FCC Chairman Opposes Government Takeover of 5G Wireless Build-out -- Update

By John D. McKinnon, Drew FitzGerald and Ryan KnutsonFeaturesDow Jones Newswires

A number of regulators and elected officials on Monday rejected as overly expensive and unrealistic the idea of a "moonshot" effort by the government to build a nationwide, next-generation wireless network, floated in a leaked internal national security memo.

The suggestion nonetheless highlighted a growing concern among government officials that the U.S. risks falling behind in the global race to establish 5G, particularly given China's aggressive efforts to develop a next-generation network. That could open the U.S. to more economic competition in the market for telecommunications devices, where China's role is growing. It would also be a national security issue because of the threat posed by China to U.S. cybersecurity, according to the memo, which calls China "the dominant malicious actor in the information domain."

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The proposal echoes a case for shared infrastructure being made by Alphabet Inc.'s Google unit, which like other tech firms could benefit from the ability "to essentially offer a 5G service with little capital costs [and] with superior consumer brands," New Street Research wrote in a note Monday.

The anticipated 5G service will offer significantly faster user speeds and expanded capacity that could accommodate emerging technologies such as self-driving vehicles and the internet of things. It relies, in part, on employing parts of airwaves that haven't previously been used for wireless service.

Verizon Communications Inc., AT&T Inc. and other carriers have already invested hundreds of millions of dollars developing standards and technology to roll out 5G. Verizon plans to launch a 5G network in Sacramento, Calif., later this year.

Although the notion of a government-built and -operated network appeared to fall flat, some experts said, the potential problem it highlighted isn't likely to go away and could require unorthodox solutions.

"This ball is going to keep bouncing even though the [Trump administration] has kind of put the kibosh on this," said Blair Levin, a New Street adviser and former FCC broadband expert.

Some industry insiders hope the administration will get behind another, related idea: forming a consortium of telecommunications and Silicon Valley tech firms to help build the next-generation wireless system. Big tech firms could use overseas earnings brought back to the U.S. under the recent tax bill to help pay for the effort. A senior administration official said that idea is one that is on the table, but emphasized that no final decisions have been made.

The idea for a government-run system was being pushed in recent weeks by Brig. Gen. Robert Spalding, a former Defense Department attaché in China who joined the National Security Council last year.

Gen. Spalding floated the proposal at a U.S. Chamber of Commerce dinner hosted earlier this month, according to people familiar with the event. He told industry representatives at the dinner that a government-driven 5G investment plan was needed to help counter China's influence. But the idea got a chilly reception from telecom executives attending, according to the people.

Gen. Spalding wasn't available for comment.

White House press secretary Sarah Huckabee Sanders played down the memo's significance on Monday, although she noted the administration has previously raised the need for ensuring secure networks.

"Right now we're in the very earliest stages of the conversation," she said. "There are absolutely no decisions made on what that would look like, what role anyone would play in it -- simply the need for a secure network."

A spokesman for the NSC note that while they are in "very early stages of the deliberative process, all options are under consideration and we are firmly committed to working with the American telecom and technical sectors to support a solution."

FCC Chairman Ajit Pai, a Republican, said he would "oppose any proposal for the federal government to build and operate a nationwide 5G network."

Mr. Pai's two fellow Republicans on the commission also sharply criticized the idea. Commissioner Michael O'Rielly said in his own statement Monday: "I've seen lead balloons tried in D.C. before but this is like a balloon made out of a Ford Pinto."

The economic arguments laid out in the memo broadly align with arguments Google has made around Washington in recent years, emphasizing the benefits of building infrastructure that can be shared among private companies.

Google was named in the memo on a list of "5G Government and Industry Team and Roles," along with federal agencies and companies like Oracle, Qualcomm, Samsung, but not wireless carriers like AT&T Inc.

Google didn't immediately respond to a request for comment.

Google has pushed hard to open up wireless frequencies in the 3.5 GHz band, and the tech giant has built its own spectrum access system that would work like a traffic cop for companies using the airwaves. The internet-search company advocates a new model that would let businesses, schools and hospitals run their own private wireless networks instead of relying on carriers for service.

Telecom carriers already rely heavily on shared assets. Independent companies such as American Tower own many of the nation's cell towers and lease access to wireless carriers. Same with fiber optic cable providers. Sharing infrastructure means multiple private companies don't have to dig up streets and install equipment to reach customers who might wind up choosing a rival that has built the same infrastructure.

Sharing spectrum has several advantages. Faster data connections require larger contiguous swaths of airwaves. If you break a large chunk of airwaves into smaller pieces for individual companies, then those companies can't deliver as fast of connections as if they had access to the entire chunk.

--Peter Nicholas contributed to this article.

Write to John D. McKinnon at john.mckinnon@wsj.com, Drew FitzGerald at andrew.fitzgerald@wsj.com and Ryan Knutson at ryan.knutson@wsj.com

(END) Dow Jones Newswires

January 29, 2018 18:32 ET (23:32 GMT)