5G Fight With China: Politicization Leads to Suboptimal US Outcome

Journal of Political Risk, Vol. 7, No. 4, April 2019

By Anders Corr, Ph.D.

A customer wearing a headset plays a virtual reality (VR) game at a 5G experience hall on April 8, 2019 in Hangzhou, Zhejiang Province of China. Photo: Long Wei/VCG via Getty Images

The Federal Communications Commission (FCC) announced a national 5G auction of large slices (up to 3.4 gigahertz) of the millimeter wave (mmWave) spectrum, along with $20.4 billion in subsidies over 10 years for rural connections, on April 12. The plan ignores expert cyber-security advice, has major security, timing, strategic and financial problems, and will not facilitate new competitors in the telecommunications market. The announcement by President Trump and FCC Chairman Ajit Pai, likely under the influence of telecommunications lobbyists, was a surprise to most experts and took place with no real public input. The auction of the mmWave spectrum is set for December 10. At the press conference announcing the decision, Chairman Pai thanked Director of the National Economic Council Larry Kudlow and Ivanka Trump for their assistance, with Ms. Trump giving a speech in support of the plan.

According to Chairman Pai at the April 12 press conference, “We finished our first 5G spectrum auction in January, and we’re holding a second, right now, that has already generated almost $2 billion in bids.” That isn’t much for a North American telecommunications industry expected to reap $294 billion in 2019 revenues.

The mmWave part of the spectrum, which is the part Chairman Pai plans to chop up for sale, does allow more connections and higher speeds, compared to sub-6 5G, in high-density areas like stadiums and major urban areas. The mmWave will likely be an important part of the 5G future. However, chopping the mmWave up leads to slower 5G speeds in this potentially ultra-fast part of the 5G spectrum. It is also drawing away attention from sub-6 5G, which requires less infrastructure, start-up costs, and has longer ranges. Virtual division of a unified sub-6 spectrum would yield equivalent speeds, up to several gigabytes per second (Gbps), to the current plan of chopping up the mmWave spectrum. The rest of the world is proceeding down the sub-6 5G path as a first step towards 5G speeds, and will likely only get to ultrafast mmWave 5G (over 20 Gbps, if not chopped apart by auctions) in the more distant future. A focus on mmWave 5G today will make U.S. companies globally uncompetitive in the short and long-run. In the short run, they will be slower in providing broad geographic coverage through sub-6 5G. In the long run, they will be unable to provide ultrafast mmWave speeds because they will have already chopped up that part of the spectrum.

The FCC has not advanced a comprehensive plan for 5G, and its hasty auction of three approximately 1.1 Ghz slices of the mmWave to three different companies may constrain future options for ultra-fast mmWave. There are major economies of scale to keeping the 3.4 Ghz total as a single spectrum, which if kept together and divided virtually is faster than spectrum that is divided ex ante. Spectrum sharing, or virtual division, yields faster speeds, given a certain amount of spectrum, than physically divided spectrum as the upcoming FCC auction will require. Virtual division and sale of spectrum is not “nationalization” as its detractors claim, but rather the only way the laws of physics allow us to get the fastest 5G speeds. Virtual spectrum division also has the market-friendly effect of encouraging small businesses and entrepreneurs to innovate and get involved in the 5G competition. Small businesses will be able to afford short-term virtual leases of shared (and therefore ultrafast) 5G spectrum, but will be unable to afford bidding for chunks of a physically chopped up (and therefore slower) 5G spectrum.  

Dividing up and concentrating on the mmWave has major strategic and practical weaknesses that could undercut U.S. national security. It addition to stifling American competition and innovation by pricing out small business and entrepreneurs, it will distract large American telecommunications companies, like AT&T and Verizon, from the international competition for sub-6 5G, which is longer-range and therefore cheaper from an infrastructure perspective. Telecommunications is also known as telecom or telco.

Chinese telecom companies like Huawei and ZTE, which are planning to first supply sub-6 5G services globally, before they enter the more rarefied mmWave space, have adopted the more competitive sequencing strategy. Most global cities will want the cheaper sub-6 5G, which is still blazing fast at several Gbps, before they proceed to the benefits of higher-cost ultra-fast mmWave spectrum at over 20 Gbps.

Lastly, an American focus on mmWave 5G will leave U.S. rural customers without effective 5G speeds for upcoming innovations in smart agriculture, like utilization of networked drones. The U.S. plan to provide rural subsidies of $20.4 billion over 10 years is woefully insufficient to bridge the infrastructure gap, which would require hundreds of billions of dollars to get mmWave 5G to all rural Americans. As 5G requires base stations every 200 meters in urban areas, and can only be marginally more spaced out in rural areas, rural mmWave 5G will probably never happen. Utilizing the sub-6 spectrum for 5G would require far fewer base stations, at one every few miles.

What then explains this lack of a coherent 5G strategy on the part of President Trump and the FCC? I would argue that they are influenced by the major telecom companies, like Verizon and AT&T, which are seeking an mmWave spectrum giveaway well in advance of demand for such spectrum. Auctioning the mmWave now, when only a few large companies could possibly bid, will drive bids to rock bottom prices. That is essentially giving away this valuable commodity, currently in the hands of taxpayers, without most citizens even realizing what they are losing. This may make sense in order to get telecom support for President Trump in the short-term, but in the long-term it comes at the expense of taxpayers and small telecom companies trying to get into the market but barred by large and unnecessary investments in mmWave infrastructure and spectrum auctions. As such, it rewards countries with more coherent strategies, most importantly China, who will win the global 5G race and as a result have access to all future information flows over global 5G networks. The power that such a future data windfall will give to China cannot be understated.

The optimal U.S. 5G strategy is to first clear and unify as much sub-6 spectrum as possible. Second, virtually lease bandwidth on this spectrum to large and small telcos, providing average consumers and companies with several Gbps speeds. And third, virtually lease a unified mmWave spectrum for special use, such as in high density urban areas, and for ultra-fast requirements of over 20 Gbps.

Use of current infrastructure for sub-6 spectrum, and shorter term leases of that spectrum, would better allow large telcos to deploy their scarce capital for sub-6 network infrastructure and devices, and facilitate entrepreneurs and small businesses in the telecom space, ultimately creating a quicker and smoother transition to 5G speeds of several Gbps, and more small business competition that would increase innovation and lower costs for American consumers. Shorter-term leases would also get top dollar for use of both sub-6 and mmWave spectrum, which would contribute to taxpayer relief, paying down the national debt, and social and defense expenditures. A quick (over 3 years) international success in the sub-6 5G space would springboard U.S. telcos into the mmWave, which can be achieved in parallel where necessary.

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President Trump Has Authority to Rebuild American Industry: Use the Defense Production Act of 1950

Journal of Political Risk, Vol. 7, No. 3, March 2019

By William R. Hawkins

The USS Eisenhower at a dock to complete it’s overhaul, Newport News, Virginia. Ira Block/National Geographic/Getty Images

President Donald Trump’s trade reform campaign is not meant only to redress the massive deficit with the People’s Republic of China ($419 billion in goods last year, a net figure of how much American money is supporting jobs and production in China rather than at home). His policies have been rooted in national security concerns with a focus on the dangerous transfer of capital and technology that has empowered Beijing’s military buildup and aggressive behavior along the Pacific Rim and beyond. There is concern that the momentum of his efforts is slowing. He delayed elevating tariffs on Chinese goods from 10% to 25% on March 1st to give negotiations more time to reach a deal. But the PRC regime will never curb its pursuit of the wealth and capabilities it needs to replace the U.S. as the world’s preeminent power. It is a long-term economic contest between rivals for the highest of stakes imaginable.

President Trump and close advisors such as Peter Navarro, Director of the National Trade Council in the White House know this, but need to operate from a strong base. Congress cannot, however, add much to the campaign at present. It is so crippled by factions and sophistries as to have taken itself out of the game. But Congress has left a legacy from earlier, less anarchic times: the Defense Production Act. This core legislation, based on preserving the “Arsenal of Democracy” which won World War II, gives the President broad authority to revive, expand and maintain our domestic industrial base. The DPA was first enacted in 1950, but it is still alive and well, being reauthorized twice by President George W. Bush, amended in 2009 on a bipartisan basis, supported by a 2012 Executive Order issued by President Obama and reauthorized again in 2014.

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THE BATTLE FOR WEST PAPUA

Journal of Political Risk, Vol. 8, No. 1, January 2019 

By Ben Bohane


Supporters carry West Papuan leader Benny Wenda through Port Vila, Vanuatu, during a visit on December 1, 2016. Pacific island countries across the region are growing in solidarity with the West Papuan independence movement, according to the author. Credit: Ben Bohane.

Reports of the Indonesian military using white phosphorous munitions on West Papuan civilians in December are only the latest horror in a decades-old jungle war forgotten by the world. But new geopolitical maneuvering may soon change the balance of power here, prompting regional concern about an intensifying battle for this rich remote province of Indonesia. It is time for the US and Australia to change policy, complementing Pacific island diplomacy, or risk a major strategic setback at the crossroads of Asia and the Pacific.

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Trade Strategy is a Proper Part of National Security

Journal of Political Risk, Vol. 7, No. 6, June 2018 

By William R. Hawkins

Chinese-chartered merchant ship Cosco Shipping Panama crosses the new Cocoli Locks during the inauguration of the Panama Canal expansion in Panama City on June 26, 2016. A giant Chinese-chartered freighter nudged its way into the expanded Panama Canal on Sunday to mark the completion of nearly a decade of work forecast to boost global trade. Photo: JOHAN ORDONEZ/AFP/Getty Images.

On June 4, the Koch brothers (Charles and David) announced the launch of a “multi-year, multimillion-dollar” campaign against the tariffs and trade restrictions imposed by the Trump administration; especially those levied on China. The billionaire brothers are regularly called “conservatives” because they make large campaign donations to Republican candidates. But they are not conservatives; they are libertarians, a very different breed of cat. And their donations to the GOP are meant to sway the party in their ideological direction, not merely support it. The liberal media tries to tarnish conservatism by placing libertarians on “the Right” even though this is not their intellectual origin. This is done to further the left-wing narrative that “conservatives” are self-interested, greedy individuals who are enemies of organized society and the common good. This is true for libertarians, who doubt the very legitimacy of the nation-state or the “higher” norms of society. Too often they define right and wrong on the basis of whether it turns a profit.

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China’s Compromise of Duterte, the Selling of Philippine Sovereignty, and Risk to Western Market Share in Southeast Asia

Journal of Political Risk, Vol. 6, No. 2, February 2018

By Anders Corr, Ph.D.

In his visit to China in October 2016, President Duterte of the Philippines broke with the United States and all but pledged allegiance to China. In February 2018, he joked that China could make the Philippines into a Chinese province, “like Fujian.” This joke was made at an event for the Chinese Filipino Business Club Incorporated (CFBCI), members of which stand to benefit from closer China-Philippine ties. Ambassador from China to the Philippines Zhao Jianhua (趙鑒華) reportedly smiled at Duterte’s jokes. Duterte again brought up an unfounded fear of war with China, which serves to justify his negotiations with the country. Duterte’s actions are destabilizing the Philippines and regional stability, and could threaten the regional market share of western companies.

Philippine President Rodrigo Duterte (L) and Chinese President Xi Jinping shake hands in Beijing on May 15, 2017, on the second day of the Belt and Road Forum for International Cooperation. Source: Kyodo News via Getty Images.

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China’s Sociopathy, and its Cowardly Watchers

Journal of Political Risk, Vol. 6, No. 2, February 2018

WHAT’S WRONG WITH CHINA
By Paul Midler
227 pp. Wiley. $25.00

Paul Midler’s What’s Wrong With China doesn’t disappoint. Anecdotes, theories, and historical curiosities fall from its pages in answer to its titular question. Midler’s stories of caution are current, enjoyable, accessible, historically grounded, and witty. But the deeper importance of the book is that Midler, as a sharp and knowledgeable outsider to academic China studies, can criticize, revive, and develop theories in a way that staid academics would never dare. In a field careful about even mentioning sensitive topics like Taiwan, Tibet, and Xinjiang, Midler’s latest book is a bulldozer with bumper-stickers to offend almost anyone. Which is why it’s a great read. The field is being shaken up by President Trump’s tweets, President Xi’s disconnect with how his increasingly totalitarian government is perceived abroad, and now by Midler.

Guangdong, China, in 2011. Source: Paul Midler.

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China Swaggers, But Time Not On Its Side

Journal of Political Risk, Vol. 6, No. 1, January 2018

By Arthur Waldron

I have some thoughts about the “year of doom” 2018 that appeared on the web yesterday. They are as follows:

(1) China has undertaken her dangerous policies for internal reasons. That is how China is. She has no pressing or other need for Scarborough Shoal in the Philippines EEZ, for example.

(2) We know (1) is true because Xi Jin Ping goes on an on about loyalty, reshuffles the army, creates the most boring flag raising ceremony in history, and was reported to get in a fight with a general about whether the army should be made national instead of party. Who after all is going to take a bullet for Xi? We need to get to the root of this domestic phenomenon, but how is an almost impossible question.

(3) China’s tactics have sought to win without fighting by overawing small countries (and not-so-small countries, like India and Indonesia) using their awesome military as no more than a threat and their awesome economy likewise. The problems are (a) even the Philippines is not overawed and China is very much on the wrong side of international law and (b) this is important: China overestimates her own achievements. Maoism was a cesspool. She has gotten out rinsed off, and started some large but financially dodgy corporations. Skyscrapers have sprouted and tilted.

Group of People’s Liberation Army (PLA) soldiers in China. Credit: Getty Images.

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China’s Strategic Pivot Towards the South Pacific Island Nation of Tonga

A Hybrid Intelligence Preparation of the Operational Environment (IPOE) Analytical Assessment

Journal of Political Risk, Vol. 5, No. 12, December 2017

By Mark Anthony Taylor

The aim of this research is to critically examine the refocusing of Chinese aid, economic involvement and diplomatic attentions towards the small South Pacific island nation of Tonga.  The research seeks a deeper understanding of China’s behaviour towards Tonga and promotes a reevaluation of how the US and its allies should respond to China’s strategic calculus. China’s actions in Tonga, although appearing benign, represent a cloaked threat to Tonga’s independence, democracy and U.S. regional aspirations.  Furthermore, owing to the comparative strength of the Chinese economic and diplomatic approach, a competitive soft-power response from the US may prove inadequate. In consequence, it may be more advantageous for the US to pursue a heightened hard-power response to ameliorate any potential threat. Through undertaking an analysis of China’s fundamental motivations for the soft-power Tongan pivot and an exploration of the modus operandi employed by China to affect its strategic goals, the project will endeavour to provide a clear answer to the following research question: “Is this Chinese pivot towards Tonga merely an example of cheque-book economic diplomacy, or does it entail a cloaked malignant threat to the security and autonomy of the US and its allies?” Utilising a hybrid adaption of the Intelligence Preparation of the Operational Environment (IPOE) analytic method[1], this project will apply a structured framework in order to probe and reconceptualise the Chinese pivot towards Tonga in an effort to unravel the underlying motivations of China. In line with this approach, the project will firstly scrutinize the situational variables resident in each nation that comprises the terrain of the issue. The significant and unique political, military, economic, social, infrastructure and informational system factors (PMESII) that contribute to the rapid intensification of China/Tongan relations will be explored. From this point, the focus will be turned towards an analysis of the usefulness of the two polar theoretical explanations (liberal and realist) for the current Chinese Course of Action (COA) in Tonga. Lastly, a detailed investigation of the two key Centres of Gravity (COG’s) that underpin and impact upon the China/Tonga relationship will ensue, exploring the cultivation of pro-China sentiment in Tonga and the degree of the US pivot to the South Pacific. The project will draw from a diverse variety of academic publications, expert opinion pieces and news media sources. The analysis reveals that the Chinese strategic pivot into the nation of Tonga superficially appeared to be motivated by benign economic opportunism. However, engagement with Tonga was found to hold a minimal benefit to China in terms of resource supply or economic gain. The major strategic benefits that were found to accrue to China were through the potential securing of Tonga for the establishment of a forward operating military base in the South Pacific. Consequently, China’s pivot may be motivated by concealed Chinese hegemonic designs (the realist perspective) rather than by benign economic opportunism (the liberal perspective). This motivation was found to pose a significant security threat to the US-lead regional order.  Two significant COG’s are bolstering the effectiveness of China’s Tongan pivot. Firstly, China has successfully executed a “hearts and minds” program to facilitate the broad interweaving of pro-China sentiment into the psyche of Tongan society. Secondly, the absence of US attention towards soft-power regional engagement with Tonga has aided China’s pivot. In terms of an effective US response to China’s strategy in Tonga, a revised US soft-power push was assessed as constituting an ineffective strategy due to the resilient China-Tonga relationship that now exists and because of China’s deep aid pockets. Consequently, the evidence points towards the need for a revitalised US hard-power military presence in the region as the most viable option for dampening China’s future militaristic ambitions towards Tonga.

One pa’anga and two pa’anga banknote.
Tonga, Pacific. Credit: Getty Images.

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Perspectives for development of China-EU relations in the infrastructure investment sector: a case study of COVEC’s investment in Poland

Journal of Political Risk, Vol. 5, No. 8, August 2017

By Paulina Kanarek

In 2009 China Overseas Engineering Group (COVEC) was the first Chinese company to win a public works contract in a member state of the European Union. Two years later COVEC decided to withdraw from Poland and its failure to construct a section of the A2 motorway between Warsaw and Łódź brought up questions regarding access to the EU’s public procurement market by third countries.

This research explores the implications of COVEC’s investment for bilateral relations between China and Poland. Through analysis of this particular case study of the unsuccessful entrance to the EU infrastructure market, this work attempts to uncover whether the fault lies in the communication gap between European and Chinese actors and zero-sum mentality or it is a case of policy failure.

This study will reveal the particular model of operations that the Chinese companies try to pursue in Europe, basing on their previous experiences in the African construction market. By showing that the model which relies on offering the lowest bid and then renegotiating the contract cannot work due to the European Union’s legal framework and Polish domestic laws, this evidence-based research will argue that COVEC’s investment was a classic example of project management failure.

Furthermore, this research aims at casting light on the broader context of the political economy of China’s relations with the European Union. Following the national interest while adhering to its obligations as a member state of the EU, Poland serves as a good example to show the complexity of relations between the PRC and highly fragmented EU.

Through qualitative research, including elite interviews, this work intends to fill in the gap in academic research on China’s relations with the Central and Eastern European states, assessing whether there is space for progress in China-EU relations in the infrastructure investment sector.
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