Trump's China Concern Adds Pressure in Race to Be First With 5G

(Bloomberg) -- The Trump administration’s concern about China’s growing technology clout is putting even more pressure on U.S. wireless carriers in their marketing battle over which company will be the first to offer 5G.

Verizon Communications Inc., AT&T Inc. T-Mobile US Inc. and Sprint Corp. are rushing to deliver fifth-generation wireless service that will perform as much as 100 times faster than 4G. At stake is the potential to grab market share in an industry where consumers are fiercely loyal to their carriers. And the companies need to upgrade their networks quickly so they can quash the idea that government should intervene to accelerate the process.

“The race is really about getting that 5G icon on the handset,” said Chetan Sharma, a wireless consultant. In the consumer’s mind, 5G is way better than 4G, he said. Verizon boosted its market share by 5 percentage points after it was the first to roll out 4G more than seven years ago.

While fully standardized coast-to-coast 5G networks are at least two years away, the carriers are pushing hard into technology development and waging a fierce marketing campaign through a barrage of press releases. Verizon knows the value of being first, which may explain why it’s issued three times as many announcements touting 5G than its smaller rivals.

Trump's China Concern Adds Pressure in Race to Be First With 5G

Behind the marketing is billions of dollars in engineering. Carriers, software developers, chipmakers and phone manufacturers are spending about $200 billion a year in 5G research and deployment. The aim is to have a ubiquitous network that can run with lower latency, or lag time, in transferring data -- the type of super-fast connections that enable advances like robotic surgery and autonomous cars.

At the same time that carriers are fighting for consumer mind share, the threat from China has prompted the Trump administration to consider creating a nationalized 5G network to protect U.S. security. President Donald Trump has already killed Broadcom Ltd.’s proposed takeover of Qualcomm Inc. on concern that China would gain an edge in critical 5G technology.

Trump's China Concern Adds Pressure in Race to Be First With 5G

The U.S. government is also trying to make it easier for American companies to compete with China. The Federal Communications Commission voted this month to ease environmental and historic reviews for companies installing some antennae for 5G service. Ajit Pai, the agency’s chairman, said the vote amounted to “concrete action that will help the United States lead the world in 5G.”

In addition, the FCC is moving to block some spending by carriers on gear from companies posing a national security threat -- an initiative that could strengthen barriers confronting Chinese equipment makers eager to sell in the U.S.

The consideration of a national 5G network drew strong opposition from industry officials and even Pai, who was named chairman by Trump. Opponents said private industry is better suited to advance the technology than the government. The White House said the plans were only in the early stages and that no decision has been made.

For its part, China has been encouraging development of 5G and has identified some airwave bands like 3.5 gigahertz for use as a possible global spectrum. That’s turned up the pressure on the U.S. to allocate more mid-band spectrum, said Mark Lowenstein, a mobile-industry consultant.

Verizon showed seven years ago that getting even a few months ahead of the pack can lead to significant market-share gains and years of bragging rights. Verizon’s lead in 4G LTE gave it a “decade-long perception of network superiority, which translated into probably one of the longest sustained periods of subscriber gains,” Sharma said.

Verizon launched 4G in December 2010. In the previous five years, the company’s average share of new subscribers was 36 percent. From 2010 to 2015, its average share of new users jumped 5 percentage points to 41 percent, partially due to the faster network, Sharma said.

Different Approaches

No carrier wants to be seen as the laggard. And yet at this point there’s no agreement on whether high or low frequencies are best for 5G. High frequencies carry more data but can’t travel far and are easily blocked by rain and foliage. To make high frequencies work, a network requires many more antennae in a smaller radius. Low-frequency airwaves don’t carry as much data but can travel greater distances and through walls. The four carriers are taking different approaches:

  • Verizon is using high-frequency airwaves to beam 5G broadband to homes, and starting mobile 5G service this year
  • AT&T is also testing high-frequency airwaves, promising mobile 5G this year
  • Sprint is using mid-band airwaves for nationwide mobile 5G in early 2019
  • T-Mobile is implementing multiple bands for mobile 5G this year

And while each company will inevitably dispute any first-place claims by the others, consumers are going to be swayed mostly by speed.

“T-Mobile will probably use low frequency and be the first with 5G,” said Jennifer Fritzsche, an analyst with Wells Fargo & Co. “And if you combine that with the marketing power of that company, it will be a powerful mix.”

For now, while the 5G battle might be mainly about public perception, it’s still a race no one is willing to lose.

“Verizon is the furthest down the road in trialing,” said Michael Mahoney, senior managing director at Falcon Point Capital LLC, which invests in wireless companies.. “And then AT&T. They are old hands at this game. They are also very conscious about not being burned by marketing.”

©2018 Bloomberg L.P.