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Pitch Behind T-Mobile-Sprint Merger: Keep Up With China in 5G

April 30, 2018

It is not just the ultrafast video downloads and web surfing that such networks could provide for consumers. Rather, it is the whole range of future economic and technological opportunities — from self-driving cars to smart cities and factories — that they could open up.

“It’s hard to argue that 5G is not key to the next five to 10 years,” said Chris Lane, a telecom analyst in Hong Kong with Sanford C. Bernstein. “Strategically, if you’re the U.S. and you’re trying to plan industrial policy, this deal makes sense.”

Mobile carriers in China have already announced bold plans to roll out 5G networks, and the creation of a new American wireless giant would be unlikely to affect them. China Mobile, which has nearly 900 million wireless customers, is aiming to begin large-scale 5G trials in several Chinese cities this year.

Pitch Behind T-Mobile-Sprint Merger: Keep Up With China in 5GPitch Behind T-Mobile-Sprint Merger: Keep Up With China in 5G

Other Chinese companies are still vulnerable to American pressure, though. In particular, the United States government has placed restrictions on one giant Chinese supplier of the equipment that will make those new networks possible, and is investigating another.

For years, Huawei and ZTE have been unable to sell to large American wireless operators over security concerns. But the Department of Commerce recently went further, blocking ZTE from using American-made components for seven years, saying the company had failed to reprimand employees who violated American sanctions against Iran and North Korea.

ZTE now faces the prospect of being unable to manufacture network gear during the years in which wireless providers in China and elsewhere will most likely be building 5G networks. Huawei, meanwhile, faces an continuing inquiry related to violations of American trade controls.

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Serious disruption to either company’s business could mean a boon for their main rivals in telecommunications equipment, Nokia of Finland and Ericsson of Sweden.

It could also put SoftBank in an awkward position.

“SoftBank has been working with ZTE in Japan, but now they have to try to find other partners,” said Tsutsumu Ishikawa, an independent expert in Tokyo who covers the mobile industry.

As T-Mobile and Sprint seek Washington’s blessing for their union, the Trump administration might even require that SoftBank drop Huawei and ZTE as suppliers, said Mr. Lane of Bernstein. Masayoshi Son, SoftBank’s founder, has also cultivated personal ties with President Trump.

“If the administration for whatever reason doesn’t want Chinese suppliers of network equipment in Japan, either — and it’s possible — then I’m sure Masa would be willing to compromise,” Mr. Lane said, using Mr. Son’s nickname. “I think he’s quite pragmatic.”

A SoftBank spokeswoman declined to comment.

As much promise as 5G seems to hold for tomorrow’s economy, it is not clear that technologies such as driverless cars will have matured by the time the new mobile networks are ready. That means carriers in the United States and China may be racing to build infrastructure more quickly than the technology that would make best use of it is developing.

At a recent Huawei summit meeting in the company’s home city, Shenzhen, executives sounded eager to tame sky-high hopes for 5G, describing the technology as an evolution and not a revolution.

“We do have expectations for 5G, but the expectations are not as great as everyone imagines,” said Eric Xu, Huawei’s deputy chairman. “Because we have implemented 4G very well, we don’t see many clear applications that can only be supported with 5G.”

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