Barriers for 5G and its position in 2019

4G LTE technology is undeniably mature, however, it is also still gaining traction and could remain the leading network type for the foreseeable future. Our market coverage suggests that this 4G loyalty boils down to a reluctance to absorb the expenditure associated with the roll-out until 5G clearly identifies a financial advantage for the consumer, original equipment manufacturers (OEMs) or service providers. Additionally, the infrastructure and components required for 5G are intricate and costly, the development of which could offset any initial financial gain.

One infrastructural development that will need to occur to see the successful deployment of 5G is an increase in small cells. Small cells are used by mobile networks to offer localised radio coverage. While these cells have a limited range compared to macrocells, they enable mobile operators to offer reliable coverage by easing the congestion and latency caused by network inundation in a particular area. Effectively, companies involved in the small-cell value chain are poised to benefit from the emphasis on 5G as small cell sites are projected to triple in the US by 2024 in order to cater for the increased bandwidth requirements.

Nonetheless, it should be noted that in order to see an improvement in data processing speeds, the mobile market needs to utilise higher frequency bands. Consequently, this will see antennas being integrated into the radios, as opposed to the antennas being a separate component, in order to save space. Ultimately, for companies focused predominantly on antenna technology, such as CommScope, this could reduce their foothold in the market, whereas producers of both radio and antenna components, such as Huawei and Ericsson, could thrive by being able to offer package deals based on consumption levels. However, the specialists we interviewed were keen to stress that increased tensions between the US and China place Huawei at a disadvantage despite it being an “economic powerhouse”.

Although Huawei is now allowed to trade with some US companies, it remains blacklisted, meaning there will undoubtedly be barriers to trade. For instance, US companies will have to apply for a waiver when doing business with the Chinese tech giant, save for a few mitigating circumstances. With the tech war being right at the heart of the ongoing dispute between the US and China, there is a distinct possibility that this could hinder economic growth and 5G developments in both countries, given their symbiotic relationship. The US is dependent on China for rare earth minerals, used in electronics, and China relies on the US for components and technologies, including data-transmitting chips.

These radio frequency (RF) chips are built into mobile phones and other devices, enabling the transmission of data. Given Huawei’s legal requirement to share information with Barriers for 5G and its position in 2019 e: sales@thirdbridge.com the Chinese government, US companies’ data is placed at risk. As a result, Trump’s government has restricted America based chip manufacturers from selling RF chips and other components to Huawei. Although Huawei has stockpiled UScreated chips, its stock is likely to only last six months. This has incentivised China to improve its own chip industry, because at present the country only produces 16% of the semiconductors it uses and is therefore largely dependent on US technology. A former Director of Product Technology at ZTE Corp suggested that the rise of China-based chips such as HiSilicon and Spreadtrum could increase competition for Qualcomm, which “has been running in a one-horse race for too long”.

Despite this opinion, it seems unlikely that Western manufacturers would increase their reliance on Chinese components. China-made components tend to be inferior in quality compared to their US and European counterparts, so whilst Chinese manufacturers may have to resort to using Chinese suppliers due to trade war-related restrictions, Qualcomm would likely retain its US and European customer base. However, that is not to say that Qualcomm would be unaffected. China’s inability to maintain the production standards set by its foreign competitors contributes to China being the largest importer of semiconductors in the world, buying in the region of USD 200 bn. every year. Ultimately, it is perceivable that a decrease in this volume could only negatively impact US manufacturers.

However, even if China was able to develop its own semiconductor industry, they would still need to source the ARM processing technology that resides within the chips. ARM creates and licenses an instruction set that is used to ascertain how computer processors handle commands. Although ARM is headquartered in the UK, it has suspended business with Huawei as a result of its close relationship with the US. This unexpected decision could derail the Chinese company’s meticulous preparations, which attempt to offset the impact of their CFO’s arrest in 2018 and the repercussions of the US-China trade war. While Huawei has previously purchased the licence to the ARMv8 architecture before the tensions escalated, it does not currently have permission to integrate the ARMv9 instruction set, which is due to launch next year. As a result, if the trade restrictions were to continue, the company’s long-term growth could be limited as its processing speed would become second-rate compared to its competitors.

The continued utilisation of older technologies and the ongoing trade tensions between China and the US could delay 5G, particularly in relation to the creation of infrastructure requirements and 5G-enabled devices. Until the above hurdles are resolved, the timeline for 5G looks indeterminable.