Wednesday, May 22, 2019

Will 5G Networks Give Chinese Firms a First-Mover Advantage?

Of 22 panelists that the MIT Sloan School Strategy Forum (Organized by the MIT Sloan Management Review, polled, on how strongly they agree with the statement 'Introducing 5G networks 3-5 years ahead of other countries will give Chinese firms a () advantage' 19 panelists said they 'Agree or Strongly Agree'; only Timothy Simcoe of the Boston University Questrom School of Business  ( said that he . However. he did concede that wireless equipment makers (like transmitters, routers, towers, distributed antenna systems, interference mitigation devices, resource management software and hardware, ie all kinds of wireless equipment, but not the phones themselves) like / will have an advantage (but on cost, resulting from their overall cost structure, not as first-movers); while data carriers [because they will compete locally with other carriers in China, where 5G networks will already have high penetration] or device makers [who will all simply take the available 5G network as standard, so that it will not be a distinguishing feature between them] will have no advantage whatever). (Note: Huawei and ZTE are notable mainly for the equipment they make, but may also make phones. In that case, their equipment manufacturing divisions will gain on cost, not on first-mover, while the phone manufacturing divisions will not gain at all.)

Olav Sorenson ( is the only other panelist who disagrees with the motion, but does not 'Strongly Disagree' - says that the question is moot because 5G is already being deployed, eg in USA and (South) Korea. One panelist, Richard Florida, hedged completely, neither agreeing nor disagreeing.

Nineteen of the twenty-two panelists (which includes, coincidentally, my old friend Ashish Arora of Duke University) thus agreed that introduction of 5G networks will give Chinese firms a first-mover advantage. To my mind, it was Tim Simcoe's disagreement that was best argued, being based on detailed knowledge of both technical and market issues, while all the rest, in agreeing, did not present any overwhelmingly compelling arguments, although some panelists did enlist 'network externalities', 'control of standards', 'learning-by-doing', 'scale economies', or the 'it depends on the merits of the Chinese technology' arguments. These are pretty old ideas and it is not absolutely clear that they do indeed apply in unmodified form, to the problem at hand. Erik Brynjolfsson's  'argument' if one could call it that, and even, or especially, if one agrees with it - was more a political statement than anything else: '5G is a Big Deal, and the US is fumbling its rollout'. Barry Nalebuff of Yale brings up a historical vignette - the case of France's Minitel (the introduction of which, in the early 1980s) was thought to provide French internet/phone companies a huge first-mover advantage. As things turned out, the advantage was very small or non-existent.

In the end, any decisions on 5G, and Huawei cannot be expected to be made solely on techno-economic arguments of the sort that Tim Simcoe provides, geoeconomics is likely to be much more important - an issue no panelist brought up even tangentially.