#Coronavirus crisis delays Europe’s #5G rollouts

| April 1, 2020

5G

The COVID-19 pandemic that has impacted most of Europe and forced nationwide shutdowns in Italy, Spain, France, and the UK has also forced a delay in European 5G rollouts, most notably in France. France’s telecoms authority, ARCEP, was supposed to launch the country’s long-awaited 5G spectrum options in mid-April; the regulator has now admitted it will not be able to stage bidding while the country is on lockdown to slow the spread of the coronavirus in the EU’s second-largest economy.

For the time being, France’s four major operators – Orange, Bouygues, SFR, and Free – aren’t overly bothered by the delay. They are instead busy trying to keep up with a sharp increase in data traffic from tens of millions of professionals forced into telework, not to mention the demand for streaming services like Netflix, YouTube, and Amazon Prime. After a request from the French government, Disney+ even had to delay its rollout in France by two full weeks to avoid oversaturating the network.

Over the longer term, however, the delay in holding the auction makes it highly unlikely France’s telecoms sector will be able to meet its targets for 5G deployment in 2020. The French government had been pushing operators to deploy 5G networks in at least two cities before the end of the year, on the assumption that bidding would take place in April and that deployment could begin in July.

 

Just the latest obstacle

Before the pandemic swept across Europe, EU countries were already struggling to keep up with other markets in bringing 5G infrastructure online. According to GSMA and Ericsson, Europe is collectively expected to only achieve 30% 5G market penetration over the next five years. By comparison, South Korea is on pace for 66% and the United States is expected to reach 50%.

Even within the European Union, the gap between member states is growing. While France struggles to determine when it will be able to allocate 5G spectrum, Italy’s two largest operators already made 5G service available in major cities like Milan, Turin, Rome, and Naples last year. In Spain, Vodafone began deploying 5G as early as 2018, and had already expanded its 5G network to 15 cities before the end of 2019.

Of course, Europe’s ability to implement 5G technologies has been impacted by the vagaries of global geopolitics. The EU’s efforts to catch up to East Asian and North American telecoms markets have unfortunately been caught in the crossfire of the US-China trade war, now two years running.

The Trump administration, concerned about the security implications of using technology and equipment from Chinese telecoms giants Huawei or ZTE, has pushed its European partners to exclude these firms from their nascent 5G networks. Unfortunately, Europe’s telecoms providers don’t currently have any other alternatives.

 

Huawei: the only game in town?

American objections — led by President Donald Trump himself — to the use of Chinese telecommunications technologies aren’t baseless. The opaque relationship between companies like Huawei and the Chinese government offer real grounds for concern. U.S., Australian, and other officials arguing that Beijing could compel Huawei to hand over data or otherwise use Huawei as a “backdoor” into vital information systems which use Huawei equipment.

While the company claims its relationship with the Chinese state is no different from any other private firm, reporting from the Wall Street Journal found last year that Huawei had benefited from much as $75 billion in government assistance of various forms.

If Huawei’s position vis-à-vis the Chinese government is fraught, for Europe to extricate Huawei components from its telecommunications networks is practically impossible. Huawei products are already present within European 3G and 4G networks, the foundation upon which the continent’s 5G networks will need to be built. As industry analysts point out, removing the company from those existing networks would require funds that neither European governments nor operators had to spare even before the current economic crisis.

Without Huawei, in fact, Europe’s 5G transition could face 18 months of additional delays and $62 billion in added costs. This helps explain why European leaders have not acceded to American demands, opting instead for an approach that would exclude risky suppliers from “critical parts” of their networks but does not ban any particular company.

This was already a contentious topic between the U.S. and its key allies before the COVID-19 crisis, resulting in a reportedly harsh exchange between President Trump and Prime Minister Boris Johnson in February, after Johnson decided to allow China’s Huawei to build at least part of the UK’s 5G network.

Does this mean European and American officials and regulators have no choice but to accept a central role for Huawei? Not necessarily.

Some advocates of European “digital sovereignty” – a group that notably includes French president Emmanuel Macron – are coming to recognize that Europe’s own primary 5G technology suppliers, Sweden’s Ericsson and Finland’s Nokia, are left at a competitive disadvantage compared to rival Huawei’s access to Chinese state aid. That does not mean, however, that Huawei’s lead in the race for market share is insurmountable.

The European telecoms operators who need to decide between Chinese and European suppliers are themselves disadvantaged by the convoluted structure of the European market. Unlike China or the United States, where unified internal markets allow operators to achieve the scale required to service hundreds of millions of customers, the European telecoms sector remains fractured along national boundaries.

Each EU country has its own set of operators, and none of them can match much larger Asian and American markets in terms of the room they offer for growth. While EU-wide consolidation could alleviate this mismatch, moves in that direction have been stymied by regulators in Brussels.

Could the current moment of crisis bring with it an opportunity to reset Europe’s structural disadvantages in 5G? The EU, and indeed the whole of the global economy, will be in need of serious economic stimulus in the wake of the pandemic. A concerted effort to re-assert Europe’s technological independence and competitiveness within the telecommunications sector could help drive that future growth, if European leaders are ready to undertake it.

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