Trump administration advisers, key lawmakers and dozens of U.S. companies are pinning their hopes on a technological end-run to stop China from dominating the next generation of super-fast wireless service.
The emerging strategy, championed by White House aides like economic adviser Larry Kudlow, aims to blunt the reality that the best 5G gear comes from overseas companies like Chinese-based Huawei and ZTE. Their proposal: Replace much of that hardware with software. Skip some of the expensive physical infrastructure and put more of its functions in the cloud, which advocates say would both make it more secure and enable many more companies to compete in the 5G market.
Dozens of American tech and telecom players — from Facebook to IBM, AT&T to DISH Network, Cisco to Google — are rallying around the idea. So are senators of both parties, who in January proposed spending $1 billion to help develop the software-based 5G networks as a counter to China and now seek to secure funding in the annual defense bill.
But a Japanese company that pioneered the strategy in its home country says the U.S. needs to invest a similar amount of cash into incentives for producing the silicon chips that the new approach requires.
The U.S. is not doing nearly enough to ensure that software-based 5G networks have the components to run them, said Tareq Amin, the chief technology officer for the Japanese company Rakuten Mobile. And without a major federal investment, the market demand doesn’t yet exist to draw big American manufacturers to make chips for the new breed of wireless stations.
“In China, their ability to build the silicon for 5G is just unparalleled,” Amin said in an interview. He added, “If you want to create a compelling U.S. 5G technology, then you need to start from the heart, and the heart is the silicon.”
Amin’s pitch meshes with recent laments from U.S. chipmakers, who say a lack of federal incentives is causing U.S. manufacturing to lag behind other countries. Specifically, Amin said the U.S. should offer at least $1 billion in incentives to chipmakers such as Intel, Qualcomm, NPX, Broadcom and Nvidia, perhaps in the form of tax credits — along with “marching orders” to “create a highly disruptive silicon." He suggested that U.S. policymakers wrap this consideration into ongoing debates around subsidizing rural wireless carriers who are facing federal mandates to remove and replace their Huawei and ZTE gear.
“We cannot find the right material at the right cost, the right architecture, to address the future requirements for 5G radios to be made in the U.S.,” Amin said. Still, he said, “The United States is in an amazing position to solve this, if they put the right incentives in front of all these top companies.”
Few governments even seem aware of the issue, said Amin, which he sees as precisely the problem.
The White House has not taken a position on Amin's proposal.
"The Trump Administration recognizes the importance of 5G and [we] are studying options to further incentivize development," White House spokesperson Judd Deere said when asked about the idea.
'A glorious success or a glorious failure'
Rakuten, an e-commerce giant and recent entrant to the telecom business under its Rakuten Mobile subsidiary, is the prime example of a provider embracing the new software-centric model, which the company says will cut costs for consumers and reduce the need for Chinese hardware. It began lighting up its 4G cellular service in Japan this spring and hopes to activate its 5G offerings there later this year, while hoping to sell its software in the U.S. market. This week, it announced plans to establish a U.S. entity within California to help launch its commercial ambitions throughout the Americas.
Rakuten is also a charter member of a coalition launched this spring with companies including AT&T, Google and IBM, which aims to raise awareness about proposals to open up 5G architecture and has encouraged the Trump administration to embrace the ideas as part of its 5G security strategy. Even hardware players like Finland's Nokia are embracing 5G cloud technology and joined the coalition in June. Altiostar, another member, recently helped launch cloud-based telecom service in parts of India.
What Rakuten is advocating could help revolutionize the broader 5G ecosystem and favor the U.S. in its rollout of the technology, said wireless analyst Roger Entner, adding that it could help American wireless hopefuls like DISH Network as much as anyone.
Entner cited the exorbitant supply chain costs for telecom companies, particularly in building the new type of “radio access networks” that this 5G strategy entails. He called Amin one of “the heroes” of this kind of technology, with great credibility to assess the industry’s needs.
“He is the pioneer,” said Entner, who has never worked with Rakuten. “He is the Wright Brothers, in one person, of next-generation wireless.”
Of Rakuten’s efforts to build such a network, Entner added: “It’ll either be a glorious success or a glorious failure — either way, it’s worth watching.”
Amin said Rakuten pays hundreds of millions of dollars in non-recurring engineering fees to chipmakers like Qualcomm to obtain the components it needs. He calls that an unfair setup and one that would be unnecessary if federal incentives existed for creating chips at scale.
Amin was the individual who first persuaded Rakuten executives to embrace software-based network alternatives. Now he calls himself “personally obsessed” with silicon as he eyes the model’s expansion.
Globally, telecom analysts are closely watching how Japan’s experiment plays out given what it could mean for rollouts in other nations. Rakuten is also trying to sell its 5G cloud-based network playbook around the world to other companies as part of a communications software platform. Rakuten officials say this platform can deliver on the State Department’s priorities for 5G networks and be a blueprint for how to shake up telecom network-building.
More than a million Japanese consumers have applied for Rakuten's mobile service plans since its April launch, the company announced this week. Amin touts that it offers unlimited data usage and more competitive rates compared with the country's telecom incumbents. Rakuten’s mobile plan comes to under $30 a month, although New Street Research analysts in March said the pricing is less aggressive than industry observers had expected. (Costs for data roaming and global calls undercut that price point, New Street said at the time).
Barr and Congress weigh in
The cloud-based software strategy, also called virtualization, started as an engineering idea. Now it’s a political talking point for Western policymakers forced to decide who will build their 5G telecommunications infrastructure, a geopolitically fraught calculation as President Donald Trump urges U.S. allies like the United Kingdom and Germany to avoid relying on Chinese equipment.
The technology begins with what’s known in telecom circles as an “open radio access network,” or open RAN — and it could have massive implications for how Americans communicate and what they pay.
At the moment, telecom giants like AT&T and Verizon are building 5G relying on traditional equipment, a process requiring thousands of tower climbers to lay physical infrastructure throughout the country. But they are eyeing the new virtualization options with interest, hoping to reduce network building and operating costs. AT&T has begun virtualizing its network core. But as a new telecom market entrant, Rakuten hasn’t sunk investments into more cumbersome legacy equipment as well as the accompanying building and maintenance headaches, giving it freedom to gamble on virtualizing the more central parts of the network.
Any newcomer, as Entner put it, “should get beaten until you scream if you don’t build it as a virtualized network.”
DISH Network, a satellite company tasked with building a 5G wireless network in the U.S. as part of federal regulators’ approval of T-Mobile’s merger with Sprint, announced this spring that it’s partnering with a company called Mavenir and other vendors to build the country’s first 5G network rooted in the cloud.
U.S. officials generally like what they’re hearing, though some have expressed skepticism that the technology can transform the market quickly enough to meet the urgent goal of blocking Huawei.
In February, Attorney General William Barr — a former Verizon attorney who often weighs in on wireless issues — dismissed 5G open RAN as “pie in the sky.” Instead, he urged Trump to take a stake in European hardware giants Nokia and Ericsson, which he said would provide a much quicker way to edge out Beijing.
Barr reaffirmed doubts about the software strategy in a May statement and on June 21 told Fox News that policymakers should rally around the two European providers: “The West has to pick a horse or horses.”
But recent months have showcased momentum in the U.S. around the software approach, and Rakuten’s Amin argues that the activation of the Japanese network should show Barr that the technology works.
On Capitol Hill, lawmakers including Sens. John Cornyn (R-Texas) and Mark Warner (D-Va.) recently floated bicameral legislation to provide such a boost to U.S. chip-making capabilities. Separately, a bipartisan group of lawmakers has pushed for hundreds of millions of dollars tucked into coronavirus relief to study these 5G software technologies. On June 18, Senate Commerce Chair Roger Wicker (R-Miss.) and House Energy and Commerce ranking member Greg Walden (R-Ore.) outlined a framework of digital priorities including ambitions to “invest in the deployment of open radio access network technologies.”
FCC Chair Ajit Pai, who has met with Rakuten, also expressed enthusiasm for how the cloud approach could change 5G network building — though perhaps not immediately.
“I don’t think there’s going to be a flash cut,” Pai said during a Lincoln Network event in June. “Nonetheless over time, I think those software layers are going to be virtualized.”
Momentum for 'open' networks
Enthusiasm for the idea among some circles is evident even amid the global pandemic, which forced the White House and FCC to postpone spring events aimed at exploring these potential 5G network-building disruptions.
The most tangible example was the formation in May of the Open RAN Policy Coalition, compromising more than 40 companies including Rakuten, AT&T, Facebook, Google and IBM. They say unlocking the 5G network protocols to new kinds of technology would make the 5G ecosystem less dependent on any one supplier and open the door to the virtualization proposals that Rakuten and DISH are embracing. The coalition’s board members include Rakuten's Azita Arvani, its general manager for the Americas, who has raised the issue of silicon chip incentives with her industry colleagues.
“The only thing I want her to talk about — talk about the importance of silicon,” Amin said.
The coalition has yet to embrace the silicon push, and instead is focusing on “the least common denominator” among member companies, Arvani told POLITICO. “Let’s agree on the openness, let’s agree on the open interoperable interfaces,” she said.
USTelecom, a major telecom trade group, hosted some coalition members at the end of June, where Warner announced he has persuaded Senate colleagues to include some R&D funding for these new 5G models in the National Defense Authorization Act, although far short of what he deems necessary. He lauded the new technology's potential.
"This gives a great opportunity for the West writ large and American companies in particular to compete on a very successful basis against Huawei," the Virginia Democrat, a former telecom entrepreneur, told the industry officials.
Rakuten, meanwhile, is eyeing its next moves in the U.S. marketplace, selling its software platform to other communications companies that want to try their hand at a cloud-based network. The Japanese company is in talks with multiple companies to find “a large U.S. credible partner” and hopes to make announcements soon, Amin said.
“We've launched the [Japanese] network very successfully,” he said. “Now I'm looking at how do we globalize this? How do we really bring this to the masses?”
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