Introduction and Summary
US national security experts worry the United States is falling behind China in the competition for 5G mobile communication dominance.1 While US companies led establishment of today’s 4G networks, they are not the frontrunners in setting 5G standards, building 5G equipment, or deploying 5G infrastructure. The lead in 5G implementation belongs instead to China’s Huawei, which exploited a combination of regulatory protection, government subsidies, and capable technology to rapidly gain one-third of the global 5G market.2
Huawei established its 5G prominence by selling inexpensive, fully-integrated radio access network (RAN) hardware and associated services that connect mobile devices to 5G core networks.3 Although some US government officials argue Huawei’s equipment is substandard compared to Western hardware, third-party testing suggests Huawei’s processors, gallium nitride (GaN) power amplifiers, and antennas enable their RANs to perform on par with those from US or European manufacturers, but with higher power efficiency and lower total cost of ownership (TCO).4 As a result, competing equipment providers, such as Finland’s Ericsson and Sweden’s Nokia, are losing market share to Huawei, and US manufacturers are not significant providers of 5G radio hardware.5
Yet Huawei, with its rapid rise to market leadership, may have become most engaged in the least lucrative parts of the emerging 5G value chain. Like a long-distance runner who sprints too fast out of the blocks, Huawei may have created an opening for competitors to gain an advantage.
Several think tanks and telecommunication companies have proposed approaches to counter Huawei by promoting open standards for RAN architectures—“Open RAN”—that could allow new competitors to provide individual RAN components such as radios or baseband processors.6 Open RAN architectures are worth encouraging, but these proposals are not a complete strategy. They do not incentivize US hardware- or cloud-based RAN equipment providers to enter the market; do not make it easy for US or foreign telecoms to adopt these solutions; do not improve US-built open architecture RANs relative to Huawei’s offerings; and fail to address Huawei’s dominant position in RAN integration. Maturing open modular interfaces to the point where mobile network operators (MNOs) can adopt them with confidence will require investments to improve multi-vendor RAN interoperability.
Similarly, although recent US government export control decisions and bans will protect US networks from security risks associated with using Huawei equipment, these actions are not a long-term approach to countering Huawei’s market domination.7 Unless US or allied providers introduce alternative 5G architectures that can compete on TCO, flexibility, and ease of installation, Huawei will eventually use its subsidized market position, strong marketing and aftermarket support organization, and robust smart phone sales to fund and develop independent supply chains, improve its RAN technologies, and increasingly virtualize its 5G offerings. Huawei would then continue to grow its market share and penetration of international networks, eventually thwarting US and allied efforts to secure their national telecommunications.
Current US Strategies Lack the Focus Needed for Success
US government and Department of Defense (DoD) 5G strategies seek to promote US 5G telecommunications networks and companies by pursuing three main objectives:
# advance US and partner 5G capabilities;
# promote awareness of 5G risks to national security; and
# develop approaches to protect 5G infrastructure and technologies.
These objectives are very broad, however, and do not address the specific challenges posed by Huawei’s current domination of global 5G RAN installations, which is the primary obstacle to securing US 5G networks and establishing a US 5G industry.8 In addition, the current US government approach of relying on Open RAN standards and export controls will not promote US 5G alternatives fast enough to cut into Huawei’s market share before it can recover.
This report proposes a more focused application of the US government’s 5G strategy, based on business value-chain analysis, which seeks to turn Huawei’s incumbency into a disadvantage. At the low end of the value chain, the strategy would accelerate development and maturation of US Open RAN competitors. At the high end, the proposed approach would establish a US advantage in virtualized 5G networks—the future of 5G communications.
The actions needed for the proposed strategy, described below and in chapter 3, fall within the DoD 5G strategy’s main lines of effort to promote technology development; assess, mitigate, and operate through 5G vulnerabilities; influence 5G standards and policies; and engage partners. Within these broad activities, the proposed strategy would concentrate on actions that:
* offer the greatest leverage against Huawei’s value chain and are most likely to achieve secure and robust US 5G networks that enable US 5G suppliers to compete with Huawei;
* establish a US lead in the most impactful portions of the 5G value chain; and
* help afford US military forces the operational and administrative benefits from 5G technology.
Export Controls Are a Tool, Not a Solution
Security is a long-standing concern with Huawei communication networks, which grew as Huawei became a market leader in 5G installations. Although company officials deny Huawei gathers intelligence for the government of the People’s Republic of China (PRC), Chinese law obligates the company to cooperate with its intelligence services. In addition, US policymakers argue that Huawei’s equipment has poor security and likely includes “back doors” to enable Beijing to harvest data from private, commercial, and government users or shut down equipment during a confrontation.9
To protect US 5G networks, the US government in 2019 banned the use of Huawei equipment by US telecommunications services companies, or telecoms, such as Verizon or Comcast.10 In 2020, the US Federal Communications Commission (FCC) directed that the $5 to $8 billion spent annually from FCC’s Universal Service Fund no longer be used on equipment and services from Huawei or fellow PRC firm ZTE.11 And in May 2020, the US Commerce Department went on offense, cutting off Huawei’s access to US-made semiconductors, machinery, and design software.12 Although it has a multi-month stockpile, Huawei will eventually be unable to build its newest or 5G infrastructure and flagship smart phones without the high-density 7 nm-node semiconductors that can currently be manufactured only with US-made or US-designed tools or equipment.13
In response to US sanctions, Huawei is accelerating development of chip design tools and manufacturing facilities in China and modifying its phones and 5G RAN equipment to use the less-powerful semiconductors that can be made without US designs, design tools, or manufacturing equipment.14 Either of these approaches, however, is likely to take several years.15 Until then, Huawei will attempt to circumvent export controls by buying chips and tools not contaminated by US intellectual property, and pressure US semiconductor companies to lobby the US government for relief from the controls.16
Huawei’s need to adapt its manufacturing process create an opening to establish alternative US 5G architectures and approaches. Therefore, the US government should continue with export controls and apply them to other PRC companies, such as ZTE and China Information and Communication Technologies Group Corporation (CICT). The United States should also encourage other countries to adopt network strategies that safeguard their information by denying access to Chinese companies. During this window, however, the US government needs to catalyze development of US 5G competitors.
A High-Low Strategy
Instead of hoping that export controls wear down Huawei’s market position or that Open RAN standards spawn a more dominant Western 5G provider, the US government should steal a march on China by aggressively implementing a strategy that attacks Huawei’s value chain while the company rebuilds its supplier base. Some analysts argue that US telecom equipment providers should build out 5G architectures that shift from integrated single supplier to multivendor Open RAN solutions that reduce the importance of 5G radio hardware and increase the use of virtualization of networks to play to the strengths of US cloud computing companies.17 Others argue that US telecom equipment companies should compete directly with Huawei on RAN hardware using open RAN architectures and new technological approaches.18
US strategy should include elements of both approaches, competing symmetrically with Huawei on RAN efficiency and integration, while asymmetrically attacking Huawei up the value chain by advancing cloud-based disaggregated 5G architectures. This “high-low” strategy could pin Huawei down in the RAN hardware competition, which it cannot afford to lose, while allowing US providers to exploit their lead in software-based network architectures that are likely the future of 5G.19 If successful, this approach could relegate Huawei to the role of commodity hardware provider.
The following chapters describe this strategy in more detail, including how it will impact the 5G value chain and undermine Huawei’s value proposition to its current customers.