5G wireless technology: has the battle for national champions already begun?

National champions may be all the rage in sports, especially in an Olympic year, but the notion is less certain when it comes to hi tech. Some
say that the global nature of technology renders the idea obsolete. Nokia may be a Finnish-based company, but its current woes have mostly to do to with misreading where the winds were blowing in the cellphone industry internationally. The company may have a long tradition in Finland and Finns have taken justifiable pride in its successes. But ascribing to Nokia the status of a national champion, under this view, overemphasizes the role of the company’s historical roots, the current importance of its Finish center, and might even serve to hamper the efforts of the company to right itself in the marketplace.

What is true for Nokia and Finland (5.4 million people) may not necessarily apply to China, with its over one billion inhabitants and massive economy. Where national concerns about technological development are it issue, China is arguably front and center. Those who argue that national champions are a thing of the past would be well-advised to pause and consider what is going on in China. A leading example of this is the state of development in the emerging 5G wireless technology. (Kat readers who wish to read a useful summary of 5G are directed to a piece that appeared in The Economist on February 20th). For this Kat’s purposes, the salient point is that the 5G technology being developed is going off in two different directions.

The first is what is called the “evolutionary approach”, which is described as seeking to take what the industry has thus far developed “and make it better”. The main proponents of this approach are the incumbents, who have invested vast sums in the current technology and who might be seriously harmed by any disruption to the current technological paradigms. A notable example is Qualcomm (more on it later), a/the (?) leading chip-design company, which has introduced the world’s first chip-set for 4G technology. Not surprisingly, Qualcomm will want to continue to be the leader in 5G and beyond. The other direction, called the “revolutionary approach”, is seeking to discard the current cellular structure for mobile networks, where a single antenna is used to communicate with all the devices in the cell. In its place, this approach focuses on using sets of small antennae to communicate with the ultimate devices.

All of this is well and good, especially if you are interested in the direction of wireless technology. But what has this to do with national champions? Consider that one of the leading supporters of the revolutionary approach is China Mobile. Its Chief Scientist, Chih-Lin I, argues that the revolutionary approach is the only way to go, because the current cellular technology is not sustainable. But there are also those who view national considerations at work here. As The Economist observed—
“Sceptics suspect there may be an “industrial agenda” at work, that favours Chinese equipment-makers and lowers the patent royalties these have to pay. The more different 5G is from 4G, the higher the chances that China can make its own intellectual property part of the standard.”
For Kat readers who have not followed this issue, the payment of patent royalties in the telecom area has been a particularly contentious issue in China, with Qualcomm at the crosshairs of the dispute. (The IPKat as well has previously commented on this.) In that connection, in February 2015, Qualcomm agreed to pay $975 million dollars to resolve claims of violations of the Chinese antitrust laws in connection with the company’s royalty and licensing practices. True, Qualcomm is known for its aggressive licensing approach, and China is not the only country that has sought to take action against them. Korea is another example (interestingly, another country where the notion of national champions is alive and kicking).

However, what is at issue is not merely the level of the royalties being paid, but the national identity of the companies to whom such payments are being
made. In particular, the apparent hope is that local Chinese entities will more and more replace companies such as Qualcomm as the source of such chip sets. Clearly, the adoption of the so-called “revolutionary approach” will assist this process, assuming that Chinese companies will be leaders in developing this technology. Is this a policy of promoting national champions by a different name in the field of wireless technology? Perhaps.

While watching this unfold, this Kat has an immediate question. What exactly do we make of the supposed lower royalty rates that will be charged by these Chinese companies? Assuming that these Chinese companies will also seek customers abroad, will these customers also enjoy these lower rates, or will they be charged a different (read: higher) rate? Should the answer be “yes”, might we not see the unfolding of a multi-tiered pricing system where local rates are determined, at least in part, by national requirements, while rates abroad are set on the basis of other considerations, including presumably market power? We are clearly only in the first scene of what promises to be a multi-act hi-tech drama.
5G wireless technology: has the battle for national champions already begun? 5G wireless technology: has the battle for national champions already begun? Reviewed by Neil Wilkof on Friday, June 10, 2016 Rating: 5

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