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Huawei 5G 2019 Report WEB
Huawei 5G 2019 Report WEB
Huawei 5G 2019 Report WEB
COMPETITION
IN 5G NETWORK
EQUIPMENT
AN ECONOMIC IMPACT STUDY
DECEMBER
DECEMBER 2019
2019
Restricting competition in 5G network equipment
TABLE OF CONTENTS
Executive summary4
1. The 5G opportunity6
1.1 The current state of 5G rollout 7
1.2 The economic benefits of 5G 8
1
Restricting competition in 5G network equipment
THE IMPACTS OF 5G
INFRASTRUCTURE RESTRICTION*
Canada United Kingdom
$100 mn–$400 mn $200 mn–$700 mn
(8%–24%) (9%–29%)
2.2 mn–5.7 mn 3.9 mn–10.4 mn
(6%–15%) (6%–15%)
$1.0 bn–$6.7 bn $1.8 bn–$11.8 bn
$8.6 bn–$63.0 bn $2.6 bn–$15.6 bn
*Results for each country show the range between our low cost and high cost 5G impact scenarios
2
Restricting competition in 5G network equipment
Germany Japan
$200 mn–$600 mn $700 mn–$2,100 mn
(9%–29%) (9%–27%)
3.8 mn–10.0 mn 7.2 mn–19.1 mn
(5%–12%) (6%–15%)
$2.4 bn–$13.8 bn $5.3 bn–$34.3 bn
Australia
$100 mn–$300 mn
(8%–27%)
0 mn–3.1 mn
(0%–11%)
$0.8 bn–$8.2 bn
India
$200 mn–$700 mn
(8%–27%)
15.9 mn–45.3 mn
(1%–3%)
$4.7 bn–$27.8 bn
3
Restricting competition in 5G network equipment
EXECUTIVE SUMMARY
The next generation of mobile technology, 5G, offers enormous
$160 billion
opportunities for countries who facilitate its widespread
provision. 5G has the potential to both reduce costs and unlock
new income streams across all sectors of industry, improving
productivity levels throughout the global economy.
Annual investment in
the construction of Globally, the telecommunications network infrastructure market
new 5G networks is dominated by three players—Ericsson, Huawei and Nokia.
around the world, These companies were largely responsible for the rollout of 4G
according to the GSMA. networks via the deployment of mobile base stations which
facilitate connections to mobile user devices.
$1 billion
ECONOMIC IMPACTS OF RESTRICTING 5G COMPETITION
4
Restricting competition in 5G network equipment
Fig. 1: Economic impacts of restricting a player of Huawei’s size from competing in the
5G infrastructure market
Note: for a glossary of the terms used in this report, see Appendix 1. 5
Restricting competition in 5G network equipment
1. THE 5G OPPORTUNITY
As the next generation of 5G will also unlock new Things (IoT), will not use a lot
mobile wireless network income streams for businesses of data (a sensor built into a
technology, 5G will provide in all sectors of the economy, highway, for example, will need
a better consumer experience and increase their productivity to send only small amounts
and improve business levels, through enhanced of digital information across
performance through faster capabilities including higher the network every couple of
data transmission and more data speeds, lower latency,1 hours). But when combined,
reliable connectivity. 5G will and network slicing.2 these hundreds of millions—
reduce the cost of mobile potentially billions—of new
internet use, with prices Businesses are preparing sensors will require almost
expected to drop 10-fold per for millions of new wireless universal connectivity, forcing
gigabyte of data, compared devices—from smartwatches operators to extend their
with current 4G mobile and other wearable items to networks to practically every
networks. sensors embedded in industrial corner of a country. Fig. 3
products—to be connected gives an indication of how 5G
to the next generation of and the IoT will affect people
5G mobile networks. These and businesses throughout
devices, which together every sector of the economy.
constitute the Internet of
1
Latency is the amount of time between a command and its corresponding action over the internet.
2
Network slicing allows the physical infrastructure to be split into several virtual networks that can be tailored to different end-users,
6 thereby facilitating dedicated disruption-free networks for critical users such as health and transport services that are free from
disruption from other consumer and business uses.
Restricting competition in 5G network equipment
Amidst hype and high Fig. 4 offers a snapshot of United Kingdom, and the
expectation, the 5G rollout 5G networks as of October United States. The first
has begun. By 2025, GSMA 2019. Multiple operators have operators have also switched
forecasts that there will be launched services in Austria, on their 5G networks in
1.2 billion 5G mobile users Australia, Bahrain, Germany, Finland, Ireland, the Maldives,
globally, with network coverage Italy, Kuwait, Qatar, South Monaco, the Philippines, Saudi
extending to roughly a third of Korea, Romania, Switzerland, Arabia, Spain, and South Africa.
the planet’s population.3 United Arab Emirates, the
No launches
Single launch
Multiple launches
Source: GSMA
3
GSMA. 2018. The Mobile Economy 2018. 7
Restricting competition in 5G network equipment
4
Arthur D. Little. 2019. “The Race to 5G.” www.adl.com/RaceTo5G . March. Accessed October 15, 2019. https://www.adlittle.com/sites/
default/files/reports/adl_the_race_to_5g_report_-min.pdf.
8 5
GSMA. 2019. New GSMA Study: 5G to Account for 15% of Global Mobile Industry by 2025 as 5G Network Launches Accelerate. Accessed 10
25, 2019. https://www.gsma.com/newsroom/press-release/new-gsma-study-5g-to-account-for-15-of-global-mobile-industry-by-2025/
Restricting competition in 5G network equipment
At the regional level, studies have put 5G’s contribution to GDP at €113 billion (US$125.4 bn) in
the European Union by 2025, US$500 billion in the US, and 6.3 trillion yuan (US$925 bn) in China
over the same time period.
9
Restricting competition in 5G network equipment
2. H
OW THE 5G
INFRASTRUCTURE
MARKET WORKS
To understand the impact of 2.1 WHO ARE THE KEY PLAYERS IN THIS GLOBAL MARKET?
restrictions on 5G equipment
providers, it is important to Ericsson (29% market share), America, where Ericsson
understand the current market Huawei (31%), and Nokia (23%) and Nokia dominate with a
structure, and the nature of are the largest players in the combined market share of
competition in this market. global RAN market, across close to 90%. On the other
The telecoms infrastructure all generations of mobile hand, ZTE has a small but
underlying the 5G network technology. These three significant presence in the Asia
consists predominantly of companies have the broadest Pacific region, at the expense
the Radio Access Network product portfolios and widest of Nokia and Ericsson.
(RAN), which in turn consists global reach (see Fig. 7), as
mainly of mobile base well as the strongest service Despite these differences,
stations that connect telecom support, and are expected to responses to a 2015 European
networks wirelessly to mobile remain key global players as Commission review suggested
user devices. 5G becomes more prominent. that there are no obvious
geographical barriers to the
While network providers reach of the largest network
are global players with a providers6.
worldwide footprint, there
are some differences in their
regional market shares (see
Fig. 8). Currently, Huawei has
a small presence in North
Nokia
Breadth of portfolio and services
Huawei
ZTE
Ericsson
Samsung
Others
Global reach
Source: Ovum, Oxford Economics
6
Nokia/Alcatel-Lucent Merger. 2015. Case No COMP/M.7632 - REGULATION (EC) No 139/2004 Merger Proceure
10 (European Commission, 24 July).
Restricting competition in 5G network equipment
35% 9% Asia
Pacific
2% 15%
2% 1% 1%
42%
6%
20%
20% 30%
Caribbean 41%
Middle East
& Latin
& Africa
America
36%
43%
Having declined over the last Mobile network operators, In South Korea, SK Telecom
few years, the RAN market such as EE and Vodafone announced Ericsson, Nokia,
is expected to start growing in the UK, issue tenders to and Samsung as its initial 5G
again—driven by the rollout the network providers for network partners. Vodacom
of 5G networks. In 2019, building 5G networks. These launched its commercial
worldwide RAN sales are tender processes are already service in South Africa in
forecast at around US$31 under way in many countries, 2018 using Huawei. China’s
billion, to which 5G equipment with the duration of such operators have also started to
is expected to contribute contract awards being around tender commercial 5G offers.
roughly US$3.6 billion. The three years, on average.
contribution of 5G is then Economic theory implies
expected to grow rapidly that a competitive tender
over the next decade as the will typically yield benefits
contribution of 4G declines, for consumers, in terms of
resulting in total RAN sales prices, quality of service, and
exceeding US$35 billion by technological innovation.
2023 (see Fig. 9).
11
Restricting competition in 5G network equipment
12
Restricting competition in 5G network equipment
3. H
OW WE ASSESS THE
IMPACT OF RESTRICTING
5G COMPETITION
The technological benefits imposing restrictions on Economic theory suggests
of 5G are expected to Chinese network providers from imposing restrictions on a
be transformational, and selling 5G network equipment major global provider such as
potentially revolutionary. As to telecoms companies. In Huawei would be expected to
the world prepares to roll out particular, as of October increase prices, which might
5G, a healthy and competitive 2019, Huawei is blocked from in turn slow down 5G rollout.
market will help to ensure that competing in any 5G provision Furthermore, the quality of
the network infrastructure is tenders in the United States the infrastructure may be
installed as efficiently, quickly, and Australia, despite the diminished, and productivity
and cheaply as possible. company confirming it has growth delayed lost (see Box 1).
never engaged in industrial
However, concerns expressed espionage, nor allowed its
about cyber security have led technology to be knowingly
several countries to consider hacked by the Chinese state.7
7
The Guardian. 2019. “Huawei boss: UK ‘won’t say no to us’ over 5G rollout.” The Guardian, 16 August. 13
Restricting competition in 5G network equipment
For this study, we assume that remain close to 4G market markets: Australia, Canada,
if Huawei is restricted in each shares in 2018. In that year, France, Germany, India, Japan,
country’s 5G infrastructure Huawei had 29% of the global the United Kingdom, and
market, network operators 4G market, while Ericsson the United States. To tailor
in that market would switch and Nokia had 27% and 25% our analysis to different
to one of the two other large respectively of the global 4G markets, we use regional
providers, Ericsson and Nokia, market. market shares to account for
in proportion to their existing differences in the network
market shares. We believe With Huawei blocked from the providers’ geographic reach.8
that the other providers do market, our assumption means In particular, we use North
not have the same global that Ericsson and Nokia’s American market shares for
reach or breadth of products market shares would increase Canada and the United States;
and services that would allow to 42% and 39% respectively, European market shares for
them to successfully compete while Samsung, ZTE, and the France, Germany and the UK;
for Huawei’s customers, and other operators would not and worldwide market shares
therefore their market shares see a change in their market for Australia, India and Japan. 9
would remain unchanged. shares (Fig. 10).
Fig. 10: Worldwide market shares without and without restrictions on Huawei
(based on 2018 4G revenues)
3% 3%
8% 8%
8% 27% 8%
42%
Market shares Market shares
without with restriction
restriction
25%
39%
29%
8
Ideally, we would have used national market share data to tailor our analysis to the individual markets, but we had to use regional
market shares as the corresponding national data was not available.
14 9
We used the worldwide LTE market shares for Australia, India and Japan instead of the regional, i.e., APAC, measures. The APAC
measure is likely to be heavily dominated by China. Vendor market shares in China are not representative of vendor market shares in
Australia, India and Japan.
Restricting competition in 5G network equipment
Fig. 11 shows the market shares Fig 11: Expected regional 5G RAN market shares with no
of the three major players in restrictions on Huawei (based on regional 4G LTE market
North America, Europe, and shares in 2018)
worldwide. Huawei has a small
presence in North America Country in
due to existing restrictions. Region Huawei Nokia Ericsson
our study
Further restrictions will
therefore lead to a very small North America Canada, USA 2% 42% 47%
increase in concentration. In
France,
contrast, in other countries Europe 36% 26% 28%
Germany, UK
in our study, Huawei has the
largest market share, and Australia, India
restrictions on Huawei would Worldwide 29% 25% 27%
and Japan
therefore lead to a significant
increase in concentration. Source: Dell Oro
Note: In this study, we only consider the economic impact due to increases in concentration
and do not account for the loss of the technological know-how, experience and capabilities
that are unique to Huawei. Huawei is among the leading spenders on R&D and is considered
to have an advantage over its competitors due to its technological prowess.10 Therefore,
the rest of the modelling, described further in the following chapter, is more appropriately
described as being based on the exclusion of a competitor of Huawei’s size.
10
Strategy Analytics. 2019. “Comparison and 2023 5G Global Market Potential for leading 5G RAN vendors - Ericsson, Huawei and Nokia.”
In our study, we focus on eight developed technology markets: Australia, Canada, France, Germany, India, Japan, the United
11
Stage 2: Impact on rollout this, we calculated the average estimates of the productivity
investment expenditure benefits of 5G from various
We translated the increase in
required to extend 5G coverage academic and industry studies.
investment costs to delays in
on a per person basis. The The lower productivity growth
rollout using a network rollout
increase in investment costs is partly due to the increase
model built in collaboration
due to restricted competition, in the costs of building the
with Dr Edward Oughton
as estimated in Stage 1, was 5G network and partly due to
(Cambridge Judge Business
used as an input into the the reduced investment in 5G
School). This model translates
rollout model. Assuming that and related services due to
an increase in investment
nominal investment remains delays in rollout.
costs to a reduction in the
unchanged, the higher cost
share of the population
of rollout results in lower These were then fed into the
covered for each country and
coverage. Oxford Economics Global
scenario by assuming that
Economic Model to estimate
the overall operators’ capex
Stage 3: Impact on the impact on a range of
remains the same.
productivity and macroeconomic indicators
macroeconomic growth such as GDP and household
Our baseline—i.e. with no
consumer spending.
competition restrictions— The increase in investment
forecasts for 5G rollout and costs and delays in rollout
capital expenditure were were translated into lower
sourced from GSMA. Based on productivity growth using
There are a large number Our modelling approach does The higher network equipment
of ways through which not account for a number prices translate into higher
restrictions on competition of other potential costs of investment costs, which
in the network infrastructure restricting competition. For translates into delays in rollout.
market results in loss in example, in addition to the We assume that network
productivity and GDP. Fig. 12 increase in prices, there may operators do not suffer from
summarises the transmission also be a reduction in quality any capital constraints or
mechanism, highlighting the and technological innovation increased costs of capital as
channels that have not been in the 5G network equipment they increase their investment
included in our modelling. as the unrestricted firms do expenditure.
not face the same pressures to
In general, restricting invest in R&D and innovation. The increase in investment
competition in the 5G network Further, network operators costs and the consequent
infrastructure market leads to and providers may face delays in rollout lead to
lower competitive pressures some transition costs as they productivity losses across the
on the unrestricted network adapt their plans and existing economy.
providers, who will be able to infrastructure to adequately
charge higher contract prices fill in the gap left by a large
for 5G equipment. competitor such as Huawei.
16
Restricting competition in 5G network equipment
Unrestricted
Increased network providers Reduced Loss in restricted
investment costs face transition costs investment in R&D providers’ R&D
for network (e.g. increasing by unrestricted and technological
operators capacity) to match network providers knowhow
increased demand
The precise extent of this year, which is based on the In the central cost scenario,
negative impact will depend lower end of estimates from we assumed that 5G leads to
on the potential future various studies. To account productivity benefits of 0.15% in
benefits of 5G, and the market for limited increases in prices GDP growth per year in the first
reactions to competition in the low cost scenario, we year of 5G rollout, increasing
restrictions. To capture the assumed that investment costs to 0.30% in five years. The
uncertainty around the increase by the lower end of increase in investment costs
future benefits of 5G and the the range of estimates from was based on the median of
different market responses our three price models. estimates from the three price
to competition restrictions, models in Stage 1.
we modelled three scenarios For the high cost scenario,
which are summarised in we assumed that 5G leads to
Fig. 13. productivity benefits of 0.30%
in GDP growth per year, which
The modelling assumptions is based on the higher end of
corresponding to these the estimates from the various
scenarios are shown in studies. Similarly, the increase
Fig. 14. To model the low cost in investment costs was based
scenario, we assumed that 5G on the higher end of the range
leads to productivity benefits of estimates from our three
of 0.15% in GDP growth per price models in Stage 1.
17
Restricting competition in 5G network equipment
Source of
LOW COST scenario CENTRAL COST scenario HIGH COST scenario
uncertainty
Market We assume that the scope Other vendors are able to Given the revolutionary
reaction to for other 5G infrastructure increase their prices to some impact of 5G, infrastructure
competition vendors to exercise their extent but are not fully able to vendors can fully exercise
restrictions market power and increase exercise their market power. their market power and
prices is limited. increase prices to the
maximum extent.
Source of uncertainty LOW COST scenario CENTRAL COST scenario HIGH COST scenario
Potential future benefits of 5G 0.15% per year from 0.15% in 2020; increasing 0.30% per year from
modelled using GDP growth per 2020-2035 to 0.30% in 2025 and 2020-2035
year in the baseline constant at 0.30% per
(no restrictions) scenario year after.
18
Restricting competition in 5G network equipment
4. I NDIVIDUAL COUNTRY
RESULTS
In our central cost scenario, increases of US$400 million In the remainder of this
restricting a key supplier of each in France, Germany, chapter, we detail the full
5G infrastructure from helping and the UK over the same results for the eight countries
to build a country’s network time period, in our central in our study, according to
was found to increase overall cost scenario. In Japan, the all three scenarios: low cost,
5G investment costs by equivalent average annual central cost, and high cost.
between 16% and 19%, among increase would be US$1.4 In each case, the results
the eight countries covered in billion, in India US$500 million, are given relative to our
this study. and in Australia US$200 million. baseline scenario in which
no competition restrictions
In the US and Canada, this Linked to these investment are imposed on the
equates to an average annual cost increases, the 5G infrastructure market.
increase in 5G network restriction in competition for
investment costs of US$1.0 5G infrastructure would lead to
billion and US$300 million, delays in the network rollout
respectively, over the next that mean millions fewer
decade. In the three European people would be covered by
countries in our study, we the 5G network in 2023. It
estimate restrictions on would also significantly reduce
competition could lead to economic growth over the
average annual investment cost next decade and beyond.
Fig. 15: Increase in average annual 5G network investment costs due to competition
restrictions, 2019-2030
Increase in average annual investment costs (US$ billions)
2.5
Central cost scenario High-low cost scenario range
2.0
1.5
1.4
1.0
1.0
0.5
0.5 0.4 0.4 0.4
0.3
0.2
0.0
Japan USA India UK France Germany Canada Australia
Source: Oxford Economics.
19
Restricting competition in 5G network equipment
AUSTRALIA
IMPACTS OF RESTRICTING A MAJOR PARTICIPANT
Low cost Central cost High cost
scenario scenario scenario
Increase in average
annual investment costs
for 5G infrastructure US$100 mn US$200 million US$300 mn
over the next decade (8%) (17%) (27%)
Absolute number of
people who will have
delayed access to 0 1.5 million 3.1 mn
5G by 2023 (11.4%)
(5.6%)
Estimated permanent
loss in Gross Domestic US$0.8 bn US$2.8 billion US$8.2 bn
Product (GDP) due to
delay in 5G rollout in 2035
100%
90%
80%
70%
Baseline
Low scenario
60%
Central scenario
High scenario
50%
40%
30%
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Source: GSMA, Oxford Economics
20
Restricting competition in 5G network equipment
MARKET ANALYSIS
Australia is among the top Restricting competition in the Across our scenarios, we
three countries in terms of network infrastructure market expect the increase in average
5G preparedness along with may significantly reduce annual investment costs
South Korea and the US12. A economic growth in Australia over the next 10 years due
competitive market for 5G over the next 15 years. We to competition restrictions
infrastructure would help estimate this could reduce to vary between US$100
maximise the gains from GDP in 2035 by US$2.8 billion. million (8%) and US$300
technological innovation and million (27%). The wide range
growth in Australia. A study The potential future benefits in these estimates is due to
for the Australian government of 5G are hard to predict. the uncertainty around the
estimates that 5G technology While most industry players reaction of other vendors of
could add an additional $1,300 expect 5G to transform the network infrastructure.
to $2,000 in GDP per person economy, 5G may end up
in 2030 after the first decade being merely an enhancement This increase in prices would
of the rollout13. to the existing 4G technology. translate into delays in rollout.
Or it could be revolutionary in We estimate that these delays
On the other hand, restricting the way the steam engine or would leave up to 3.1 million
competition can have electricity was. The uncertainty more people (11.4% of the
significant adverse economic about the nature of benefits population) without access to
impacts. Our modelling will also be reflected in the 5G by 2023.
suggests restricting a major economic consequences of
participant could increase restricting competition in the The resulting loss in
the cost of building the 5G network infrastructure market. productivity has significant
network by US$200 million economic consequences.
per year over the next decade To account for this, we have Lower economic growth
(17% of baseline costs) in modelled two additional due to delays in 5G
our central cost scenario. scenarios that capture the rollout and the associated
Due to these price increases, lower and higher end of the slower technological growth
1.5 million people (5.6% of range of potential future reduces GDP by between $0.8
the population) who would outcomes from competition billion and $8.2 billion in 2035.
have otherwise had access restrictions in the 5G network
to the 5G network could be market.
left without access to a 5G
network in 2023.
Department of Communications and the Arts (Australian Government). 2018. Impacts of 5G on productivity and economic growth.
13
Working Paper. 21
Restricting competition in 5G network equipment
CANADA
IMPACTS OF RESTRICTING A MAJOR PARTICIPANT
Low cost Central cost High cost
scenario scenario scenario
Increase in average
annual investment costs
for 5G infrastructure US$100 mn US$300 million US$400 mn
over the next decade (8%) (16%) (24%)
Absolute number of
people who will have
delayed access to 2.2 mn 4.1 million 5.7 mn
5G by 2023 (5.7%) (14.7%)
(10.5%)
Estimated permanent
loss in Gross Domestic US$1.0 bn US$3.5 billion US$6.7 bn
Product (GDP) due to
delay in 5G rollout in 2035
90%
80%
70%
60%
Baseline
50%
Low scenario
40%
Central scenario
30%
High scenario
20%
10%
0%
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Source: GSMA, Oxford Economics
22
Restricting competition in 5G network equipment
MARKET ANALYSIS
A comprehensive study The potential future benefits This increase in prices would
conducted by Accenture of 5G are hard to predict. translate into delays in rollout.
found that the adoption of While most industry players We estimate that these delays
5G technology in Canada expect 5G to transform the would leave between 2.2
will propel innovation across economy, 5G may end up million and 5.7 million more
industries and significantly being merely an enhancement people (5.7% to 14.7% of the
improve Canadians’ quality of to the existing 4G technology. population) without access to
life and the economy to the Or it could be revolutionary in 5G by 2023.
tune of a nearly $40 billion the way the steam engine or
annual GDP uplift by 2026. electricity was. The uncertainty The resulting loss in
The benefits will be felt not about the nature of benefits productivity has significant
only in national GDP, but also will also be reflected in the economic consequences.
in terms of Canadian jobs. economic consequences of Lower economic growth
It is estimated that by this restricting competition in the due to delays in 5G
same time close to 250,000 network infrastructure market. rollout and the associated
permanent jobs will be added slower technological growth
to the Canadian economy.14 To account for this, we have reduces GDP by between $1.0
modelled two additional billion and $6.7 billion in 2035.
On the other hand, restricting scenarios that capture the
competition can have lower and higher end of the
significant adverse economic range of potential future
impacts. Our modelling outcomes from competition
suggests restricting a major restrictions in the 5G network
participant could increase market.
the cost of building the 5G
network by US$300 million Across our scenarios, we
per year over the next decade expect the increase in average
(16% of baseline costs) in annual investment costs
our central cost scenario. over the next 10 years due
Due to these price increases, to competition restrictions
4.1 million people (10.5% of to vary between US$100
the population) who would million (8%) and US$400
have otherwise had access million (24%). The wide range
to the 5G network could be in these estimates is due to
left without access to a 5G the uncertainty around the
network in 2023. reaction of other vendors of
network infrastructure.
Restricting competition in the
network infrastructure market
may significantly reduce
economic growth in Canada
over the next 15 years. We
estimate this could reduce
GDP in 2035 by US$3.5 billion.
14
Accenture. 2018. Fuel for innovation: Canada’s Path in the Race to 5G. Accenture Strategy Report. 23
Restricting competition in 5G network equipment
FRANCE
IMPACTS OF RESTRICTING A MAJOR PARTICIPANT
Low cost Central cost High cost
scenario scenario scenario
Increase in average
annual investment costs
for 5G infrastructure US$200 mn US$400 million US$600 mn
over the next decade (9%) (19%) (29%)
Absolute number of
people who will have
delayed access to 2.1 mn 4.0 million 5.7 mn
5G by 2023 (3.2%) (8.4%)
(6.0%)
Estimated permanent
loss in Gross Domestic US$2.6 bn US$8.3 billion US$15.6 bn
Product (GDP) due to
delay in 5G rollout in 2035
90%
Baseline
80%
Low scenario
70%
Central scenario
60%
High scenario
50%
40%
30%
20%
10%
0%
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Source: GSMA, Oxford Economics
24
Restricting competition in 5G network equipment
MARKET ANALYSIS
France is among the countries The potential future benefits of This increase in prices would
expected to be at the 5G are hard to predict. While translate into delays in rollout.
forefront of 5G development. most industry players expect We estimate that these delays
A competitive market for 5G to transform the economy, would leave between 2.1
5G infrastructure would help 5G may end up being merely million and 5.7 million more
maximise the gains from an enhancement to the existing people (3.2% to 8.4% of the
technological innovation and 4G technology. Or it could be population) without access to
growth in France. 5G services revolutionary in the way the 5G by 2023.
will stimulate economic steam engine or electricity
activity worth $85bn in GDP was. The uncertainty about The resulting loss in
and support around 396,000 the nature of benefits will also productivity has significant
jobs in France in 2035.15 be reflected in the economic economic consequences.
consequences of restricting Lower economic growth
On the other hand, restricting competition in the network due to delays in 5G
competition can have infrastructure market. rollout and the associated
significant adverse economic slower technological growth
impacts. Our modelling To account for this, we have reduces GDP by between $2.6
suggests restricting a major modelled two additional billion and $15.6 billion in 2035.
participant could increase scenarios that capture the lower
the cost of building the 5G and higher end of the range of
network by US$400 million potential future outcomes from
per year over the next decade competition restrictions in the
(19% of baseline costs) in 5G network market.
our central cost scenario.
Due to these price increases, Across our scenarios, we
4.0 million people (6% of expect the increase in average
the population) who would annual investment costs
have otherwise had access over the next 10 years due
to the 5G network could be to competition restrictions
left without access to a 5G to vary between US$200
network in 2023. million and US$600 million
(9% and 29%). The wide range
Restricting competition in the in these estimates is due to
network infrastructure market the uncertainty around the
may significantly reduce reaction of other vendors of
economic growth in France network infrastructure.
over the next 15 years. We
estimate this could reduce
GDP in 2035 by US$8.3 billion.
15
IHS. 2017. The 5G economy: How 5G technology will contribute to the global economy. Economic Impact Analysis, IHS Economics &
IHS Technology. 25
Restricting competition in 5G network equipment
GERMANY
IMPACTS OF RESTRICTING A MAJOR PARTICIPANT
Low cost Central cost High cost
scenario scenario scenario
Increase in average
annual investment costs
for 5G infrastructure US$200 mn US$400 million US$600 mn
over the next decade (9%) (19%) (29%)
Absolute number of
people who will have
delayed access to 3.8 mn 7.1 million 10.0 mn
5G by 2023 (4.5%) (12.0%)
(8.5%)
Estimated permanent
loss in Gross Domestic US$2.4 bn US$6.9 billion US$13.8 bn
Product (GDP) due to
delay in 5G rollout in 2035
100%
90%
80%
70%
60%
Baseline
50%
Low scenario
40%
Central scenario
30%
High scenario
20%
10%
0%
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Source: GSMA, Oxford Economics
26
Restricting competition in 5G network equipment
MARKET ANALYSIS
The German government The potential future benefits This increase in prices would
has set out a plan to create of 5G are hard to predict. translate into delays in rollout.
the necessary infrastructure While most industry players We estimate that these delays
prerequisites to have near- expect 5G to transform the would leave between 3.8
universal 5G connectivity by economy, 5G may end up million and 10 million more
2025. A competitive market being merely an enhancement people (4.5% to 12.0% of the
for network infrastructure to the existing 4G technology. population) without access to
is critical to meet this Or it could be revolutionary in 5G by 2023.
ambitious target for 5G the way the steam engine or
rollout16. The benefits from 5G electricity was. The uncertainty The resulting loss in
are substantial: 5G services about the nature of benefits productivity has significant
are expected to stimulate will also be reflected in the economic consequences.
economic activity worth economic consequences of Lower economic growth due
$202bn in GDP and support restricting competition in the to delays in 5G rollout and the
around 1.2 million jobs in network infrastructure market. associated slower technological
Germany in 2035.17 growth reduces GDP by
To account for this, we have between $2.4 billion and
On the other hand, restricting modelled two additional $13.8 billion in 2035.
competition can have scenarios that capture the
significant adverse economic lower and higher end of the
impacts. Our modelling range of potential future
suggests restricting a major outcomes from competition
participant could increase restrictions in the 5G network
the cost of building the 5G market.
network by US$400 million
per year over the next decade Across our scenarios, we
(19% of baseline costs) in expect the increase in average
our central cost scenario. annual investment costs
Due to these price increases, over the next 10 years due
7.1 million people (8.5% of to competition restrictions
the population) who would to vary between US$200
have otherwise had access million and US$600 million
to the 5G network could be (9% and 29%). The wide range
left without access to a 5G in these estimates is due to
network in 2023. the uncertainty around the
reaction of other vendors of
Restricting competition in the network infrastructure.
network infrastructure market
may significantly reduce
economic growth in Germany
over the next 15 years. We
estimate this could reduce
GDP in 2035 by US$6.9 billion.
16
The German Federal Government . 2017. 5G Strategy for Germany. Federal Ministry of Transport and Digital Infrastructure.
17
IHS. 2017. The 5G economy: How 5G technology will contribute to the global economy. Economic Impact Analysis, IHS Economics &
IHS Technology. 27
Restricting competition in 5G network equipment
INDIA
IMPACTS OF RESTRICTING A MAJOR PARTICIPANT
Low cost Central cost High cost
scenario scenario scenario
Increase in average
annual investment costs
for 5G infrastructure US$200 mn US$500 million US$700 mn
over the next decade (8%) (17%) (27%)
Absolute number of
people who will have
delayed access to 15.9 mn 31.8 million 45.3 mn
5G by 2023 (1.1%) (3.2%)
(2.2%)
Estimated permanent
loss in Gross Domestic US$4.7 bn US$15.5 billion US$27.8 bn
Product (GDP) due to
delay in 5G rollout in 2035
90%
Baseline
80%
Low scenario
70%
Central scenario
60%
High scenario
50%
40%
30%
20%
10%
0%
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Source: GSMA, Oxford Economics
28
Restricting competition in 5G network equipment
MARKET ANALYSIS
India is one of the largest Restricting competition in the Across our scenarios, we
and fastest growing telecoms network infrastructure market expect the increase in average
markets in the world. By 2025, may significantly reduce annual investment costs due
208 million new subscribers economic growth in India over to competition restrictions
are expected get connected in the next 15 years. We estimate to vary between US$200
India, accounting for a quarter this could reduce GDP in 2035 million and US$700 million
of global new subscribers over by US$15.5 billion. (8% and 27%). The wide range
2017-2025 period. By this time, in these estimates is due to
smartphone connections in the The potential future benefits of the uncertainty around the
country will account for three 5G are hard to predict. While reaction of other vendors of
quarters of total connections. most industry players expect network infrastructure.
A competitive market for 5G to transform the economy,
5G infrastructure would help 5G may end up being merely This increase in prices would
maximise the gains from an enhancement to the existing translate into delays in rollout.
technological innovation and 4G technology. Or it could be We estimate that these
growth in India. 5G is expected revolutionary in the way the delays would leave between
to be launched in India by steam engine or electricity 15.9 million and 45.3 million
2020 and is predicted to was. The uncertainty about more people (1.1% to 3.2% of
create a cumulative economic the nature of benefits will also the population) without access
impact of US$ one trillion in reflected in the economic to 5G by 2023.
India by 2035.18 consequences of restricting
competition in the network The resulting loss in
On the other hand, restricting infrastructure market. productivity has significant
competition can have economic consequences.
significant adverse economic To account for this, we have Lower economic growth
impacts. Our modelling modelled two additional due to delays in 5G
suggests restricting a major scenarios that capture the rollout and the associated
participant could increase lower and higher end of the slower technological growth
the cost of building the 5G range of potential future reduces GDP by between $4.7
network by US$500 million outcomes from competition billion and $27.8 billion in 2035.
per year over the next decade restrictions in the 5G network
(17% of baseline costs) in market.
our central cost scenario.
Due to these price increases,
31.8 million people (2.2% of
the population) who would
have otherwise had access
to the 5G network could be
left without access to a 5G
network in 2023.
18
Telecoms Regulatory Authority of India (TRAI). 2019. Enabling 5G in India. White Paper. 29
Restricting competition in 5G network equipment
JAPAN
IMPACTS OF RESTRICTING A MAJOR PARTICIPANT
Low cost Central cost High cost
scenario scenario scenario
Increase in average
annual investment costs
for 5G infrastructure US$700 mn US$1,400 million US$2,100 mn
over the next decade (9%) (19%) (29%)
Absolute number of
people who will have
delayed access to 7.2 mn 13.6 million 19.1 mn
5G by 2023 (5.8%) (15.3%)
(10.9%)
Estimated permanent
loss in Gross Domestic US$5.3 bn US$15.6 billion US$34.3 bn
Product (GDP) due to
delay in 5G rollout in 2035
100%
90%
80%
70%
60%
Baseline
50%
Low scenario
40%
Central scenario
30%
High scenario
20%
10%
0%
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Source: GSMA, Oxford Economics
30
Restricting competition in 5G network equipment
MARKET ANALYSIS
Japan has been a The potential future benefits of This increase in prices would
global leader in mobile 5G are hard to predict. While translate into delays in rollout.
communications for the most industry players expect We estimate that these delays
past four decades. By 2020, 5G to transform the economy, would leave between 7.2
Japanese operators will roll 5G may end up being merely million and 19.1 million more
out 5G, the next-generation an enhancement to the existing people (5.8% to 15.3% of the
mobile network, in time to host 4G technology. Or it could be population) without access to
the Olympic and Paralympic revolutionary in the way the 5G by 2023.
Games. Japan will, once again, steam engine or electricity
be one of the first movers was. The uncertainty about The resulting loss in
to deploy a next-generation the nature of benefits will also productivity has significant
network. 5G services will reflected in the economic economic consequences.
stimulate economic activity consequences of restricting Lower economic growth due
worth $492bn in GDP and competition in the network to delays in 5G rollout and the
support around 2.1 million jobs infrastructure market. associated slower technological
in Japan in 2035.19 growth reduces GDP by
To account for this, we have between $5.3 billion and
On the other hand, restricting modelled two additional $34.3 billion in 2035.
competition can have scenarios that capture the lower
significant adverse economic and higher end of the range of
impacts. Our modelling potential future outcomes from
suggests restricting a major competition restrictions in the
participant could increase 5G network market.
the cost of building the 5G
network by US$1.4 billion per Across our scenarios, we
year over the next decade expect the increase in average
(18% of baseline costs) in annual investment costs due
our central cost scenario. to competition restrictions
Due to these price increases, to vary between US$ 700
13.6 million people (10.9% of million and US$2.1 billion (9%
the population) who would and 27%). The wide range
have otherwise had access in these estimates is due to
to the 5G network could be the uncertainty around the
left without access to a 5G reaction of other vendors of
network in 2023. network infrastructure.
19
IHS. 2017. The 5G economy: How 5G technology will contribute to the global economy. Economic Impact Analysis, IHS Economics &
IHS Technology. 31
Restricting competition in 5G network equipment
UNITED KINGDOM
IMPACTS OF RESTRICTING A MAJOR PARTICIPANT
Low cost Central cost High cost
scenario scenario scenario
Increase in average
annual investment costs
for 5G infrastructure US$200 mn US$400 million US$700 mn
over the next decade (9%) (19%) (29%)
Absolute number of
people who will have
delayed access to 3.9 mn 7.4 million 10.4 mn
5G by 2023 (5.8%) (15.3%)
(10.9%)
Estimated permanent
loss in Gross Domestic US$1.8 bn US$6.2 billion US$11.8 bn
Product (GDP) due to
delay in 5G rollout in 2035
100%
90%
80%
70%
60%
Baseline
50%
Low scenario
40%
Central scenario
30%
High scenario
20%
10%
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Source: GSMA, Oxford Economics
32
Restricting competition in 5G network equipment
MARKET ANALYSIS
The UK Government is keen The potential future benefits of This increase in prices would
for the UK to become a world 5G are hard to predict. While translate into delays in rollout.
leader in 5G, and the UK most industry players expect We estimate that these delays
telecom regulator, Ofcom, is 5G to transform the economy, would leave between 3.9
working with the Government 5G may end up being merely million and 10.4 million more
and industry to make this an enhancement to the existing people (5.8% to 15.3% of the
happen. 5G services will 4G technology. Or it could be population) without access to
stimulate economic activity revolutionary in the way the 5G by 2023.
worth $76bn in GDP and steam engine or electricity
support around 650,000 was. The uncertainty about The resulting loss in
jobs in the UK in 203520. A the nature of benefits will also productivity has significant
competitive market for 5G reflected in the economic economic consequences.
infrastructure would help consequences of restricting Lower economic growth
maximise the gains from competition in the network due to delays in 5G
technological innovation and infrastructure market. rollout and the associated
growth in the UK. slower technological growth
To account for this, we have reduces GDP by between $1.8
On the other hand, restricting modelled two additional billion and $11.8 billion in 2035.
competition can have scenarios that capture the lower
significant adverse economic and higher end of the range of
impacts. Our modelling potential future outcomes from
suggests restricting a major competition restrictions in the
participant could increase 5G network market.
the cost of building the 5G
network by US$400 million Across our scenarios, we
per year over the next decade expect the increase in average
(19% of baseline costs) in annual investment costs due
our central cost scenario. to competition restrictions
Due to these price increases, to vary between US$200
7.4 million people (10.9% of million and US$700 million
the population) who would (9% and 29%). The wide range
have otherwise had access in these estimates is due to
to the 5G network could be the uncertainty around the
left without access to a 5G reaction of other vendors of
network in 2023. network infrastructure.
20
IHS. 2017. The 5G economy: How 5G technology will contribute to the global economy. Economic Impact Analysis, IHS Economics &
IHS Technology. 33
Restricting competition in 5G network equipment
UNITED STATES
IMPACTS OF RESTRICTING A MAJOR PARTICIPANT
Low cost Central cost High cost
scenario scenario scenario
Increase in average
annual investment costs
for 5G infrastructure US$500 mn US$1,000 million US$1,500 mn
over the next decade (8%) (16%) (24%)
Absolute number of
people who will have
delayed access to 0 11.6 million 27.1 mn
5G by 2023 (8.0%)
(3.4%)
Estimated permanent
loss in Gross Domestic US$8.6 bn US$21.9 billion US$63.0 bn
Product (GDP) due to
delay in 5G rollout in 2035
90%
80%
70%
Baseline
60%
Low scenario
Central scenario
50%
High scenario
40%
30%
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Source: GSMA, Oxford Economics
34
Restricting competition in 5G network equipment
MARKET ANALYSIS
The US is among the top The potential future benefits of This increase in prices would
three countries in terms of 5G are hard to predict. While translate into delays in rollout.
5G preparedness along with most industry players expect We estimate that these delays
South Korea and Australia.21 5G to transform the economy, would leave up to 27.1 million
A competitive market for 5G may end up being merely more people (8.0% of the
5G infrastructure would help an enhancement to the existing population) without access to
maximise the gains from 4G technology. Or it could be 5G by 2020.
technological innovation revolutionary in the way the
and growth in Australia. steam engine or electricity The resulting loss in
5G services will stimulate was. The uncertainty about productivity has significant
economic activity worth the nature of benefits will also economic consequences.
$719bn in GDP and support reflected in the economic Lower economic growth due
around 10 million jobs in the consequences of restricting to delays in 5G rollout and the
US in 203522. competition in the network associated slower technological
infrastructure market. growth reduces GDP by
On the other hand, restricting between $8.6 billion and
competition can have To account for this, we have $63.0 billion in 2035.
significant adverse economic modelled two additional
impacts. Our modelling scenarios that capture the lower
suggests restricting a major and higher end of the range of
participant could increase potential future outcomes from
the cost of building the 5G competition restrictions in the
network by US$1.0 billion per 5G network market.
year over the next decade
(16% of baseline costs) in Across our scenarios, we
our central cost scenario. expect the increase in average
Due to these price increases, annual investment costs due
11.6 million people (3.4% of to competition restrictions
the population) who would to vary between US$500
have otherwise had access million and US$1.5 billion (8%
to the 5G network could be and 24%). The wide range
left without access to a 5G in these estimates is due to
network in 2023. the uncertainty around the
reaction of other vendors of
Restricting competition in the network infrastructure.
network infrastructure market
may significantly reduce
economic growth in Australia
over the next 15 years. We
estimate this could reduce
GDP in 2035 by US$21.9 billion.
21
Arthur D. Little. 2019. The Race to 5G. https://www.adlittle.com/sites/default/files/reports/adl_the_race_to_5g_report_-min.pdf.
22
IHS. 2017. The 5G economy: How 5G technology will contribute to the global economy. Economic Impact Analysis, IHS Economics &
IHS Technology. 35
Restricting competition in 5G network equipment
36
Restricting competition in 5G network equipment
Fig. 16: Headline economic impacts under the central cost scenario
37
Restricting competition in 5G network equipment
APPENDIX 1: GLOSSARY
OF TERMS
TERM DESCRIPTION
1G The first generation of mobile networks used analogue radio systems that
allowed users to make phone calls but not send text messages.
2G The second generation of mobile networks relied on digital signals, not
analogue, which improved its capacity and allowed users to send text and
multimedia messages.
3G The third generation of mobile networks could transmit greater amounts
of data that allowed users to video call, share files and surf the internet.
4G 4G, or the fourth generation of mobile networks, allowed for five-times
faster data transmission compared to 3G networks, which allowed users to
experience less buffering, higher voice quality, easy access to messaging
services and social media, higher quality streaming and faster downloads.
5G The fifth generation of mobile networks is expected to significantly
improve speeds and capacity of mobile networks, which could lead to
new trends such as connected cars, smart cities and smart homes and
offices.
Augmented Reality Augmented Reality combines virtual pictures or sounds with the real, or
physical, world to enhance the environment. AR is being used in gaming,
medicine, education, archaeology and architecture. For example, AR is
used to support surgeries by providing virtual overlays to guide medical
practitioners.
Average Revenue ARPU is the total revenue divided by the number of subscribers.
Per User (ARPU) a commonly used measure in communications, digital media and
subscription services.
Compound Annual CAGR is the annual rate of return required for a variable, say investment,
Growth Rate to grow from its beginning value to its ending value assuming that the
(CAGR) variable has been compounding over the time period.
Enhanced Mobile Enhanced mobile broadband is one of the three possible use scenarios
Broadband (eMBB) defined by the ITU (see below) for 5G. Under the eMBB use case, 5G will
enable data-driven services that will require high speeds across a wide
coverage area such as 360-degree video streaming, immersive virtual
reality and augmented reality.
Global Economic We simulated the macroeconomic implications of restrictions in
Model (GEM) competition across the eight economies using our Global Economic Model
(GEM). See Appendix 3 for further details.
Internet of Things Internet of Things is a system of connected computing, mechanical and
(IoT) digital devices that can transfer data over a network without the need
for human interaction. This will enable services such as remote health
monitoring and automatic emergency notification systems.
38
Restricting competition in 5G network equipment
TERM DESCRIPTION
International The ITU facilitates international cooperation to enable standardisation
Telecommunications of global communications networks so that networks and technologies
Union (ITU) seamlessly interconnect.
Latency Latency is the amount of time between a command and its
corresponding action over the internet
Long Term Evolution Long Term Evolution, a 4G mobile communications standard
(LTE)
mMTC Massive Machine Type Communications (mMTC) is one of the three
possible use scenarios defined by the ITU (see above) for 5G. Under the
mMTC use case, 5G will enable fully automatic generation, exchange and
processing by devices, which would enable widespread adoption of the
Internet of Things (IoT).
Mobile network Mobile Network Operators are providers of wireless communications
operators (MNO) services that own or control all the infrastructure necessary to deliver
mobile network services to consumers (end users).
Network slicing Network slicing allows the physical infrastructure to be split into several
virtual networks that can be tailored to different end-users, thereby
facilitating dedicated disruption-free networks for critical users such as
health and transport services that are free from disruption from other
consumer and business uses
Radio Access Radio Access Network (RAN) is a component of 5G network
Network (RAN) infrastructure. RAN consists mainly of mobile base stations that connect
telecom networks wirelessly to mobile devices.
Ultra-Reliable Ultra-Reliable Low-Latency Communication (URLLC) is one of the three
Low-Latency possible use scenarios defined by the ITU (see above) for 5G. Under this
Communication use scenario, 5G will cater to multiple advanced services that rely on
(URLLC) quick response times such as autonomous driving, factory automation,
smart grids and robotic surgeries.
Virtual Reality (VR) Virtual Reality creates a simulated environment that is completely
different from the real, or physical world. A person using VR equipment
can look around the artificial world, move around in it and interact with
features or items.
39
Restricting competition in 5G network equipment
APPENDIX 2: MODELLING
APPROACH AND
METHODOLOGY
Economic theory dictates Fig. 17: Three-stage modelling framework for assessing the
that restricting competition economic costs of excluding Huawei from the telecoms
in any market will lead to network equipment market
upward prices pressures as
well as negative implications Stage 1. Impact on price
for innovation. We have
Estimate the upward price pressures on telecoms network
assessed the economic impact
equipment in each market.
of banning Huawei from
competing in the market for
telecommunications network
equipment, through a three- Stage 2. Impact on rollout
stage modelling framework
as illustrated in Fig. 17. We Estimate the delays in rollout of telecoms infrastructure.
describe each step in more
detail below.
40
Restricting competition in 5G network equipment
For this study, we assume that Theoretical models of We have built two variations
if Huawei is restricted in each oligopoly of the Cournot model: with
country’s 5G infrastructure linear demand curves (Motta
There are two standard
market, network operators 2007) and with constant
models of oligopoly used in
in that market would switch elasticity of substitution
economic theory:
to one of the two other large (CES)24 demand curves
providers, Ericsson and Nokia, • Cournot: where firms (Pindyck and Rubinfeld 2017).
in proportion to their existing compete by choosing
market shares. We believe quantity supplied and let The price impact in the linear
that the other providers do market forces set prices; demand curve model relies
not have the same global • Bertrand: where firms on the number of existing
reach or breadth of products compete by choosing prices credible competitors (which
and services that would allow and let market forces set we define as the number of
them to successfully compete quantities. competitors with more than
for Huawei’s potential 5% market share in the 4G
customers, and therefore However, we do not believe LTE network market). Fig. 19
their market shares would that either of these standard shows the change in credible
remain unchanged. models characterises the 5G competitors due to restrictions
network infrastructure market. and the impact on price in
We assume that 5G network Vendors, when participating the RAN market based on
equipment market shares in a tender, make decisions 4G LTE network equipment
over the next decade in the on prices, and therefore the market shares in 2018.
baseline (no restrictions on Bertrand model may appear the We used the worldwide LTE
Huawei) will be closest to 4G most appropriate for our study. market shares for Australia,
(LTE) market shares in 2018. However, we understand that India and Japan instead of the
All our methods rely on the firms compete in prices as well regional, (i.e., APAC) measures,
change in the Herfindahl- as capacities and the decision which are likely to be heavily
Hirschman Index (HHI) due to participate in tenders by dominated by China. Vendor
to restrictions on Huawei. The network operators. Kreps and market shares in China are
HHI, which is a measure of Scheinkman (1983) show that not representative of vendor
concentration, increases by outcomes in the Bertrand market shares in Australia,
1106 based on worldwide 4G market where firms make India and Japan.
market shares. Fig. 18 shows additional decisions on tender
the estimated change in HHI participation and capacities is
due to restrictions on Huawei. similar to the outcomes from a
Cournot setting.
23
We used the worldwide LTE market shares for Australia, India and Japan instead of the regional Asia-Pacific (APAC) measures. The
APAC market shares are likely to be heavily dominated by China and is not representative of vendor market shares in Australia, India
and Japan. 41
24
Constant Elasticity of Substitution (CES) implies that the percentage change in demand for a 1% change in price remains constant
at all levels of RAN equipment. We use estimates of the elasticity of digital infrastructure estimates from the literature (UK National
Infrastructure Commission 2017) – between -0.4 to -0.8 – as proxies for RAN elasticities.
Restricting competition in 5G network equipment
Fig. 19: Price impact based on the theoretical model (linear demand curves)
Fig. 20: Price impact based on the theoretical model (CES demand curves)
25
HHI is an indicator of market concentration, calculated as the sum of squared market shares. We assume that when Huawei
is restricted, Huawei’s market share is distributed between Nokia and Ericsson proportionate to their market shares in the
42 counterfactual (with Huawei). We use market shares in the 4G network equipment market as the basis for our calculations.
Restricting competition in 5G network equipment
26
A diversion ratio measures “where product goes” from Firm A (Huawei, in this instance) when there is a price rise or other event
(restrictions on Huawei, in this instance). For example, if 20% of sales would go to Firm B when Firm A raises its price, then the
diversion ratio of A to B would be 20%. 43
Restricting competition in 5G network equipment
Empirical evidence
We have also estimated the Of these, 11 studies included We then combine the median
price increase by adapting information on HHI that allowed price increase per 100 unit
the findings from a European us to adapt the findings to our change in HHI along with our
Commission retrospective study. Fig. 22 shows the change estimated increase in HHI to
review of mergers. The in price corresponding to the 11 estimate the price impact. The
European Commission (2015) mergers. The change in price is results are shown in Fig. 23.
reviewed 27 papers that adjusted by the change in HHI
used different econometric to enable comparison across
techniques to estimate the price studies. The median price
effects following a merger. increase is 2.43% per 100 unit
change in HHI.
Fig. 22: Estimated change in price following a merger, percentage change per 100 unit
Change in
change inprice
HHI per 100 unit change in HHI
0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
Source: Oxford Economics.
44
Restricting competition in 5G network equipment
Fig. 24: Price impacts due to restrictions on Huawei (range of estimates from price models)
Increase in prices (%)
Australia 6% 27%
Canada 4% 24%
France 9% 31%
India 6% 27%
Japan 9% 27%
45
Restricting competition in 5G network equipment
However, the market for RAN ranges. For example, if the To capture the range of
equipment is global – vendors minimum estimate for Australia potential reactions following
compete internationally. To is 4%, we set the lower end of the imposition of restrictions
reflect the global nature of the the range for Australia as 8% on Huawei, we define three
market, we adjust the range (i.e., the minimum worldwide scenarios—low, central and
for each country. We limit estimate of 10% less 2%). The high—based on the lower
the minimum and maximum central estimate is the median end, median and higher end
estimates for each country on of the adjusted ranges. The of the range of estimates for
either side by two percentage adjusted range is presented in each country.
points over the worldwide Fig. 25, below.
Fig. 25: Price impacts due to restrictions on Huawei, with adjustments for
international competition
An increase in the price price impacts (i.e., investment Baseline rollout and required
of network equipment will costs for network operators) capex per person
reduce the commercial from Stage 1 to estimate the
To estimate the impact on
incentive to build the network, delay in rollout in each of the rollout due to restrictions on
thereby delaying the rollout eight countries. Huawei, we first estimate 5G
of 5G. This is more likely in rollout to 2030 and associated
areas with lower population We translated the increase in per capita capital expenditure
densities or more remote investment costs to delays in required.
areas. Further, if the costs of rollout using a network rollout
5G network are high, then model built in collaboration To define the baseline,
operators are likely to charge with Dr Edward Oughton we start with the GSMA
higher prices for 5G services. (Cambridge Judge Business network coverage forecasts,
This could affect the potential School). This model translates which provides the share
take up of the technology an increase in investment of population covered by
and focus 5G activity on the costs to a reduction in the 5G for each year until 2025.
most profitable business uses. share of the population We extend these forecasts
With slower adoption rates, covered for each country and for subsequent years until
businesses are less likely to scenario by assuming that 2030 using our judgement
invest in technologies that use the overall operators’ capex and relying on the 4G
5G such as IoT. We used the remains the same. forecasts in comparable
46
Restricting competition in 5G network equipment
years. The share of population Translating the price impact The new rollout curve is
covered is translated into the into a capex impact derived by translating the
number of people covered absolute number of people
For each country and
using population forecasts into a share of the population
scenario, the increase in prices
from WDI. for each year.
translates into an increase in
the capex required per capita.
To estimate the associated
For example, if restrictions on
capex required per person
Huawei lead to a 10% increase
covered, we use:
in prices, then the per capita
• GSMA yearly capex capex required to extend 5G
forecasts (kept constant coverage increases by 10%.
at the 2025 level for years
beyond 2025); and Re-drawing rollout curves
with increased prices
• the number of people
covered (from the previous Assuming the operators
step). maintain their capex budgets,
they are now able to cover
The impact on rollout is fewer people due to the
estimated by re-drawing increase in required per capita
the rollout curves with the capex. For each country and
same level of capex as in the scenario, we calculate the
baseline but with increased number of people who would
required capex per capita. be covered by 5G using:
• the increased per capita
required capex; but
• with the same levels of
capex as in the baseline.
47
Restricting competition in 5G network equipment
Next, we estimated the baseline productivity growth The low cost, central cost, and
productivity implications of scaled down to reflect the high cost scenarios are paired
such price changes across each slower rollout estimated in with the low cost, central cost,
economy. The associated loss of Stage 2. The productivity and high cost scenarios for
productivity will be derived from impact is the difference prices respectively, to limit the
two channels as follows: between the productivity number of scenarios in our
growth in the no-restrictions study to three.
• The higher cost of rolling out and restrictions scenarios.
the 5G network will represent
Finally, we simulated the
a direct loss of productivity
The impact on productivity macroeconomic implications
reflecting a reduced level of
due to slower rollout depends of this simultaneous slowdown
allocative efficiency.
on the baseline (i.e., no in productivity growth across
• The delays and reduced restrictions) productivity the eight economies using
scale of 5G rollout will growth assumptions. To our Global Economic Model
diminish the future capture the uncertainty in (GEM).27 The inputs from the
productivity gains that will the productivity growth previous stages are used
be yielded by 5G. assumptions, again, we use as inputs to the GEM which
three different scenarios: we can use to quantify the
The former is based on the macroeconomic implications
results of the price model and Low cost scenario to reflect of these changes. The
estimates of 5G expenditure only an increase in speed: slowdown in productivity
based on the GSMA capex 0.15% based on the estimates growth will reduce the
forecasts and our judgement. of productivity growth from respective economy’s capacity
We will then assess how this 2G to 3G; to supply goods and services.
increase in investment costs The equation structure of each
raises the costs to businesses Central cost scenario to reflect economy works to ensure
resulting in a loss of productivity a transformative change in that in the long-term such a
across the economy. technology: 0.15% per year in slowdown in trend growth is
the first year of rollout and matched by a commensurate
There are a wide range of increasing to 0.30% per year drop in the actual level of GDP
estimates of how 5G will over a five-year period; and so that demand equals supply,
improve productivity in the a state that economists refer
future. Fig. 26 shows the range High cost scenario to reflect to as ‘equilibrium’.
of estimates for a variety a revolutionary change in
of different technologies technology: 0.30% per year. For this type of scenario,
(both ICT and non-ICT) from it is appropriate to focus
various studies. We use the The 0.15% per year assumption on the long-term structural
estimates from these studies is based on the estimated implications of these changes
to define the baseline (i.e., productivity growth associated as opposed to any short-term
no restrictions on Huawei) with the transition from 2G cyclical effects. Therefore, we
productivity impact from to 3G, whereas the 0.30% per have used a reference year—
5G. Restrictions on Huawei year growth assumption is 2035—to report the results.
lead to slower rollout and based on the median values
therefore slower productivity from Fig. 26, excluding the
growth. The productivity gains top- and bottom-four outlying
from 5G with restrictions is estimates.
therefore calculated as the
48 27
See Appendix 3 for a detailed description of the GEM
Restricting competition in 5G network equipment
49
Restricting competition in 5G network equipment
Our modelling methodology Equipment vendors have has the second-highest R&D
only models the economic engaged in continuous intensity (share of revenues
impact of a reduction in innovation in new generations spent on R&D) 28.
competition when a vendor of radio access technology and
of Huawei’s size is excluded core system products. Telecom As shown in Fig. 29, Huawei
from the market. We do not network equipment vendors are is the largest spender on R&D
estimate the impact due to among the largest spenders on in the Technology, Hardware
the reduction innovation R&D globally. As shown in Fig. and Equipment industry—more
due to the loss in Huawei’s 27 and Fig. 28, the technology, than EUR$10 billion—more than
technological and operational hardware and equipment Intel and Cisco as well as other
capabilities. industry is the second-largest competitors in the RAN market
spender on R&D and also such as Ericsson and ZTE.
Fig. 27: R&D expenditure by the top 2,500 companies globally, categorised by their main
industrial sector of activity, 2017/18
50 28
The 2018 EU Industrial R&D Investment Scoreboard, European Commission, JRC/DG RTD.
Restricting competition in 5G network equipment
Fig. 28: R&D intensity by the top 2,500 companies globally, categorised by their main
industrial sector of activity, 2017/18
Media 3.0%
Banks 2.7%
Chemicals 2.6%
51
Restricting competition in 5G network equipment
Fig. 29: R&D by top 10 companies in the technology, hardware and equipment industry, 2017/18
Euro, billions
12
11.3
10.9
10
5.1 4.9
4 4.6
3.3
2 2.7
2.0 1.8 1.6
0
Huawei Intel Cisco Nokia Qualcomm Ericsson Broadcom Western ZTE Mediatek
Systems Digital
Source: The 2018 EU Industrial R&D Investment Scoreboard, European Commission, JRC/DG RTD, Oxford Economics
52
Restricting competition in 5G network equipment
53
Restricting competition in 5G network equipment
54
Restricting competition in 5G network equipment
Fig. 30: Map of economic interactions within the Global Economic Model (GEM)
Final demand
Employment Intermediate
Sector 2
sector 1 demand
Employment
GVA sector 2
sector 2
55
Restricting competition in 5G network equipment
TREATMENT OF EXPECTATIONS
56
Restricting competition in 5G network equipment
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Oxford Economics was founded in 1981 as a December 2019
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forecasting and modelling to UK companies Huawei, Oxford Economics was supported
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