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Spectrum, infrastructure expected to give China early lead in 5G race

In the global race to deploy next-generation 5G wireless networks, some industry analysts have already declared China the winner, though experts are divided over the potential financial and political implications.

A new report from Fitch Solutions, a unit of the financial information services firm Fitch Group Inc. finds Chinese companies are "firmly in the lead" on 5G compared to the U.S. and other international markets. While some analysts agree — noting that China's mid-band spectrum and state-backed deployment schedule give it key advantages — others say it is far too early in the evolution of 5G to declare a victor.

New Street Research global communications technology analyst Andrew Entwistle sees China as clearly winning the global 5G race.

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5G in China
Source: S&P Global Market Intelligence

"We see China leading on 5G in all scenarios," Entwistle said in an interview, noting that China already has extremely widespread dense networks, having deployed large numbers of small cells, or cellular base stations and antennas.

By contrast, Entwistle said the U.S. has very few truly densified networks today, with efforts limited to a few urban core areas. Moreover, U.S. operators face "extremely high costs for adding wireless density," according to the analyst, as operators pay various fees to municipalities to deploy small cells in rights of way and on utility poles.

"In other words, the U.S. lacks the initial platform for efficient wide-area 5G deployment and would need to spend a great deal to create this platform," Entwistle said.

Recon Analytics analyst Roger Entner, whose research focuses on the wireless experience, agreed that China has a significant lead when it comes to small cell deployment.

"They are installing for about 40,000 small cells a month in China. We're deploying 40,000 small cells a year," Entner said in an interview. But it is still too early to say China is winning the race to 5G, he said.

Where Entner sees the U.S. as having an advantage is spectrum. He noted China's government is concentrating all of its 5G efforts on mid-band spectrum. In late 2018, China's Ministry of Industry and Information Technology allocated 100 MHz of 3.5 GHz spectrum to China Unicom (Hong Kong) Ltd. and 100 MHz of 3.4 GHz spectrum to China Telecom Corp. Ltd. China Mobile Ltd., the market leader in the country, received 260 MHz of spectrum in the 2.6 GHz and 4.8 GHz bands.

Globally, mid-band spectrum is seen as the obvious anchor spectrum for the 5G networks to come. While low-band spectrum was widely used for 4G wireless services because it can travel long distances and penetrate through walls, that spectrum has become crowded. High-band spectrum is largely open and good for high data throughput, but it cannot travel far distances or penetrate various surfaces. Mid-band spectrum combines the qualities of both.

But Entner believes the U.S. approach of using low-band, mid-band and high-band spectrum gives the country an advantage. T-Mobile US Inc., for instance, plans to use the low-band spectrum acquired in the 600 MHz auction for 5G services, while AT&T Inc. and Verizon Communications Inc. have focused their 5G efforts on their millimeter wave high-band spectrum holdings. Sprint Corp., which is seeking to merge with T-Mobile, has a large swath of underused 2.5 GHz mid-band spectrum.

"We're throwing a lot more spectrum at it and they're throwing a lot more small cells at it," Entner said of the U.S. and China, respectively.

Entwistle, however, said there are still questions around whether millimeter wave spectrum will work or get enough global buy-in to ensure a robust device ecosystem.

"There is some anxiety that mmWave might, possibly, start to slip relative to the runaway pace of global sub-6GHz 5G," Entwistle said in a research note, listing risks factors such as "performance or coverage shortfalls," the cost of handsets, and shifts in vendors' priorities.

For now, Entwistle said millimeter wave "looks good," but noted in an interview that even if these spectrum uncertainties are overcome, "China will be ahead of the U.S. on any objective metric at the end of 2019 or beyond."

The major question for investors, of course, is how much winning the global race to 5G really matters for companies.

Dexter Thillien, senior telecom industry analyst for Fitch Solutions, sees the term "race" as an oversimplification, noting that countries will be competing on multiple fronts in 5G, including consumer adoption, enterprise services, artificial intelligence, the internet of things and others.

Entwistle, though, said the global race clearly matters to U.S. politicians. President Donald Trump's re-election team is reportedly backing a plan that would have the federal government managing 5G networks. The report built on a February opinion piece in Newsweek from re-election campaign adviser Newt Gingrich in which he laid out his vision for "a public-private partnership" where shared spectrum is available "for a carrier-neutral, wholesale-only, nationwide 5G network."

A nationalized 5G network and other "left-field outcomes" become more plausible as political furor mounts around the new technology, Entwistle said.