Recent data on global 5G markets show that U.S.-led efforts to limit Huawei’s lead in this sector are proving effective. Due in part to restrictions on shipping smartphone chips based on U.S. technology to China, Huawei dropped to fifth place among global smartphone makers as sales dropped 40%. It led the world in previous years. Huawei also lost about 2% of its share of global infrastructure equipment, falling to 20% of the total, compared to 35% for Ericsson and 25% for Nokia, for sales outside of China. Huawei and ZTE still dominate the huge, protected Chinese market. Despite this progress, the Chinese equipment makers remain formidable competitors, and the United States and its allies need to keep pushing alternatives to their products.
The diplomacy deployed by the Trump administration, and apparently to be continued by the Biden team if early indications are accurate, helped convince major allies in Asia and Europe (with the notable exception of Germany), to exclude or limit the Chinese suppliers of infrastructure equipment. As of 2021, around 60% of the global market has restrictions on use of their technology. Advanced 5G handsets made by Huawei and other Chinese manufacturers are also hamstrung by the ban on using U.S.-based technology. These export controls importantly also limit the ability of dominant semiconductor manufacturers such as Taiwan Semiconductor Manufacturing Corporation (TSMC) to sell chips to Chinese firms.
The U.S. and allied countries are not likely to make further progress without accelerating the deployment of viable and cost-effective alternatives to the Chinese giants, notably the Open Radio Access Network systems (Open RAN). Although Ericsson and Nokia have benefited from limitations on Huawei sales, their vertically integrated, hardware-based 5G technologies remain more costly than Huawei products. As a consequence, major areas such as Southeast and Central Asia, Africa, and South America are growing markets for Chinese equipment. Huawei has a market-leading 34% share in South America and 40% in the important Southeast Asian region. In Africa, Huawei controls 70% of 4G base stations, ensuring a foothold which will be difficult to displace when 5G service is rolled out.
In the last six months the level of commitment by major operating and equipment manufacturing companies around the world for virtualized or Open RAN networks, and of government support for these new, disaggregated networks, has picked up. All of the largest U.S. and many of the dominant European operating companies—AT&T, Verizon, T-Mobile, Vodafone, Telefónica, Orange and leading German and Italian operators—have been active in developing Open RAN systems and deploying pilot programs in their areas of operation. The U.S. Congress authorized a $750 million program to support Open RAN solutions late last year. In Europe, Germany has announced a $2 billion program to support this technology, and other European operators are eligible to participate in the German-led alliance. The United Kingdom has its own $350 million project to develop Open RAN systems and equipment.
Of greater importance, telecom operators around the world are deploying Open RAN networks to prove the viability of the new systems with mounting success. The largest greenfield system in place is Rakuten in Japan, which has over 3 million users and has graduated from 4G to 5G services. Rakuten is offering pricing models significantly lower than the traditional hardware-based networks in Japan. The lower pricing supports goals set by new Prime Minister Yoshihide Suga to cut the relatively high costs of mobile services in Japan. American companies Altiostar, a systems integrator, Cisco, Red Hat and Qualcomm are major players in the Rakuten project along with Japanese electronics giant NEC. In the last year the four major telecom operators in Japan have joined the global O-RAN ALLIANCE which develops standards and promotes adoption of the new technology.
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In the United Kingdom, Vodafone and Orange have deployed thousands of Open-RAN 5G sites. Telefónica has introduced pilot operating systems in Spain and Germany and already has a significant project operating in Peru.
Two of the three major Indian telecom operators, Reliance Jio and Bharti Airtel, have developed Open RAN network technology, working with U.S. and Japanese equipment makers and system integrators. In that underdeveloped market which features over a billion, mostly low-cost, mobile users, the Open RAN technology will allow faster and much less expensive deployment of high speed 5G than the traditional hardware systems offered by Ericsson, Nokia, Samsung and even Huawei. U.S. system integration firm Parallel Wireless estimates that Open RAN solutions, although needing some technological advances in energy efficiency to reach their full potential, could result in cutting total operating costs by 30-50%. In Turkey, telecom giant Turk Telecom is working on an Open RAN system, and Vodafone Turkey has already deployed such a network which is backwardly integrated with legacy 2-3-4G systems.
In the United States the three major mobile operating companies are all members of the Open RAN Policy Coalition and the international O-RAN ALLIANCE. All are developing products utilizing the new technology. The case study that likely will determine the economic viability of the new technology in the U.S. market is DISH network. The new operator is committed (under an agreement with the U.S. Department of Justice to acquire spectrum and other assets from T-Mobile) to field a nationwide 5G network by 2023. It has chosen Open RAN technology for its system and is working with major system integrators Altiostar and Mavenir, and equipment and software makers Red Hat, VMMare, Cisco, and Qualcomm as well as Ericsson and Nokia. DISH plans to do a limited commercial launch by the third quarter of 2021.
Cooperation among allies to realize the potential of alternatives to Huawei also appears to have growing support. In 2021 the EU has surfaced proposals to cooperate on joint technology work with the U.S., including in telecommunications. According to survey data, most nations in Southeast Asia are looking for alternatives to Chinese equipment suppliers. Japan, Australia and the United States are calling on their respective international development agencies to support infrastructure investment alternatives to Chinese firms. Such support could be of material political and economic interest since Japanese and U.S. equipment makers are leaders in this technology.
Nonetheless, resistance from European national champions Ericsson and Nokia remains politically important. The inertia among major operating companies resulting from embedded infrastructure and spectrum acquisition investments in Europe and the United States discourages investment in newer systems. The continuing aggressive push by Huawei and ZTE together with cheap financing and diplomatic pressure from the Chinese government is also a potent counter force to the development and deployment of the new technologies. The Biden administration has an opportunity to lead allied support for Open RAN, especially since important players in Japan and Europe have signaled interest in working together. But the Biden team will have to act quickly as these allies are also committed to supporting their own national champions in this sector, and China will use access to its import markets as an incentive for trade partners to remain open to its own telecommunications firms. Given the current technological leadership of U.S. semiconductor, software and cloud computing firms, embracing this leadership role would be a boost for the U.S. economy as well as a major step in countering the Chinese challenge.