problem makes it difficult to offer good advice.

In some circles, there is an unduly narrow focus on where each piece of technology is sourced—and
whether components are manufactured, if not designed and developed, in China. While many
electronic components do pass through China, this concern may be driving a broader decoupling of
the U.S. and Chinese markets.49 Moreover, software-based firmware updates mean no risk analysis
can be 100 percent certain, and the risk profile can change over time.

At the furthest end of consideration, with very low probability but very high potential damage, there is
at least a conceivable possibility of sabotage, whereby service providers of the RAN equipment,
such as Huawei, could shut down communications. While highly unlikely outside of a wartime
scenario, such a scenario is unfortunately one that should be considered.

It is also be possible wireless equipment could be used for state-level espionage. This concern can
be somewhat mitigated for sophisticated users through encryption and zero-trust techniques,
although access to high-level metadata would remain a security concern. 50 There is a valid, albeit
vague, concern that any company under China’s authority could be compelled to assist the Chinese
government. For instance, China’s National Intelligence Law of 2017 demands cooperation in
intelligence gathering when requested. 51 Article Seven of the law requires “‘any organization or
citizen shall support, assist, and cooperate with state intelligence work according to law.’ Article 14,
in turn, grants intelligence agencies authority to insist on this support: ‘state intelligence work organs,
when legally carrying forth intelligence work, may demand that concerned organs, organizations, or
citizens provide needed support, assistance, and cooperation.’” 52

In addition to espionage for Chinese national intelligence purposes, it is conceivable similar tools
may be used for industrial espionage and IP theft. Huawei has been accused of this with regard to
Nortel in the early 2000s.53 It also happened more recently.54 5G is designed to offer tools and an
environment for companies to develop and run systems that are core to their production processes.
5G could conceivably offer an attractive attack vector to steal a wide range of trade secrets from
companies relying on compromised equipment.

Researchers have uncovered ties between leadership positions in Huawei and the People’s
Liberation Army, the Communist Party, and the Ministry of State Security. 55 There is also evidence
of cooperation between Huawei and Chinese state-backed hackers, such as Boyusec and
APT3.56 Other risks in working with Huawei have been identified, such as existing exploits in
handsets and equipment identified by the National Security Agency (NSA); allegations of bribery or
corruption; and sanctions violations, including allegations of re-exporting U.S. technology to Iran,
Sudan, and Syria.57

The potential for cooperation with the Chinese government is generating considerable animus
toward Huawei from the Trump administration. Secretary of State Mike Pompeo made this
equivalence between the company and the party clear, “Huawei is an instrument of the Chinese
government.”58 Reports indicate the U.S. State Department has been sharing strong evidence that
Huawei works directly with Chinese security agencies. 59 It appears the conversation has largely
moved past whether or not there are backdoors or vulnerabilities to what should be done about
them.

Some countries believe the risk of using Chinese equipment in the so called “edge” (i.e., the RAN
radio equipment) is considerably lower than using such equipment in the core of the network that
provides the functionality of telecommunications services and connects users to the rest of the
Internet. Most notably, U.K. rules cordoned off Huawei equipment to only the RAN in particular less-
sensitive areas of their 5G networks.60 The United States, however, is of the position that, in the
words of Deputy Assistant Secretary for Cyber and International Communications and Information
Policy Robert Strayer, “[T]here is no way that we can effectively mitigate the risk to having an
untrustworthy vendor in the edge of the network.” 61

There is also long-term concern that with the help of Chinese policy, Huawei may well continue its
meteoric rise and eventually threaten the viability of other equipment manufacturing companies and
become the predominant network provider globally. This monopolistic position would not only result
in economic harm—not the least of which would be higher prices and potentially less innovation—
but significant vulnerabilities and dependencies. This could very well force Europe and its allies to
consider plans now for what to do if Nokia or Ericsson fail.

Long-Term Innovation Mercantilism in Wireless

The short-term theoretical threat of trade-secret theft, espionage, and even sabotage from untrusted
equipment in the 5G supply chain has captured a lot of attention in the media and political circles.
However, a targeted ban on the use of high-risk vendors in the United States, combined with cost-
effective risk-mitigation strategies undertaken by U.S. allies goes a long way toward mitigating that
risk. In addition to those relatively straightforward concerns, policymakers should also be looking
toward supporting long-term development of new wireless technologies—to “skate to where the puck
is going.” The goal should be to carefully encourage ongoing market forces toward an innovation
ecosystem that plays to U.S. strengths. There are several components to this strategy, but first it is
worth understanding the nature of wireless innovation development and commercialization, and the
challenges posed by some of China’s policies.

Standards
Standards are an incredibly important component of global trade and the broader development and
commercialization of a wide variety of innovations. Standards setting plays a central role in the
transition to a new generation of wireless devices. Developed by technical experts, standards foster
economies of scale and efficient trade by making it relatively easy for firms to produce a good or
service that conforms to mutually accepted technical characteristics across markets. At their most
basic, standards establish the size, shape, and capacity of a product, process, or system. They
define key terms so there is no misunderstanding among those using the standard, and reduce
uncertainty by creating a common technological platform upon which any actor can develop new
applications, thereby enabling modularity and specialization through common interfaces. Standards-
development processes and systems to ensure conformity to standards—including testing,
certification, and laboratory accreditation—are therefore an important part of modern production and
trade.62

China has a long track record of enacting discriminatory and restrictive domestic standards, which
act as a barrier to trade for high-tech goods and services.63 As the Information Technology and
Information Foundation’s (ITIF) report “The Middle Kingdom Galapagos Island Syndrome: The Cul-
De-Sac of Chinese Technology Standards” argues, China has made the development of indigenous
technology standards—particularly for information and communications technology (ICT) products—
a core component of its industrial development strategy, and wireless is no different. 64 Most recently,
in 2018, China introduced a new standardization law that favors local firms and goods and services,
as it references “indigenous innovation” while failing to reference either World Trade Organization
(WTO) commitments and best practices, or its acceptance of international standards that already
exist.65

3GPP is industry-led and the primary standards-setting organization for mobile technologies—and
participation is on a voluntary basis. 3GPP publishes its standards in what are called “releases”—
Release 15 was the first full 5G standard, but the body continues to iterate and release new
versions, with improved features and functionalities, over time. 66

A look back at 3G technologies provides a good example of the history of somewhat obscure
policies and the use of standards that have supported the growth of geopolitically strategic
companies such as Huawei. China, through the China Academy of Telecommunications Technology
in collaboration with Datang Telecom and Siemens, developed a unique 3G standard based on Time
Division Synchronous Code Division Multiple Access (TD-SCDMA), rather than frequency division
duplexing, as was used in the rest of the world. 67 “Duplexing” refers to the bidirectional nature of
communications—frequency division and time division are simply different ways to divide the signals
coming down from the base station and those going up from the handset. In time division duplexing,
the signals are divided in time using the same spectrum, whereas in frequency division, they go up
and down using different spectrum.

The key point to understand is that for 3G, China developed a standard that required equipment and
devices that were different from the rest of the world. China Mobile, which has undergone some
privatization but is still majority owned and effectively directed by the state, was then ordered to build
a TD-SCDMA network.68 There are good reasons to prefer time division duplexing, especially in the
context of data transmissions, but developing a unique standard without existing equipment or
devices available generally makes sense only if for a geopolitical rather than commercial strategy.
China’s 3G standard did not gain any traction outside of its domestic market, and was ultimately
undermined because of a lack of handset chips for the technology. 69

No country should be able to force coalitions to vote against the best technologies being
incorporated into a standard.

The development of TD-SCDMA was undertaken in part as an attempt to avoid paying royalties to
Western companies that had innovated first and developed better standards. Huawei benefitted from
a joint venture, announced in 2003, with Siemens to develop and manufacture 3G TD-SCDMA
equipment for the Chinese market. 70 However, Huawei and other Chinese original equipment
manufacturers (OEMs) were confronted with patent claims brought by Qualcomm, which had rights
to the underlying CDMA technology. 71 In any event, Huawei benefitted from a large Chinese market
that was effectively closed off from international suppliers for much of its initial growth, in part
because of Chinese policy affecting standards.

Since 3G and 4G, Huawei has increasingly turned its ambitions outward. Instead of focusing on
protecting its own domestic market, or even focusing on relatively low-margin developing markets in
Africa and elsewhere, the company has set its sights on the global 5G standard set at 3GPP. This
transition, from inward-looking protectionism to outward-facing ambition, represents both an
opportunity and a threat to market-oriented entities. There is at least a theoretical opportunity to
better integrate the Chinese market with the rest of the world through unified, globally standardized
technologies and equipment. But China will not allow foreign equipment providers to attain more
than a minimal share of the Chinese market—enough to keep foreign providers such as Ericsson
and Nokia from supporting strong trade-enforcement efforts against China, as they know China
would retaliate against them. There is also evidence China has and will attempt to unfairly influence
voting processes within these bodies in order to advance incorporation of Chinese technology as
essential to the standard.72 The goal should not be to entirely shut Chinese firms out of this process
—indeed, it is good they are included—but instead to work to ensure fair voting practices, good
institutional design, and strong norms of democratic processes in standards-setting organizations
crafting the cutting edge of wireless products. No country should be able to force coalitions to vote
against the best technologies being incorporated into a standard. This will require more active global
leadership from the U.S. government to first shine the light on unfair Chinese standards processes,
and then work with allies to push back against them.

Figure 3: Number of submissions for 3GPP Release 16 standard 73

Chinese representatives have taken a leading role in the 5G standards working group—3GPP—by
one measure submitting 40 percent of the standards and 32 percent of the documents. 74 China’s
growing engagement with these bodies is to be expected given its increasing technological
sophistication in areas such as 5G.75 Again, in some regards, China’s increased participation in
global bodies could reduce the incentives for China to enact unique domestic standards that conflict
with international equipment. Technology lawyer Eli Greenbaum has convincingly argued Chinese
engagement with international standards processes largely aligns with U.S. interests, when done so
on fair terms.76 Although standards organizations can be manipulated by individual firms, cartels, or
nations “these risks can be managed within the structures of existing United States trade and
economic policy.”77

However, Chinese actors appear to be coordinating votes to support favored companies, rather than
supporting the best technological solution—something that is easier to do when many of the Chinese
companies are wholly or partially state-owned (e.g., Nokia Shanghai-Bell, ZTE, Chinese Academy of
Telecommunications, China Mobile) and those that are not are subject to Chinese pressure. The
best example of this is in Huawei’s success in seeing polar coding adopted as the coding algorithm
to connect existing 4G equipment to new 5G gear. Huawei gained a significant win with the adoption
of polar coding into part of the 5G standard after it built up a significant patent portfolio around the
technology.78

There is strong evidence that suggests the vote to adopt this technology over a Qualcomm-backed
alternative not having been a fair process. The Chinese state media report “Lenovo 5G incident
shows need for Chinese companies to cease mindless competition” is indicative of a vote
coordination scheme. Lenovo was forced to make a public apology after supporting the Qualcomm
offer over Huawei’s polar-coding proposal for the vote on 5G data transmissions (rather than the
connection between 4G and 5G equipment).79 The Chinese government so publicly and effectively
shaming a company—for doing exactly what it should have by participating in 3GPP and supporting
the technology that best achieves a particular goal regardless of national origin—should alert
observers that China is gaming the standards forum. As Elsa Kania, adjunct senior fellow with the
Technology and National Security Program at the Center for a New American Security, has pointed
out, such coordination practices are the explicit goal of the joint China IMT-2020 project. 80 This
group, formed by China’s Ministry of Industry and Information Technology, National Development
and Reform Commission, and the Ministry of Science and Technology, includes ZTE, Huawei, and
Datang as members—and is designed to “organize and coordinate Chinese participants” in the
process of standards setting. 81 To be clear, while the current Chinese process is better than the
older one, wherein the Chinese government explicitly set standards, this current process is in some
ways a wolf in sheep’s clothing. It has the veneer of being voluntary and industry led, but because
the firms are not truly independent actors, as they are in other nations, China is unfairly manipulating
the global standards-setting process for mercantilist advantage.

Despite the investment of Chinese actors in the 3GPP process, it appears China may be looking to
submit its own 5G solution with the International Telecommunication Union (ITU) at the United
Nations in addition to the globally popular 3GPP-developed specification. 82 This is especially
concerning, as developing countries often look to the guidance of ITU. For example, Huawei could
conceivably extend its lock on the lower end of the market through equipment that is not
interoperable with the rest of the wireless ecosystem. Votes at ITU are generally more pliable than
within a body such as 3GPP. Rather than technical experts (ideally) voting for the best solution, at
ITU, each country gets a vote, so China is able to use soft power or development support to win
votes. It is not yet entirely clear whether Chinese submissions to 3GPP indicate a willingness to fully
integrate with the global market (while undermining the institutions that set the terms for that market)
or only one prong of a broader strategy.

However, China’s attempts to undermine the governance of 3GPP and other similar standards-
setting organizations by vote coordination among its companies—many of which are state owned—
is a real challenge that could undermine the incentives for companies to invest over long horizons
with the hopes of integrating inventions into a wireless standard. If an inferior technology can be
strong-armed into a standard-essential patent, the holder of that patent sees significant unfair
economic gain, which comes at the direct expense of those who invested the R&D in competing
technologies that were not selected. These standards questions take on increasing importance as
ITU nears the World Telecommunications Standardization Assembly, to be held in November in
Hyderabad, India.

Subsidies and Other State Aid

Enterprises in key strategic sectors—such as telecommunications equipment and operators—benefit
from a range of subsidies that support competitive advantage over other firms. Firms such as
Huawei represent a relatively new type of Chinese “national champion” company that is not directly
state owned, but does unfairly benefit from Chinese policy. 83 The company is privately owned, and
headquartered in Shenzhen, not Beijing. This arm’s-length separation from the government allows it
to profess its independence. But in reality, a variety of state policies have helped Huawei get to
where it is now.

Huawei receives credit from Chinese banks at extremely favorable rates. It also benefits from a
sizable line of credit from the China Development Bank to finance the purchases of Huawei
equipment, which was raised to $30 billion to fuel its global expansion in 2009. 84 This financing
allowed the company to effectively scale up its operations by focusing on relatively low-margin
developing markets. The company, like other Chinese firms, also benefited in the 2000s from
Chinese currency manipulation, which artificially lowered the prices of their exports. There is also
evidence that ZTE received a direct grant of almost 2 billion yuan, the equivalent of about 30 percent
of the penalty for violating Iranian and North Korean sanctions. 85

Chinese policy overtly supports other parts of the ecosystem that reinforce demand for Huawei and
ZTE products and services. Subsidies in a variety of forms, favorable term loans, and local
government assistance to lower the cost of deployment assist Chinese operators—who in turn buy
mostly Chinese equipment—that are pushing to have a major platform for 5G. State-directed China
Mobile has called on the government for subsidized power supply for 5G equipment—a not
insignificant cost of the overall operation. 86 China Mobile offers attractive subsidies to make end-
user devices cheaper in a way that is not economical or supportable by market-based
actors.87 These device subsidies are anticipated to increase in order to cover the relatively high
costs of early 5G handsets, further fueling demand for 5G networks. 88 Local governments are also,
of course, able to offer a clear path for infrastructure deployment, unlike in the United States, where
local politics often see grassroots resistance to the erection of towers for a variety of reasons—some
legitimate, some not.

Early Chinese deployments were admittedly not as large or advanced as initially anticipated. Many
had expected an aggressive deployment of full 5G networks, with the latest of both RAN and core
equipment. In actuality, China Mobile and others have gone the more economical route and
deployed a non-standalone network. As China is facing a number of economic and political
pressures, it is important  the threat from these policies is not overestimated.

It is clear the Chinese government can put its foot on the gas in a variety of areas to help the entire
ecosystem accelerate into the future. Some of these tactics are unfair and drag down other
competing innovators; others are worth emulating. In any event, it is important to realize that at this
point Huawei is a juggernaut of a company. Its tremendous economies of scale and scope, in a
sector wherein they are incredibly important, mean the United States must think creatively.

Global Competitiveness and 5G Adoption

We cannot take for granted that there is sufficient initial demand for 5G services to drive the level of
deployment that would be optimal for national competitiveness. These networks are expensive to
deploy, and face something of a chicken-or-egg problem when cutting-edge applications that can
take advantage of the jump in performance are not yet widely available and may well require
significant efforts to be developed.

South Korea, the United States, China, and Japan are expected to be leading adopters of 5G
devices. In terms of the share of total connections (excluding Internet of Things), projections
estimate 59 percent of South Korea’s, 50 percent of the United States’, and 48 percent of Japan’s
connections will be 5G by 2025.89 Consumer surveys indicate demand for 5G devices is highest in
China, where 46 percent of the adult population intends to upgrade to a 5G device as soon as it
becomes available (compared with 28 percent in the United States). 90

5G is an enabling platform that can best be leveraged if policymakers support a full

digital transformation across an array of emerging technologies and application areas.

5G is a much more flexible specification than the 4G LTE that was largely designed for mobile
broadband. The combination of high-speed mobile broadband with high-performance smartphones
has enabled a remarkable innovation ecosystem. The app stores of iOS and Android have given
developers easy access to powerful tools—and a simple way to monetize their innovations. Bringing
together powerful small computing with numerous sensors, connectivity, and GPS has been an
incredible platform for disruptive innovation.

5G is also more complicated, however, with the incremental benefits of lower latency, higher
bandwidth, etc. requiring much more of the network user to take full advantage of it. It is not nearly
as easy to develop an immersive, low-latency augmented reality application—one that takes
advantage of 5G’s performance—as it is to develop, say, Pokémon GO. The same goes for
industrial robotics, self-navigating mining equipment, and digital twins to optimize manufacturing
processes.

The true promise of 5G, and the transformation it enables, depends on far more than the
connectivity itself. 5G network facilities enable the integration of AI; sensing and measuring
technologies; pervasive computing with drones; virtual and augmented reality; and automated
control systems. 5G is an enabling platform that can best be leveraged only if policymakers support
a full digital transformation across an array of emerging technologies and application areas.

This is a challenge, wherein applications that take advantage of the performance characteristics of
next-generation wireless technologies require networks of adequate scale, but networks require
sufficient demand to justify the large investment needed to achieve widespread deployment. This
chicken-or-egg problem is highlighted when comparing deployment in market-oriented economies
such as that of the United States, and relatively non-market deployments, such as in China, which
have been more willing to address this market failure. To achieve the full spillover benefits of
advanced, next-generation deployments, policies should seek to spur the adoption and use of these
networks, including through development of cutting-edge applications.

OVERVIEW OF THE CURRENT APPROACH

TO CHALLENGES
U.S. officials have examined the challenges to a successful, flourishing 5G future and decided on a
number of tools, many of which appear to be aimed to thwart the rise of Chinese participants, with
most of the concern focused on Huawei. It is probably fair to characterize the current approach as
“scattershot,” with a variety of different actors throughout the government doing what they can to
limit Huawei in the United States—or even curtail its rise altogether—and the FCC acting to speed
5G deployment through infrastructure and spectrum policy. There are a lot of moving parts to the
administration’s 5G efforts. This section offers a summary overview of some of the current key
government actions touching 5G and Huawei.
FCC Action
The FCC is a key actor in 5G policy, having both undertaken action to accelerate 5G deployment in
the United States through infrastructure and spectrum policy, and initiated policy to prevent high-cost
rural subsidies from being spent on untrusted equipment.

FCC Chairman Ajit Pai has termed the agency’s 5G strategy “The 5G FAST Plan,” emphasizing the
importance of a speedy deployment.91 The FCC characterizes this as a three-pronged strategy,
focusing on bringing new flexible-use spectrum to market, streamlining infrastructure policy, and
modernizing outdated regulations.

While the FCC has unleashed a large amount of mmWave spectrum, there is a great deal of
pressure for additional mid-band spectrum that offers the sweet spot between propagation and
capacity while being able to effectively leverage massive MIMO technology. Here, the three-tiered
spectrum sharing “innovation band” in 3.5 GHz may provide some relief and added flexibility for new,
smaller-scale installations. The FCC is also looking to transition important incumbent users in the C-
band—3.7 to 4.2 GHz—to free up hundreds of megahertz of licensed spectrum. While the FCC is
thankfully now moving forward with a plan to make this spectrum available for 5G, considerable
challenges for a successful transition remain. Reducing fragmentation in the 2.5 GHz band is also an
important policy priority, as well as bringing online more unlicensed spectrum in the 5.9 and 6 GHz
bands.

When it comes to infrastructure policy, the FCC has worked to streamline the citing process for small
cells, modifying “shot clocks” and the fees cities can impose. 92 As ITIF has previously argued,
ideally, cities and operators will work cooperatively to see low-cost deployment that benefits
residents and city services. But there is legitimate justification for preempting certain cities that are
seeking unjustifiably high rents for access to poles and rights of way—as the FCC did. 93 These
regulatory changes are facing challenges from local governments in the Ninth Circuit. Other FCC
attempts to streamline environmental and historical review processes for small-cell deployments
were set back when a U.S. appeals court vacated the agency’s order. 94

The FCC has also adopted a report on supply-chain security that would prohibit the use of subsidies
from the Universal Service Fund to obtain equipment or services by a company determined to be a
national security threat.95 The commission is currently evaluating processes and collecting
information to replace existing untrusted equipment that has already been deployed in rural parts of
the United States.

Trade Policy
The Trump administration has been quick to utilize trade to further policy goals, and the area of 5G
equipment concerns is no different. The administration has leveraged both import and export
controls in an attempt to undermine Chinese wireless equipment manufacturers such as Huawei and
ZTE. The Office of the United States Trade Representative (USTR), led by Robert Lighthizer, has
made substantial efforts to get China to abide by the rules and norms of international trade more
generally.

On imports, President Trump signed the Executive Order on Securing the Information and
Communications Technology and Services Supply Chain on May 15, 2019, which gave extremely
broad authority for the administration to block the importation or use of risky 5G equipment. 96 The
language of the order is broad enough to prohibit any “acquisition, importation, transfer, installation,
dealing in, or use of [communications technology or services that pose an undue risk and were]
designed, developed, manufactured, or supplied, by persons [subject to the jurisdiction of a foreign
adversary].”97

On the export side, the U.S. Commerce Department’s Bureau of Industry and Security added
Huawei and its affiliates to its Entity List. As a result of this designation, no company may sell U.S.
technology, software, or other items without a special license. 98

These export controls implemented by the administration have faced considerable criticism,
particularly due to the damage to the U.S. semiconductor industry—which is harming U.S.
leadership in 5G and related fields without much benefit to speak of. 99 Chinese companies account
for about 23 percent of global demand for semiconductors, so cutting off access to that market is a
very costly decision.100 Both of these rules have apparently run into implementation challenges. The
full export controls have been delayed; however, the administration is considering expanding their
scope through changes to the de minimis and direct product rules.101 Over 160 major U.S.
companies have applied for—and at least some have received—licenses to do business with
Huawei despite the Entity List designation.102

Diplomacy
The state department has been busy communicating with governments and mobile operators around
the world, attempting to convince them to avoid using potentially risky equipment. This effort
intersects with a variety of challenges posed by confronting China for unfair practices in trade and
policy across a number of industries.

Robert Strayer, the deputy assistant secretary of State for Cyber and International Communications
Policy at the State Department has been a lead advocate abroad for the U.S. government’s view of
the 5G challenges. He and others have held discussions with numerous foreign countries in an
attempt to convince them to forego Huawei equipment, with a goal of maintaining a large pool of
demand for non-Huawei gear, and lowering the risk of doing business and sharing intelligence over
allies’ communications networks.

These attempts have seen varying levels of success. The decision of the United Kingdom to allow
some Huawei equipment into its 5G networks provides a useful lens to understand the dynamics of
international 5G diplomacy. There, the United Kingdom declined to follow the advice of U.S.
representatives, and decided to effectively allow Huawei RAN equipment in about a third of its
network—mostly the rural parts. While obviously the United Kingdom declined to follow the U.S.
recommendation, this is not as big a loss as it might seem. After an analysis that determined only a
modest risk in allowing Huawei to touch certain segments of its network, the United Kingdom
formally designated Huawei as a high-risk vendor—no small decision—and seems to be inclined to
reduce dependence on the supplier over time. The disagreement between the United States and the
United Kingdom is more over how to mitigate the risk that is present, with the latter taking a fairly
reasonable approach.

Legislation
Lawmakers have proposed numerous measures related to 5G, with two important bills having
already become law. As part of the National Defense Authorization Act, effective August 2020, the
government can no longer use federal money to purchase equipment or services from “covered”
telecommunications companies (such as Huawei). A second bill was signed into law March 2020:
HR 4998, the Secure and Trusted Communications Network Act of 2019, which prohibits the use of
federal funds to purchase equipment from companies that pose a national security threat, and
creates a reimbursement program to remove and replace equipment in use that was manufactured
by entities posing an unacceptable national security risk.

Numerous other pieces of legislation advance a variety of proposals, not all of which are likely to
become law.103 One bipartisan, bicameral effort is the Secure 5G and Beyond Act of 2020, which
would require the White House to develop a strategy and implementation plan to “ensure the
security of 5G wireless communications systems and infrastructure within the United States; assist
mutual defense treaty allies, strategic partners, and other countries in maximizing the security of 5G
systems and infrastructure; and protect the competitiveness of U.S. companies, the privacy of U.S.
consumers, and the impartiality of standards-setting bodies.” 104 Most of this legislation is defensive
in nature, and would do little to spur development and adoption in the United States. We need more
than defense; we need a national 5G strategy.

A NATIONAL STRATEGY FOR 5G

The United States should establish a coordinated national strategy for 5G that incorporates a range
of policy measures; in the short term, streamlining deployment of 5G networks, making additional
spectrum available, and helping to lead adoption and demand for advanced wireless systems. In the
longer term, we should be making an effort now to support future technological and market
competitiveness. Seeding the opportunities for future technology by creating the conditions for
robust R&D investment and technology transfer, as well as early-stage research, should be a
priority.

Whether or not one is willing to call it “industrial policy,” “competitiveness policy,” or simply a
“strategy,” a nation must have a plan of some kind. As Senator Rubio (R-FL) has put it, “[T]he U.S.
cannot escape or avoid decisions about industrial policy.” 105 Put another way, having no 5G strategy
in place is itself a policy decision (albeit an ineffective one). There is increasing bipartisan support for
industrial policy generally, and particularly with regard to planning for 5G. 106

If it is to be successful, any national strategy on 5G should be a component of a broader attempt to

curb Chinese innovation mercantilism. The United States needs to continue working, ideally in
partnership with allies, to roll back the most egregious features of Chinese innovation mercantilism; it
needs to encourage some transfer of U.S. production away from China to other nations; and it
should develop and implement a robust domestic industrial strategy. 107 5G policy is an important
component of this effort.

First, What Not to Do: Bad Ideas

In part due to the large, perhaps undue expectations surrounding 5G and its transformative
capabilities, many parties are eager to either accelerate or capitalize on its potential. And some
ideas that have been proposed are far better than others, to put it lightly.

Bad Idea: A Wholesale 5G Network

Perhaps due to the overemphasis on the importance of 5G networks, some have sought to
centralize the single deployment of infrastructure. This approach may have the advantage of
eliminating redundant infrastructure, but deeply undermines the competitive dynamics and
specialization at the operator level. Decisions around spectrum portfolio, how much of what
spectrum is allocated to what air interface, the architecture of deployment, the partnerships for
various services, and, to some extent, the business model itself, continue to evolve. If anything, the
dynamic changes at multiple layers of mobile service are changing more rapidly. There is a trade-off
between more-efficient use of resources and the elimination of duplicate efforts, but a single
wholesale network would go too far and undermine the strength of competition to drive ever-better
mobile service.108 And indeed, for some narrow deployments—such as in stadiums or subways—
shared networks might be the right approach private actors should work toward themselves. But
government-forced sharing of a single wireless architecture is a bad idea.

One prominent example of this thinking was outlined in the White House memo that leaked in early
2018 calling for “nationalizing” a wholesale 5G network. 109 This idea was widely panned by experts,
as it should have been.110 As long as a ban on Chinese network equipment exists, a government-
owned-and-run network would be no more secure than one that is privately operated and run.
Thankfully, the U.S. government has repeatedly stated that this was not a policy it would be
pursuing.111 Despite several nails in the coffin of this idea, a small company by the name of Rivada
has tried its best to capitalize on the situation by continuing to lobby to play middleman in distributing
Department of Defense (DOD) spectrum access.112 This approach has also rightly been roundly
rejected, and where similar schemes have been tried, they have not been successful. 113

This misguided approach is not limited to the explorations within the Trump administration, as New
York City has articulated a “New York City Internet Master Plan.” 114 Parts of the plan are quite good,
but other parts follow the misguided attempt by the city to build a single open-access network, even
though New York City already has robust private-sector wireless and wired networks in
place.115 New York City does not invest in basic wireless R&D, and does not contribute to the
ongoing dynamic evolution of next-generation wireless technology. Taking over the network
deployment and offering access through resellers would undermine the revenue needed to support
investment in developing new technology. Affordability and digital literacy can be real impediments
to broadband adoption, but the city would be much better off addressing those issues directly
through user-facing subsidies and community-based programs than trying to build its own network.

This gets to the important role cities can play in 5G and wireless connectivity, the most important of
which is streamlining access to rights of way, conduit, and poles for small cells. This is no small
project, and must be done while navigating constituent concerns—some legitimate, some not. Many
cities also have a tremendous unfilled opportunity as users of connectivity and related services.
Taken individually, basic smart-city applications may seem banal, but added together are a
tremendous opportunity for more efficient, effective cities that are more responsive to the needs of
citizens. Sensors that make garbage collection more efficient, or better optimize traffic signals’
responsiveness to traffic, or offer early detection of problems in gas or water pipes mean cities can
be much more effective and productive. Providing Wi-Fi hotspots in such government buildings as
libraries—thereby ensuring communities have the resources they need to navigate the Internet—and
streamlining access to city assets for broadband infrastructure deployment are reasonable civic
projects. Taking over the actual implementation of networks, however, would be expensive, wasteful,
and counterproductive.

Bad Idea: Proposals to Stand Up a U.S. Equipment Manufacturer

There have been a variety of proposals to have the United States either fund the development of a
new telecommunications equipment manufacturer or buy out an existing provider. The original draft
White House memo that called for nationalizing a wholesale network also called for standing up a
U.S. wireless equipment manufacturer within three years.116

U.S. Attorney General William Barr, who has a background in both telecommunications and China
policy, expressed concern that current explorations of O-RAN architectures would take too long,
saying, “The problem is that this is a pie in the sky.” He argued, “This approach is completely
untested and would take many years to get off the ground and would not be ready for prime time for
a decade, if ever.”117 Barr instead called on the government to consider backing a consortium to take
a “controlling stake” in either Nokia or Ericsson, or both, to thwart the ambitions of Huawei. 118

Barr’s comments—which put DOJ at odds with the rest of the administration on these issues—
highlight the uncoordinated nature of current 5G policy in the United States. Barr is correct that O-
RAN alternatives will take time to scale up—and are no silver bullet—but his alternative to take
control of European manufacturers is likely worse, in part because it is unlikely the EU would allow it.
His proposal was swiftly criticized, from both inside and outside the administration. 119 The scale on
which these companies operate would make for a very difficult integration, as it is not clear what
U.S. firms would have any interest in such a combination.

Instead, policymakers should consider supporting a U.S. company that wishes to combine with
either Ericsson or Nokia. A competitiveness antitrust exemption could be justified. This is unlikely to
happen for several reasons, but should be allowed—and even encouraged—regardless. Achieving
greater scale could help either Nokia or Ericsson better compete against Huawei. But rather than
trying to jump into the market for wireless equipment directly, the United States should try to
encourage already-ongoing disruption of the status quo in a way that advantages U.S. industries and
operators.

Bad Idea: Go Overbroad With Trade Restrictions on Exports to China

The administration’s approach, particularly the aggressive export restrictions aimed at undermining
Huawei and ZTE, is a risky strategy that likely will not achieve its stated goals. In several ways, the
means the administration is grasping for do not seem well suited to achieve its ends. To the extent
we want to decouple from China, it should be done carefully and strategically in order to achieve
specified goals.

First, if the concern is national security, the most immediate risk is the actual widespread use of
untrusted equipment in the core of the communications infrastructure of the United States. This
doesn’t exist today, and large operators are highly unlikely to incorporate Chinese gear into their
systems, even if they were legally allowed to do so. In any event, simple and narrow import
restrictions would go a long way toward effectively reducing potential security risks.

Second, to the extent there is a legitimate long-term security concern, it is around maintaining a
diversity of RAN equipment suppliers. The export controls likely do little to curtail Huawei’s rise in
RAN equipment. U.S. components are a relatively small constraint on RAN equipment, and Huawei
will soon be able to supply all components of this equipment from other sources (if it is not already
able to). Denying Chinese companies access to U.S. technology does little to combat any security
risk. If anything, these export restrictions have served as something of a “sputnik” moment, and
accelerated efforts at technological independence and reduced reliance on U.S. technology. 120

U.S. technology is a much larger factor in the smartphone market, particularly U.S. chipsets and
software in the form of Android, and the app store. These areas represent large economic
opportunities for U.S. companies with relatively little risk from a national security standpoint. There is
little to no upside to the current path the export restrictions are on.

The export controls do not address any immediate security threat, are not effective at
slowing down Huawei, are very harmful to U.S. component suppliers, and are likely to
accelerate Huawei’s technological autonomy.
There is significant economic downside to this approach. Most obviously, these trade restrictions
hurt U.S. component and software suppliers. Out of the $70 billion Huawei spent on components in
2018, some $11 billion went to U.S. firms, including Qualcomm, Intel, and Micron Technology. 121 To
the extent U.S. suppliers are unable to gain exemptions, this harm is direct, with lost U.S. sales and
jobs, and reduced R&D. In many cases, foreign, non-Chinese companies would take that market
from U.S. companies. More generally, the extreme uncertainty makes it difficult to do business in this
area, thereby undermining the development of 5G equipment and devices that rely on U.S. parts
across the board.

Huawei has been stockpiling U.S. components in fear of a tougher ban, with some estimating they
have enough supply to continue making phones unchanged into 2021. 122 What is more, these tactics
are causing China to double down on efforts to achieve technological independence. For example,
Huawei has succeeded in making a smartphone with no American chips.123 Estimates put their
ability to source all equipment components either internally or through non-U.S. partners at about a
year from this writing. The founder of Huawei, Ren Zhengfei, has asserted that he is “more confident
we can survive even further attacks,” when it comes to trade restrictions. 124

The restrictions have also apparently not succeeded in driving more business to trusted alternatives.
Ericsson CEO Borje Ekholm explained that the Huawei strife has had “very little effects on our order
books.”125 He argued that the situation had instead created “uncertainty in the market, reducing
investments overall.”126

The export controls do not address any immediate security threat, are not effective at slowing down
Huawei, are very harmful to U.S. component suppliers, and are likely to accelerate Huawei’s
technological autonomy. This approach should be either abandoned or perhaps recalibrated to
address exports in a way that might be more effective in maintaining U.S. national security and
competitiveness.127

In a series of recent tweets, Trump seemed to indicate a desire to pull back from these trade
restrictions, “We don’t want to make it impossible to do business with us. That will only mean that
orders will go to someplace else.”128 While not explicitly identifying semiconductors or software,
Trump’s tweets indicated a desire for a more careful, nuanced approach to trade restrictions, rather
than the maximalist proposals being considered. This indication of a desire to abandon broad export
restrictions should be made more clearly and forcefully.

Coordinated Government Approach

5G policy consists of interrelated security, competitiveness, and industrial policy that touches
numerous different economic verticals. As such, policy should be coordinated to whatever extent
possible. A bipartisan group of senators wrote to the White House, concerned by a lack of a
“coherent national strategy” on 5G.129 The group expressed a need for a “5G czar” that can
coordinate strategy across a range of government bodies, explaining, correctly, that:

The current national level approach to 5G is comprised of [sic] a dispersed coalition of common
concern, rather than a coordinated, interagency activity. Without a national strategy, facilitated by a
common understanding of the geopolitical and technical impact of 5G and future telecommunications
advancements, we expect each agency will continue to operate within its own mandate, rather than
identifying national authority and policy deficiencies that do not neatly fall into a single department or
agency.130
Democratic FCC Commissioner Jessica Rosenworcel similarly noted, “We have yet to coordinate
our 5G strategy across the government.” 131

Since these comments, the National Economic Council within the White House appears to be taking
the lead on coordinating a 5G plan. The administration has appointed Robert Blair as special
representative for International Telecommunications Policy. 132 Blair will work with Larry Kudlow, who
leads the National Economic Council. Kudlow is also convening a second 5G summit, with a focus
on virtualization opportunities (although the COVID-19 crisis has delayed the summit). The White
House can take the lead to help identify opportunities to extend and deepen federal support for R&D
and cooperative efforts to drive research into production. The National Economic Council should
also work with agencies to identify opportunities for the government to be a leading adopter of next-
generation wireless technologies, perhaps in a way that would transition inefficient, single-purpose
federal spectrum allocations to more general-purpose wireless connectivity.

The FCC’s 5G Fast Plan and other efforts to accelerate 5G deployment should be supported and
extended by other bodies and levels of, federal, state, and local government. In addition to the
FCC’s order, almost half of the states have enacted small-cell legislation that streamlines regulations
to facilitate the deployment of 5G small cells.133

The risk-management strategy of 5G equipment should be better coordinated throughout the

government. Congress has passed a law requiring removal of Chinese gear, and allocated $1 billion
to do so, but the FCC is still gathering information as to how much it would cost to remove high-risk
equipment, or whether there are more cost-effective ways to mitigate the risk. The United States
would advance 5G progress much more effectively by allocating this $1 billion not for “rip and
replace,” but for supporting 5G rollout in higher-cost areas.

International Efforts: Standards, Supplier Diversity, and

Subsidies
One of the major challenges of communications policy is ensuring a healthy globalized market of
equipment suppliers. As such, a significant component of a broad 5G strategy must have
international dimensions: working with like-minded countries to ensure a diversity of secure vendors,
addressing unfair subsidies, and supporting well-functioning practices of standards-setting
organizations.

Supporting Standards-Setting Organizations

Standards play an important role in interoperability, enable specialization, and ensure healthy
competition without complete vertical integration. Successful standards organizations are critical to
the implementation of technological innovations. The track record of innovation coming out of
voluntary and consensus-based standards-setting organizations such as 3GPP show this process
can work quite well.

Chinese coordination, outsized delegations, vote coercion, and a dramatic increase in proposal
submissions, however, risk that process being distorted. It is important U.S. actors not overreact in a
way that undermines the effectiveness of these voluntary, industry-led bodies—or encourages an
acceleration of these tactics. It would be a mistake for the federal government to try to emulate
China; rather, it should lead a global effort to push back against Chinese standards manipulation.

While 3GPP captures much of the 5G attention, a wide range of standards-setting bodies support
the broader ecosystem of devices and connectivity that fuels wireless adoption. The Institute of
Electrical and Electronics Engineers (IEEE) plays a critical role in developing access technologies
such as Wi-Fi, a wide variety of standards for IoT devices, connected vehicles, and efficient
convergence and hand-off between Wi-Fi and mobile protocols. 134 IEEE also develops a variety of
functionalities that add value to the overall ecosystem, such as Bluetooth. Other bodies, such as
ITU, the Telecommunications Industry Association (TIA), the Internet Engineering Task Force
(IETF), and the International Organization for Standardization (ISO) also play important roles

Representatives of the National Institute of Standards and Technology (NIST) participate in several
standards bodies, both as observers and to contribute to otherwise underinvested public goods,
such as public safety-related technology. NIST plays a key role by watching out for unfair practices.
Having a broader view than many of the companies themselves, which may only participate in
standards bodies related to their industry, NIST and other government participants can help identify
problematic participation, and get a better understanding of how widespread a problem is. NIST and
other participants also play an important role in ensuring broader societal values are adequately
represented at standards-setting organizations. 135

However, the U.S. government should avoid engaging in similar tactics as the Chinese. Explicit
coordination going into standards-setting organizations necessarily involves picking a technology of
one company to support, often over the submission of another company. The decisions should be
left to the industry’s engineering experts. The role for the government should be in identifying and
highlighting practices, supporting good governance and fair voting at these institutions, and ensuring
support for basic research. U.S. companies should have the support they need to do the R&D and
successfully participate in these bodies, but it is not the government’s role to coordinate a “U.S.
position” on standards outcomes, or flood the zone with large delegations.

Congress and the administration can, however, take helpful actions. To start, Congress should make
companies’ expenditures on global standards setting eligible for the R&D credit . Business
investments to participate in global standard-setting processes, including 5G, are an important
component to ensuring U.S. competitiveness. But because of the free-rider problem (wherein
companies benefit from the actions of other companies), U.S. companies appear to underinvest in
standards-settings activities, just as they do in R&D. Moreover, China subsidizes company
participation in global standards-setting bodies in order to assure the agreed-upon standards favor
their companies. To remedy this, Congress should amend the research and experimentation tax
credit to allow companies to include their spending on global standards-setting activities when they
calculate their total expenditures on research and experimentation. 136

The United States should also work with its allies who share a similar concern about China’s
dominance of 5G standards to develop a joint plan about how to counter Chinese efforts to
undermine the voluntary, industry-led standards-setting process.137 This should be part of the
Trilateral Framework talks with Japan and the European Union, and also bilaterally with others, such
as Australia. This is not to say this should lead to greater government involvement in the setting of
actual standards—it is not.138 That should remain with the technical experts. Rather, the goal is to
ensure each respective government is aware of developments and communicates with their
respective private-sector representatives, which are engaged in good-faith, independent efforts to
develop the best applicable technical standards.

The security of emerging technology on an international scale demands attention and leadership at a
higher level. To address 5G security and related issues, the State Department should establish an
Assistant Secretary position.139This position should focus on shining a light on bad behavior and
driving coalitions wherever possible. Exposing Chinese practices that are undermining standards-
setting organizations, and communicating these concerns to other countries, is an important
example of opportunities for an elevated actor in the State Department to focus on.
Enabling Sufficient Market to Support Supplier Diversity
The United States must work with like-minded countries to ensure there is a sufficient market to
support non-Chinese suppliers. In most countries, mobile connectivity is supplied by private actors
through a market system—wherein operators have strong incentives to opt for lower-cost but
adequately performing equipment. With the transition to 5G, operators are already facing a ramp up
in capital investments that will have to be recouped over a long time, with some first-mover
advantages.

Europe—especially Eastern Europe, where a significant amount of Chinese LTE equipment already
exists—faces acute challenges in forgoing Huawei equipment. While there are forces working
toward a much more interoperable multi-vendor network, the unfortunate fact is there are still real
difficulties in achieving interoperability with existing equipment. As technology analyst Caroline
Gabriel explained, there were “high hopes that the 5G network would turn out to be more open than
its predecessors, making it easier for operators to mix equipment from multiple vendors in the same
network zones.”140

In particular, backwards compatibility and networks that combine 4G and 5G equipment have made
it difficult to mix different equipment vendors. “Each vendor tends to implement [the interface
between 4G and 5G equipment] slightly differently to get superior performance on their own
systems,” acknowledged Nokia’s CTO and head of Bell Labs, Marcus Weldon. 141 Japan faced these
challenges as well, and Softbank at least decided to remove existing Huawei gear; smaller operators
in Korea are similarly working toward a full-5G network independent of Huawei. 142

As AT&T CEO Randall Stephenson explained, “If you have deployed Huawei as your 4G network,
Huawei is not allowing interoperability to 5G—meaning if you are 4G, you are stuck with Huawei for
5G. When the Europeans say 'we got a problem'—that’s their problem. They really don’t have an
option to go to somebody else.”143 The other equipment suppliers have attempted to develop a
solution that makes interoperability with existing Huawei 4G equipment workable, but it comes with
significant costs in the form of tower climbs and additional equipment. 144

The United Sates, to the extent it wants to secure a future with a broad diversity of wireless
equipment suppliers, should take a more cooperative approach with foreign countries contemplating
their 5G plans. Rather than browbeat poorer nations and their cash-strapped operators, diplomatic
efforts should focus on effective risk-mitigation strategies, development of potentially lower-cost
alternatives to high-risk vendors, such as open-RAN, and identifying tools to overcome the practical
challenges of transitioning away from high-risk vendors. When there are real sunk costs to existing
Huawei LTE gear that is difficult to incorporate with 5G equipment of European vendors, rather than
turn to second-best risk-mitigation strategies, countries need an economical alternative. However,
these nations should also recognize the reason Huawei is able to offer lower prices is at least
partially because of unfair government subsidies—and market economies should recognize this in
their purchasing decisions.

Addressing Unfair Chinese Export Subsidies

A key source of Huawei’s expansion of global share is subsidies, including export subsidies from
Chinese state-owned banks such as China Exim Bank. Indicative of this, a 2015 Organization for
Economic Cooperation and Development (OECD) report shows China Exim Bank’s rapid growth in
export credit business. In relation to China’s total exports, Sinosure’s export credit insurance ($327
billion in 2013) represented around 15 percent, China Eximbank’s export credit lending ($40 billion)
around 2 percent, and China Development Bank’s foreign lending probably around 3 to 5 percent. 145
China is not a party to the OECD Arrangement on Officially Supported Export Credits or any of its
Sector Understandings.146 Being outside it, China has been undercutting everyone. 147 As former
U.S. Exim Bank Chairman Fred Hochberg stated, “They are winning deals in part because they are
not playing by the rules.”148 However, China does take part in the International Working Group on
Export Credits, which was established in 2011 to negotiate a new export financing agreement that
applies to more (non-OECD) countries. 149 A February 14, 2012, meeting between U.S. president
Obama and then vice-president Xi Jinping included a statement that the two sides agreed to make
“concrete progress towards a set of international guidelines on the provision of official export
financing that, taking into account varying national interests and situations, are consistent with
international best practices.”150 But as is almost always the case with such declarations, they are not
worth the paper they were printed on, as China makes the declarations to “kick the can down the
road.”

The United States should work with key partners, such as the European Union and Japan, under a
stronger trilateral framework to roll back these unfair export subsidies to force China to also abide by
the OECD guidelines.151 If China does not agree within a short period of time to these rules, these
nations should commit to not buying Huawei equipment until China does agree. In addition, the
United States and others should bring a joint WTO case against Chinese subsidies more broadly,
including export subsidies. For example, the European Union should enact specific remedies if
Huawei were to sell equipment to Hungary or Italy using unfair export financing arrangements and
thereby taking market share from European firms that are otherwise competing on market-based
terms. One positive step is the United States, the European Union, and Japan recently reaching an
agreement to expand the types of subsidies outlawed by WTO.152

Support Continued Wireless R&D

If U.S.-based companies are to lead in the next wave of wireless innovation, the U.S. government
must increase investment in long-term R&D. Many breakthroughs in communications technology
were developed with the help of public funding. The original development of the precursor to the
Internet, the ARPANET, is an obvious example. The United States has leading research universities,
so it is important the federal government continue to support their work. NSF is a leader in
supporting the underlying research through a variety of funding opportunities—mostly through
academic programs, including its Platform for Wireless Research—and community engagement with
researchers, entrepreneurs, and corporations.153 DOD and the Department of Energy (DOE) also
fund some R&D in telecommunications-related areas.

This early stage research must also be commercialized and successfully transferred to the private
sector.154 The federal government should work to launch at least one Manufacturing USA center
focused on networking equipment. In addition, Congress should boost the R&D tax credit, wherein
the United States continues to lag behind its competitors. 155 Congress should boost the rate of the
Alternative Simplified Credit from 14 percent to one that is significantly higher—at least 28 percent.

It is also important the U.S. government support the business models needed to recoup R&D
investment. Antitrust investigations should consider U.S. competitiveness as well as the national
security implications of disrupting key U.S. innovators in wireless development.

Another component of ensuring adequate incentives for investing in this type of uncertain research
that may or may not be recovered over a very long time is the strong protection of IP. 156 Patent and
trade-secret protection continue to be critical underpinning policies to support large investments in
technological innovations.
Support Demand for 5G Systems
Many of the most advanced applications that leverage the performance advances 5G brings—
cutting-edge technologies such as digital twins, augmented reality, and smart factories—require
challenging R&D in their own right. Too often, telecommunications policies focus on the supply-side
levers—regulation of the networks themselves, spectrum availability, and infrastructure streamlining
—without adequately supporting the demand side of the equation. This is especially important now,
with much of the low-hanging fruit of wireless connectivity already taken advantage of.

Every government agency should identify how they could incorporate real-time wireless connectivity
and analytics into their own processes or the industries they oversee and interact with. The
Department of Transportation (DOT) should be working to leverage 5G and related technologies, as
well as Wi-Fi-based protocols such as Dedicated Short Range Communication (DSRC), to better
support connected roadway infrastructure and more-efficient transportation.

DOD has a wide variety of potential 5G applications, and is exploring trials of combat training
assisted by virtual reality and augmented reality using 5G networks, and has multiple requests for
proposals for 5G for smart warehouses and logistics management. 157 It is likely general-purpose 5G
connectivity will be able to replace spectrum set aside for specific, often spectrally inefficient, DOD
applications, potentially freeing up additional spectrum for commercial use or sharing.

The federal government should also step up to support local smart-cities projects. 158 While there are
numerous wireless options for connecting smart infrastructure, 5G offers a platform city technologies
can be confident will have scale and interoperability. The federal government should offer large
grants, conceivably as part of a COVID-19-related stimulus package, to build on DOT’s 2016 smart-
city challenge.159

Other potential use cases for federal agencies abound. National Labs and DOE should be
considering ways in which 5G could be leveraged to bring real-time analytics and machine learning
to laboratory equipment without requiring wired connections. NIST’s Manufacturing Extension
Partnership should strengthen its efforts to help small manufacturers adopt 5G-based smart
manufacturing systems. The Department of Agriculture’s Agricultural Extension Service should do
the same to help farmers and ranchers adopt 5G systems and applications. The Department of
Housing and Urban Development (HUD) should focus on how to ensure public housing projects are
5G ready.

Change the Game on Equipment Security

A U.S. strategy for 5G must address concerns around supply-chain vulnerability in an increasingly
concentrated, globalized market for network equipment. Rather than trying to match the tactics and
scale of Chinese industrial policy that has seen so much success in recent decades, the United
States should play to its strengths—particularly in software—and help accelerate changes to the
equipment market itself. Encouraging operators to choose more virtualized systems, with RAN
equipment based on open interfaces, offers a promising opportunity for a more secure, more
innovative, lower cost infrastructure that benefits from a strong software-development industry and
high-performance general-purpose hardware—two areas wherein U.S. industry excels.

RAN Virtualization and Open Interfaces

The opportunity for O-RAN to mitigate potential concerns is now fairly well recognized. At a recent
Senate Homeland Security hearing, Christopher Krebs, the director of the Cybersecurity and
Infrastructure Security Agency at the U.S. Department of Homeland Security, expressed optimism
for vRAN technologies to give the United States a new advantage when it comes to supply-chain
security and competitiveness, going so far as to imagine a future wherein our concerns about
Huawei are merely a “blip” in the rearview mirror. 160 Despite the challenges to getting there, this
should be the goal.

In a 5G future based on virtualized systems, it will be harder for any government to subsidize its way
through each individual component. Today, integrated RAN equipment sees relatively high margins
considering the constituent hardware, largely to recoup the R&D expense of developing the
sophisticated technology, the large amount of software to run this type of equipment, and its ongoing
maintenance and service lifecycles. These higher margins make it a ripe target to be undercut on
price. Open interfaces mean a wider diversity of companies are able to build equipment out of
generic components, resulting in lower margins, at least on the hardware, which is more difficult to
undercut on price.

Virtualization of a variety of network functions holds promise for lower-cost, more-flexible networks.
A virtualized future will see a smaller, but more innovative and faster-paced RAN market, with more
opportunity for dynamism in spectrum access and business-model innovation through the ability to
quickly spin up new services. Moving away from relative monoculture in equipment lowers the risk of
any single vulnerability affecting large portions of a nation’s networks.

Security challenges in the RAN environment are complex. American operators oversee large-scale
networks, with a variety of appliances scattered throughout cities and towns across the country. The
radio-access portion of the network is the interface to the rapidly proliferating world of network
devices. The RAN is where the so-called “attack surface” of the network opens up dramatically.
Virtualization gives much greater operational control and insight into what is happening on the
network. This greater visibility and transparency for operators allows them to take control and decide
where and when it is appropriate to establish trust, thereby increasing security.

The already ongoing, if gradual, transition is to more virtualized systems throughout

telecommunications networks. Thankfully, it appears the administration has been exploring
opportunities to help accelerate this transition. The White House has reportedly been communicating
with U.S. technology and software companies to help create “advanced software for next-generation
5G telecommunications networks.”161 As Larry Kudlow explained, “The big-picture concept is to have
all of the U.S. 5G architecture and infrastructure done by American firms, principally.” However, he
also explained that the cooperation could “include Nokia and Ericsson because they have big U.S.
presences.”162

There are admittedly some risks with moving too aggressively to promote RAN virtualization.
Established firms such as Nokia and Ericsson are somewhat skeptical of a strong push toward the
O-RAN environment through, for example, a mandate to replace removed Huawei gear in rural
networks with O-RAN-compliant equipment. In Senate testimony, Nokia CTO Mike Murphy noted
limited maturity in both O-RAN as specified by the O-RAN Alliance and RAN virtualization. 163 Start-
ups focused on RAN virtualization are more bullish. As chief of Strategy for Altiostar, Thierry Maupilé
put it, “This is not pie in the sky. This is real innovation which is deployed, working and performing
extremely well.”164

Large operators are indeed moving in this direction. AT&T has been a leader in adopting
virtualization generally, and Verizon has succeeded in trials of fully vRAN
functionalities.165 Telefonica has taken a big step for the O-RAN ecosystem by announcing trials of
5G O-RAN technology in Germany, Spain, the United Kingdom, and Brazil. 166 These are still the
relatively early days in the testing of this complex transition at scale.
As operators continue to trial deployments of vRAN equipment, both practical challenges and
opportunities to reduce risks with the adoption of the technology at scale will be more apparent.
Government officials should indicate a willingness to work with operators to overcome impediments
to scaling this technology. The venture capital markets have not historically shown a great
willingness to invest in wireless equipment, likely due to the tremendous manufacturing scale
globalized incumbents wield. A strong government signal that new virtualized 5G equipment and
software are a national priority could go a long way toward activating latent innovation capacity in
this area.

Pilot programs, potentially administered through the National Telecommunications and Information
Administration (NTIA), could help accelerate the transition to open, virtualized systems, and help
identify what challenges need to be overcome. Aggressive pilot programs could also provide training
for systems integrators that will likely be needed. Congress should fund pilot programs and other
efforts to help speed this transition. One available mechanism is the Utilizing Strategic Allied
Telecommunications Act, led by senators Warner (D-VA) and Burr (R-NC).167 This bill is good policy,
although ideally the money would be appropriated through general treasury funds rather than from
auction proceeds.

Existing High-Risk Equipment

One of the urgent questions facing the FCC is how to deal with existing Huawei equipment in the
U.S. market. The FCC is in the process of collecting information about the extent of existing
deployments and the cost to remove that equipment. While it is difficult to make educated policy
assessments without more information about the extent of the problem, it is likely concerns about
existing equipment have been overstated. There are risk-mitigation strategies that can effectively
minimize the potential for harm with far less of a burden on rural operators and taxpayers.

As a part of the United Kingdom’s decision to allow limited deployments of Huawei infrastructure, its
National Cyber Security Centre offered a thorough assessment of the risks involved with pieces of
equipment and potential avenues of attack or exploitation, and identified high-risk areas of
concern.168 It concluded that allowing Huawei equipment to be in 35 percent of the RAN (measured
by either the number of cell sites or total data traffic) would be an acceptable risk. U.K. officials
apparently having a higher risk tolerance than their U.S. counterparts does indicate there are
reasonable steps to minimize the potential harm from high-risk vendors—and also shows the
benefits of a transparent risk analysis that grounds these decisions in something more firm and
evidentiary than merely the word of intelligence agencies.

Existing high-risk equipment in the United States is already limited to rural areas. But in many cases,
this equipment has already been in place for years and could likely be removed by natural market
forces as 5G systems become ready and cost effective. It is not immediately clear that a rip-and-
replace approach is either necessary or a cost-effective solution. In any event, the Secure and
Trusted Telecommunications Networks Act now requires this removal. The FCC, which is in the
midst of collecting information on the cost of replacing Huawei gear, should identify the areas of
highest risk in order to prioritize removal using its limited funds. The FCC should implement this
mandate in such a way that anything ripped out is replaced with 5G equipment. Otherwise, hundreds
of millions of dollars will essentially have been wasted.

Accelerate Deployment of 5G Networks

Supply-side policies to accelerate the deployment of 5G networks should be the table stakes of any
5G strategy. While this is the obvious place to start, and has already received a good deal of policy
attention, this report does not go into great detail on these topics. There are two main opportunities
for the government to help accelerate deployment directly. The first is through streamlining of
infrastructure deployment—the policies by which operators and their partners are able to access city
rights of way, conduit, and poles. The second is through providing additional spectrum for
commercial wireless users.

Infrastructure
Officials at every level of government should be looking for effective ways to encourage investment
in broadband infrastructure generally, particularly considering the need for a broad deployment of
small cells. Many of the assumptions, regulations, and processes governing wireless deployment
were designed for an era of 200-foot-tall towers. Today, operators and their partners are looking to
hide unassuming wireless infrastructure in city bus stops, light poles, and on the sides of buildings.

Given our federalized system of governance, this is necessarily a challenging process for operators
facing a new system and different regulations to access rights of way and poles in every city they
operate in. There is also a concern that local and national interests do not necessarily align on this
issue. From a local government and elected officials’ perspective, a community would charge the
highest possible price providers are willing to pay in order to deploy the infrastructure. For high-
income communities with moderate-to-high geographic population densities, the monopsony power
of the government jurisdiction is especially high, as they know providers want to serve those
customers. Some level of preemption to simplify deployment is justified, even if the most successful
deployments will require a cooperative, collaborative approach between those deploying the
infrastructure and the local officials.

The FCC both took steps to streamline infrastructure deployment through changes to the
environmental and historic preservation review processes, and established presumptive reasonable
fees for pole access.169 However, they have been challenged in court and face some difficulty being
implemented. Although the FCC is doing what it can to streamline deployment, ideally Congress or a
broader number of state legislatures would step in and clarify the appropriate processes and fees for
small-cell deployment to ensure cities act in the national, rather their own narrow financial, interests.

Spectrum
Electromagnetic spectrum is a key limiting input to wireless networks. Additional spectrum and
spectrum reuse through smaller cells are the best tools we have to increase the overall capacity of
wireless networks. In addition to streamlining infrastructure, making more spectrum available for
commercial wireless use is critical to speeding successful 5G networks in the United States.

The FCC must quickly allocate more mid-band spectrum for flexible mobile use. Mid-band spectrum
offers ideal characteristics for 5G.170 One crucial band identified for 5G is the so-called C-band from
3.7 to 4.2 GHz. At this point, 23 countries have allocated C-band spectrum for 5G use. 171 We can
also see the focus on C-band spectrum in the announced 5G devices—band n78, which uses C-
band spectrum of 3,300–3,800 MHz, is supported by the most commercial devices to date. 172 The
FCC took two years to decide whether to conduct an auction itself or leave it to the parties,
eventually deciding on the former. Thankfully, Chairman Pai has announced a plan to move forward
with transitioning this spectrum, although it still faces numerous implementation and transition
risks.173 The FCC will require incentive payments to accelerate the transition of the incumbent
satellite services out of a large portion of the band. 174 Given the unique challenges with multiple
incumbent satellite providers having rights to access the entire band, these payments are good
policy to quickly see this spectrum be put to a more socially valuable use—if anything, these
payments may be too small, risking the success and speed of the transition. At this point, Congress
should let the FCC move forward. Doing anything else would just delay the opening up of needed
bandwidth and give China an even greater lead.

Longer term, policymakers should be working toward better processes and tools to repurpose
spectrum, especially federally held spectrum that isn’t always efficiently used. There are pragmatic,
incremental approaches to opening up federal spectrum that rely on existing mechanisms such as
the Spectrum Relocation Fund. For example, NTIA has identified viable options for sharing RADAR
with commercial users in the 3450-3550 band, potentially building on the CBRS system. 175 Now that
DOD has finally recognized the importance of a robust 5G system in the United States, it will
hopefully facilitate, rather than resist, such policies.

Unlicensed spectrum also plays an important, complimentary role in licensed spectrum in the
wireless economy. Policymakers should work to make additional spectrum available on an
unlicensed or lightly licensed basis that can continue to expand the wireless options, offload demand
where wired networks are available, and increase the functionality of 5G devices through local
connections, such as Bluetooth. The most obvious next step is the 6 GHz band. Here, the FCC
should move to make a significant swath of new unlicensed spectrum available quickly.

Tax Policy
Buying 5G equipment is often expensive. As such, policies that lower the after-tax cost of equipment
would spur faster and broader deployment. Indeed, the scholarly evidence is clear that allowing firms
to expense machinery and equipment expenditures for tax purposes increases capital
expenditures.176 In 2017, the Tax Reform and Jobs Act included a provision to allow companies to
expense for tax purposes all capital investment in the year it was purchased. In other words, 100
percent of the cost of investing in machinery and equipment can be written off for federal tax
purposes. However, that provision expires at the end of 2022, just around the time 5G technologies
should be ready for wide-scale adoption. Congress should at minimum extend this provision for
another five years, or ideally make it permanent.

Rural
Rural wireless deployment is a special case. In many small, rural towns, wireless operators are able
to successfully operate even given the challenging economics of serving dispersed populations. But
it is important that we see broader coverage in rural areas. Wireless connectivity is crucial for
efficient production at agricultural sites. For example, John Deere continues to rely on mobile
connectivity for its advanced equipment, and smart-farm processes will always require connectivity
of one type or another.177

5G technologies have the opportunity to potentially change the cost structure for serving rural areas.
Most notably, massive MIMO using mmWave spectrum over point-to-point links could lower the cost
of backhaul to remote areas. However, the wide coverage needed in rural America is more a
function of the power level and the spectrum used, as low-band spectrum is needed to cover wide
areas. The particular breakthroughs in 5G performance are better suited to high-demand urban
areas, and are unfortunately no cure-all for rural.

Where dispersed populations cannot support the level of revenue required to justify infrastructure
investment, the U.S. government should step in to aid the cause for ubiquitous networks. For years,
policy circles have been debating the details of how to do it. At a high level, there is general
agreement that a one-time, large-scale injection of capital expenditures for rural broadband
infrastructure—both wired and wireless—is the way to go. 178 Funds should be allocated through a
technology-neutral reverse auction, with a focus on unserved areas, and be focused on reasonable
speeds (it is both unnecessary and expensive to require every home be served by superfast
broadband). There are always up-front judgment calls on what level of funding is necessary to
achieve what type of broadband performance in a given area, but we can rely on the auction
mechanism to make the difficult decisions of exactly what type of technology or performance quality
makes the most sense for a given geography. To ensure the money is spent mostly on areas that
are truly unserved, companies should be able to challenge competitors' bids if their proposed
coverage areas include more than a de minimis expansion of areas that are already served. This
would help avoid wasteful overbuilding in areas that already have broadband.

CONCLUSION
5G poses for the next decade an important opportunity for economic growth and dynamism
throughout a number of sectors of the economy. The degree to which 5G is anticipated to be
integrated within production processes across the U.S. economy highlights both its importance and
the risks inherent to relying on untrusted suppliers—or leaving equipment production up to a
globalized market without some further strategy in place. To date, the approach of the United States
to 5G has been scattershot, and not always well calibrated to address specific challenges. A national
strategy for 5G that invests in research, supports standards bodies, accelerates deployment, and
facilitates the transition to virtualized equipment should be a priority.