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Analysis: Blocked Broadcom deal highlights questions around government's 5G role

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Analysis: Blocked Broadcom deal highlights questions around government's 5G role

Tension over the government's role in next-generation wireless technology has been highlighted by President Donald Trump's decision to bar Singapore-based Broadcom Ltd. from acquiring U.S. chipmaker Qualcomm Inc. Promoting the deployment and security of 5G has become a national priority for policymakers, but industry observers are torn over how to balance risks posed by governmental overreach against those of governmental inaction.

Trump's order came amid a review of the deal by the Committee on Foreign Investment in the U.S., or CFIUS, a government body that examines any M&A transaction involving a foreign owner taking control of a U.S. business. Earlier this month, the committee identified "potential national security concerns" around Broadcom's proposed takeover of Qualcomm, pointing specifically to the important role Qualcomm stands to play in the development of 5G.

While some tech experts celebrated and called for further government actions to spur 5G development in the U.S., others said the government should not have intervened, arguing innovation is best achieved when free markets are allowed to operate.

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GBH Insights head of technology research Daniel Ives said in an interview that he sees the government's move to block the Broadcom/Qualcomm deal as a "smart decision."

"They had to put their foot down in this situation," Ives said, noting that Qualcomm is the United States' "best horse in the race when it comes to 5G."

This is in line with the findings of CFIUS, which said in a March 5 letter that Qualcomm is "the current leading company in 5G technology development and standard setting." New 5G technology is expected to deliver mobile broadband speeds of multiple gigabits per second, 100x faster than 4G. But more importantly, it will enable various new technologies and services, such as telemedicine, virtual reality and the internet of things.

CFIUS said the U.S. cannot afford to lose its role in the 5G standards-setting space, noting that Chinese companies, including Huawei, have increased both their research and development spending and their engagement in 5G standardization as part of the country's efforts to build out a 5G technology. Currently, Huawei owns about 10% of 5G essential patents.

"China would likely compete robustly to fill any void left by Qualcomm as a result of a hostile takeover," CFIUS wrote in its March 5 letter, adding, "A shift to Chinese dominance in 5G would have substantial negative national security consequences for the United States."

Indeed, China's government is playing an active role in promoting 5G by investing in infrastructure and promoting 3.5 GHz spectrum as a global 5G band, according to Mark Lowenstein, managing director of the consulting firm Mobile Ecosystem. By contrast, Lowenstein said the U.S. continued to "dither" over policy debates, such as citing procedures for the hundreds of thousands of small cell antennas that must be deployed as part of the 5G rollout.

In order to remain a leader in 5G, Lowenstein said the U.S. government needs to be more active on the issue. In particular, he would like to see the U.S. keep to an "aggressive" time table on opening up and auctioning off 5G spectrum. Lowenstein also said the federal government needs to facilitate small cell deployments by streamlining state and local regulations, while also stepping up its international engagement efforts around security.

But Lowenstein and Ives both cautioned against the government becoming too enmeshed in 5G deployment.

"It's a slippery slope. There's too little involvement and too much involvement," Ives said, pointing to a Trump administration proposal leaked in January that called for the U.S. government to speed 5G deployment by building and running its own centralized nationwide network.

Lowenstein agreed that the proposal, which was fiercely criticized by members of Congress and the Federal Communications Commission, was "a very bad idea."

Ives said the U.S. government, with some of its recent actions, seems to be moving "a little more toward involvement" on the 5G issue, but should avoid exerting control. While the right amount of action could speed deployment and innovation, he said, "I think too heavy of a hand here would have the opposite effect."

But Koen Heimeriks, a professor of strategy of Warwick Business School, believes the Trump administration already overstepped by blocking the Broadcom/Qualcomm deal. In a statement, Heimeriks dismissed national security concerns as "not a defendable argument" given Broadcom's plans to relocate its headquarters to the U.S., and he noted Broadcom and Qualcomm operate in a maturing industry in need of consolidation.

"Scale in the end will be needed to create the innovative moves any of these players will need to survive," Heimeriks said.

The FCC recently announced plans for a high-band spectrum auction in November 2018, but substantial work remains to be done to clear mid-band spectrum in the U.S. for commercial use. While mobile networks have traditionally relied on low- and mid-band spectrum under 3 GHz, 5G will require a wider range of spectrum, including high-band frequencies above 24 GHz.

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