The US is back in the 5G game

The U.S. government has upended the $35 billion-a-year cellular-equipment industry, ushering in a new era of competition and giving U.S. companies a shot at re-entering a sector they vacated years ago.

In the past five years, only China’s Huawei Technologies Co., Sweden’s Ericsson AB and Finland’s Nokia Corp. captured more than a 20% share of revenue in the wireless-equipment market, according to Dell’Oro Group, a research firm. No other competitor consistently cracked even 10%.

Now that landscape is changing. Pushed by Washington’s campaign to cripple Huawei over cybersecurity concerns, countries representing more than 60% of the world’s cellular-equipment market are considering or have already enacted restrictions against Huawei, says Dell’Oro Group. And to take advantage of that opening, the U.S. government—as well as governments in the U.K. and European Union—are considering financial support and other measures to boost domestic cellular-equipment makers trying to crack the three incumbents’ stranglehold on the market.

The result is a newly competitive market that is reminiscent of the 1990s, when bygone industry giants such as Lucent, Motorola, Nortel, Siemens and Alcatel fought for a piece of a growing telecom-equipment pie.

“It’s got a Wild West feel to it,” says Bill Plummer, a former Nokia and Huawei executive now working at JMA Wireless, a Syracuse, N.Y., 5G company. “We haven’t seen this since probably the eve of the dot-com bust—this dynamic and thriving competitive environment in wireless.”

American officials further say the new competitive landscape is crucial to U.S. efforts to counter China’s influence in developing 5G technology, the next generation of wireless technology that will serve as the building blocks for all sorts of future technologies—whether in robot-run factories, heart-rate monitors, or any number of industries and products. The country that dominates 5G will be well-positioned to lead the technology industry in terms of profits and talent in the years ahead.

The 3G days
After a vibrant start to the 3G era in the 2000s, when manufacturers throughout North America, Europe and Asia competed, equipment manufacturers started consolidating amid pressure from Huawei and another Chinese company, ZTE Corp. , which were both selling increasingly competitive hardware at lower prices. In 2016, Nokia’s acquisition of Alcatel-Lucent, itself a merger of French and American companies, created today’s three-giant oligopoly.

The Trump administration began loosening the trio’s grip on the market in 2018 when it started urging allies to blacklist industry leader Huawei over national-security concerns. The campaign worked: Huawei lost market share outside China to both Ericsson and Nokia last year, according to Dell’Oro Group, as governments enacted or considered restrictions on Huawei’s equipment.

“The big change over the past couple of years is pressure on Huawei,” says James Barford, a telecom analyst for Enders Analysis. “Even in countries where there is no formal ban, you’re going to be thinking twice” about using equipment from the Chinese company.

The stranglehold of the big three was further weakened by Nokia’s blunder in procuring expensive chips for its 5G equipment—a mistake that resulted in its equipment costing more upfront, as well as consuming more power. That’s an issue for wireless carriers, which can spend roughly 20% of operating expenses on energy. Nokia says it has since moved to cheaper, power-efficient chips, but damage was done: Some carriers looked elsewhere for supplies.

With both Huawei and Nokia under pressure, that left Ericsson as the market leader outside China. But that, in turn, made wireless carriers’ executives wary. They say they want more competition to increase innovation and reduce costs.

The result has been an opening for a whole new generation of competitors—and the Wild West environment.

The open gambit
Some carriers are turning to Samsung Electronics Co., the South Korean smartphone giant that is a relative newcomer to the wireless-infrastructure industry. It ranked fifth behind the three giants and China’s ZTE in 2020, but won a major victory last year when Verizon Communications Inc. switched suppliers from Nokia to Samsung.

But it’s the possibility of buying 5G equipment using open-standards software that has the most potential for roiling the competitive order.

To understand why, consider that the cellular equipment that transmits signals to phones consists of three parts: the antenna, hardware that sits on a pole directly under the antenna, and more hardware at the pole’s base. Huawei, Ericsson and Nokia currently sell all three parts in a bundle, and they aren’t interoperable. For instance, a Huawei antenna doesn’t work with Ericsson electronics under the antenna.

It would be like buying a Dell laptop that works with only a Dell monitor and Dell printer. And it means customers have limited options on price, quality and features.

Enter a new technology based on open standards, dubbed Open RAN, or radio access network. Companies making equipment based on these standards allow wireless carriers to mix and match the antennas with different under-antenna hardware and centralized electronics. That gives carriers more options for cost and quality.

The U.S. government is a major backer of the open-software efforts, which officials say could boost both U.S. national security and business. It potentially can help U.S. businesses by creating openings for new players, and because these new efforts rely less on hardware (where the U.S. has fallen behind) and more on software (where companies such as Microsoft Corp. and International Business Machines Corp. can potentially play a role).

“We may be able to increase security, reduce our exposure to any single foreign vendor, lower costs and push the equipment market to where the United States is uniquely skilled—in software,” Federal Communications Commission Acting Chairwoman Jessica Rosenworcel said in March.

If U.S. companies do indeed become major players in 5G equipment, then they can also play a bigger role in setting global standards for telecom equipment. That’s an arena where China has made great strides. U.S. officials prefer that companies in the U.S. and allied democracies set wireless standards, which they believe would lead to greater, less hackable security.

President Biden and Japanese Prime Minister Suga Yoshihide last month agreed that the U.S. and Japan would collaborate to advance open 5G networks “by fostering innovation and by promoting trustworthy vendors and diverse markets,” the White House said. Congress this year enacted a law to establish a Commerce Department fund that would award grants to support the use of such open-standards equipment in the U.S. A bipartisan group of lawmakers backing the bill requested $750 million for the fund in fiscal year 2022.

In the U.K., a government-appointed task force to help British wireless carriers transition away from Huawei equipment recommended that new equipment makers, or those using open-standards software, represent 25% of the country’s wireless infrastructure by the mid-2020s. The task force recommended government incentives for wireless carriers buying such equipment, and for suppliers to locate research facilities in the U.K. The European Union this year started examining similar options.

The focus of newcomers
Several smaller U.S. companies—such as Airspan Networks, Altiostar, Mavenir, JMA and Parallel Wireless—are focused on 5G equipment using open software. Ericsson and Nokia are also shifting to using some open-standard software.

The new challengers have signed deals with some big carriers. AT&T Inc. is testing open-standards equipment and plans to gradually introduce it, while newcomer wireless-carrier Dish Network Corp. has said its entire network would rely on such infrastructure.

Dell’Oro Group predicts that equipment using open standards, from both newcomers and incumbents transitioning into the new market, will capture 10% of the market by 2025.

“The operators say, ‘We need choice, we need a strong ecosystem,’ ” says Thierry Maupilé, a former Motorola and Cisco Systems Inc. executive who now works at Altiostar, which provides software for open-standards 5G equipment. “You have a playing field that has been reduced to a few companies.”

Still, open-standards equipment remains in its early stages, and it is too soon to know whether it will be a major player. Wireless carriers say their tests of open-standards equipment show some drawbacks. The new technology can be less energy-efficient than today’s conventional systems. And while the open-standards equipment can be used in rural areas, its performance isn’t yet up to snuff in densely populated urban areas.

But wireless carriers expect the open-standards equipment to be on par with Huawei, Ericsson and Nokia equipment in three or four years.

“For us, it is critical to maintain competition in our vendor system,” says Michael Trabbia, chief technology officer at French carrier Orange SA. “We cannot end up with only two players.” WSJ