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Japan’s 5G: a Mirror for Europe

BLOG - 26 February 2020

It is only logical that Europe’s 5G discussions gravitate around China, the United States, and Europe’s strategic position in an increasingly bipolar international order. And 2020 is the year of hard choices for Europe. How to protect the continent’s critical infrastructure from high-risk equipment providers while rolling out the next generation of telecommunication networks in time to remain globally competitive? Japan has a radically different profile when it comes to three important areas of 5G deployment: the allocation of frequencies, the management of the Huawei risk, and the national industry solutions to ensure multi-vendor architectures and create space for policy options. This singularity makes a look at Japan particularly worthwhile.

Free frequencies with responsibilities

Unlike European states, Japan does not auction frequencies. Frequencies were assigned for free by the Ministry of Internal Affairs and Communication (MIC) in April 2019 to the four operators: NTT Docomo, KDDI, Softbank and Rakuten. As it is the case in many countries, the allocation of frequencies came with coverage obligations. The largest operators, NTT Docomo and KDDI, accepted a coverage of over 90% of the Japanese population, while Softbank and Rakuten committed respectively to 64% and 56%. The operators also consented to an obligation of taking preventive measures to address the possible power outages caused by natural disasters, such as during the 2018 Hokkaido Eastern Iburi earthquake, and to "make efforts" to open base stations in remote areas.

Less frequent is the provision for minimum infrastructure investment requirements, from US$1,7 billion for Rakuten to US$7 billion for NTT Docomo. This is corollary to the free allocation of frequencies, which allow operators to pursue different investment strategies than if they had had to pay billions to the state, like in Germany or in Italy. In addition, MIC has listed 13 conditions that the operators should commit to fulfill as part of their deal to obtain free frequencies. They include security responsibilities, such as the obligation to "take sufficient cybersecurity measures to manage the equipment supply chain".

A polite de facto ban on Huawei

Japan has a radically different profile when it comes to three important areas of 5G deployment: the allocation of frequencies, the management of the Huawei risk, and the national industry solutions.

This agreement between operators and the government made it easier for Japan to focus on equipment solutions without having to manage high-risk vendors. With regards to Huawei, Japan is politely enforcing a de facto ban without ever using the word. This approach differs from the US policy in that it escapes open confrontation with China.

Therefore, Japanese telecommunication operators overall do not suffer from the path-dependence constraints that several European telcos may experience during the first phase of deployment of non-standalone 5G, basically an improvement of the existing 4G core and radio access network.

Of the four main carriers, only Softbank has Huawei technology in its 4G infrastructure and it announced in December 2019 the removal of Huawei equipment from its 4G network, and a switch to Nokia and Ericsson. This decision comes with a cost. 13% of Japan’s 4G base stations were manufactured by Huawei thanks to the company’s business with Softbank. Softbank undertook its security responsibilities under the government’s 5G guidelines despite the importance of China activities in its business portfolio. With stakes in Alibaba, Zhong’an Insurance, ByteDance and Didi, Softbank is a leading foreign investor in China’s digital ecosystem, including through its subsidiary - SoftBank Vision Fund.

How did Japan manage the de facto exclusion of Huawei without a cost on relations with China? The only accusatory Chinese statement came in December 2018 after the Japanese government issued procurement guidelines to the Self-Defense Forces (SDF) and government agencies that effectively prevent them from purchasing equipment from Huawei and untrustworthy companies for their computers, servers and telecommunications networks. The Chinese Embassy in Tokyo criticized the Japanese government for imposing "discriminatory practices against specific companies in specific countries, which is unfavorable not only for Japan in attracting foreign investment, but also for economic cooperation between China and Japan."

A key factor is the rapidity of decision-making. Being decisive and resolute fast allowed a quick focus of the Japanese 5G debate on positive technological solutions and local innovation instead of spending months devising publicly more risky security management tools as has been the case in Europe.

Japan’s domestic technology solutions

Japan’s firm but non-confrontational management of the Huawei risk was also made easier thanks to the country’s national technology solutions, unknown to the larger public outside Japan. Many commentators think that there are five equipment options available to operators – Huawei, Ericsson, Nokia and to a lesser extent, ZTE and Samsung – when they don’t mistakenly believe that there is no alternative to Huawei. In 2017, according to IHS Market, Japan’s top two players, Fujitsu and NEC owned respectively 0,9% and 1,4% of the global market for telecommunication equipment. But they operate almost exclusively on Japan’s domestic market, with a majority share in NTT Docomo’s infrastructure, a captured market which protected them from industry consolidation trends affecting other smaller equipment providers across the world.

This will give NEC and Fujitsu time to develop 5G standalone technology for deployment by 2025. A first phase of non-standalone 5G is planned to start operations for the Tokyo Olympics this summer. NEC works with operator Rakuten to deploy 16000 5G antennas over a period of five years, with the aim of developing a low-cost technology. Fujitsu is very active on the domestic market for private 5G radio licenses, providing local governments and companies with the infrastructure to conduct their digital transformation outside of commercial contracts with telecommunication operators.

Many commentators think that there are five equipment options available to operators – Huawei, Ericsson, Nokia and to a lesser extent, ZTE and Samsung – when they don’t mistakenly believe that there is no alternative to Huawei.

The current international environment is favorable to the international expansion of these companies outside of their domestic nest. Operators and equipment providers are involved in international activities to support open standards and interoperability. For example, NTT Docomo announced having achieved multi-vendor interoperability across 4G and 5G base stations. NTT Docomo’s solution integrates baseband systems from Nokia with radio equipment from Fujitsu and NEC, and is in accordance with the international standards of the Open Radio Access Network (O-RAN) Alliance. However, the size of the Japanese market is insufficient to support such open architecture as a credible alternative to existing solutions, and there is a need for international alliances if supplier diversification is to succeed.

The Japanese government also provides incentives to support companies that develop innovative and trustworthy solutions. For example, it has recently submitted to the Parliament a bill that would provide a 15% tax cut to companies investing in 5G networks, including for industrial and agricultural applications – not only for mobile phone commercial services.

Japan’s 5G decisions and management of the Huawei risk were taken against a background of improving relations with China. The only obstacle to a visit by Xi Jinping to Tokyo is the coronavirus crisis, not 5G or maritime disputes. The coronavirus even generated a significant warming of Sino-Japanese relations, with many signs in China that the Japanese gifts of surgical masks, donations and signs of support to areas with strong risks of infection were deeply appreciated. The main lesson for Europe is that acting fast and decisively with a clear view of the national interest does not leave any realistic space for more or less intimidating diplomatic persuasion efforts, and considerably reduces the potential damage to the relationship with China.

 

This commentary draws from the information shared at the Japan-Europe Policy Conference 2020, Trust and Autonomy in the Digital Sphere, hosted by Institut Montaigne in Paris on February 6 and 7.

 

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