May 29, 2013

Related to points raised in previous post...

Today's CNBC Closing Bell coverage (ever-so-slightly hostile) of unique U.S. Government approval provisions related to Softbank-Sprint transaction:

May 23, 2013

CFIUS, Softbank and Sprint: Prelude to a Trade War

On March 19, I posted to expose a clever U.S. Government head-fake use of the Federal Communications Commission (FCC) to effectively cement an anti-competitive telecommunications infrastructure market in the U.S. via a wink-and-nod “notice and negotiate” provision designed to chill any potential purchases of network gear from select (e.g. China-based) vendors.  (Link to March 19 post)

On April 6, I blogged on powerful U.S. industry objections to an overreaching paragraph in the late March Federal funding bill that would have crippled their global operations - which all rely to some extent on facilities and supply chains in China - and perhaps shut them out of doing business in that market altogether.    Notably, the White House echoed the concerns expressed by eleven major U.S. industry associations.  (Link to April 6 post)

Today (May 23), the Wall Street Journal reported that the Committee on Foreign Investment in the United States (CFIUS) – which is currently reviewing the purchase of Sprint by Japan-based Softbank for any national security concerns – is seeking the right to approve the post-transaction company’s equipment purchases, as well demanding the removal of already-deployed Huawei gear in Sprint’s Clearwire affiliate's network, based on supposed “national security” grounds. (Link to WSJ article)

If what the WSJ reports is true, I emphatically call bullshit.

The U.S. Government has never – not once - substantiated any of its vague concerns about security issues associated with Huawei and is well aware that vendors headquartered outside China are also conducting R&D and coding and building in that market, and are just as vulnerable to penetration as Huawei.  Simply put, given the globalized nature of the industry, the U.S. Government knows full well that precluding Huawei from U.S. networks will do absolutely nothing to make those networks more secure.

Indeed, the White House seemed to quite clearly validate those latter two points in its April 5 statement reported in The Hill related to the offensive section in the funding bill referenced above which would have banned select Federal procurement of China-originated IT gear.  To wit:

"It could prove highly disruptive without significantly enhancing the affected agencies’ cybersecurity. While the Administration has raised concerns about the cyber threats emanating from China, resolving this issue requires open dialogue between the U.S. and China."

Granted, the context of the remarks is slightly different, but,“Open dialogue?”  Then what’s with the CFIUS initiative to rip out and ban Huawei gear as a contingency to approving the Softbank-Sprint deal?  “…Highly disruptive without significantly enhancing…cybersecurity?”  True that.  Indeed, highly disruptive doesn’t begin to describe the coming trade war that U.S. authorities seem to be ever-so-blithely inviting.

So what’s going on here?  The CFIUS-contemplated ban won’t make anything more secure, network- or otherwise, but it could very likely prompt a trade war at the very costly expense of American jobs, exports, innovation and economic growth.  Granted, I don’t know what quid pro quo with China they may be seeking to achieve, but can it possibly justify jeopardizing our economic national security?

Someone in Government should be held accountable – today better than after-the-fact - for the unprecedented and unnecessary mess they seem to be in the process of making.  

May 02, 2013

25% of World's Wireless Capex on 5% of Users? Why?

Today, the leading U.S. wireless industry association – CTIA - released a report trumpeting that U.S. wireless service providers had increased their annual network investments from $25.3 billion in 2011 to $30.1 billion in 2012 (up 19%).

The press release announcing the report proudly proclaimed that the $30.1 billion invested in network equipment was the highest amount since CTIA began tracking such data in 1985, adding that U.S. carrier spend represented “25% of the world’s total wireless capital expenditures, even though the U.S. has only five percent of the world’s wireless users.”

There is a reason why, as the report highlights, that “U.S. wireless providers invested approximately $94 per subscriber, compared with $16 per subscriber for the rest of the world.”

And, in correlation, there is a reason why U.S. consumers pay two to three times as much for wireless service than do consumers in Europe.

A lack of competition.

On the service provider side of the equation, the President of the Competitive Carrier Association (CCA) – the second largest U.S. wireless association – summed up the situation nicely in his April 25, 2013 testimony to the U.S. Senate Subcommittee on Communications, Technology, and the Internet.  In describing the charter of his organization, the CCA President declared: “CCA’s diverse membership is bound together by a shared goal for competitive policies and a shared concern over the growing market power of the “Twin Bells”— AT&T and Verizon. Through a steady stream of acquisitions, these two dominant carriers have turned what once was a robustly competitive wireless marketplace into an industry marching towards duopoly.”

He’s right, and his comments to some extent explain why American consumers are shelling out hundreds rather than tens of dollars a month for wireless service.  But that’s not the whole story.

The fleecing of American wireless consumers is also a direct result of government policies and actions that have precluded U.S. carriers from having a competitive field of equipment vendors, which would lead not just to more innovative technologies, but also more rational and market-based pricing for network gear, which in turn would translate to savings for everyday American mobile phone users.  

Indeed, the network investment data in the CTIA report released today should not be seen as something we herald with pride, but, rather, as a sad reflection of unnecessary costs incurred by U.S. carriers and consumers due to government policies that actually discourage the type of competition that would drive more innovative and more affordable broadband for America.

For anyone who has tracked this blog or otherwise followed the travails of my employer Huawei, you’ll know where this is going.

In every country in which Huawei competes around the globe – over 150 markets – we have seen telecom infrastructure vendor margins decline to more rational levels as former incumbent vendors have been forced to price their gear to competitive market realities.  Is this because we sell our stuff at below market costs?  Nope.  Is this because we're subsidized by some government?  Nope.  It’s because we don’t suffer the historical and geographical and economic baggage and inefficiencies that pain our Western-based competitors.

Again, there is a reason why - as CTIA reports - that “U.S. wireless providers invested approximately $94 per subscriber, compared with $16 per subscriber for the rest of the world.”

The competitive market benefit that Huawei has introduced across the planet has been largely denied to U.S. carriers and consumers by a series of both formal and informal - generally murky -  U.S. Government policies and practices.  Is this because Huawei, by virtue of its heritage in China, represents some sort of national security threat to the U.S.?   No.  Such concerns have never amounted to anything beyond political bluster and buffoonery.

No, American carriers and consumers are being denied competition and more innovative and affordable broadband due to:

1) Mis-guided protectionism (there’s little domestic industry left to protect);
2) Rueful sour grapes (how did we let that happen to our domestic industry?);
3) Cyber-noia and Sinophobia (keep the people scared and justify the budget), and;
4) Ill-thought foreign policy (holding a legitimate multinational hostage based on its country of heritage will force a change in China’s cyber-behavior?).

So far, the cost of such ill-inspired anti-competitive policies and practices has been the higher prices and undue investment that CTIA seems to be celebrating in its report.  The perpetuation, however, of such policies and practices will doubtless mean greater and more far-reaching costs, in terms of American jobs, investment, innovation and the ability of American companies to compete fairly in increasingly global markets. 

Sadly, the old adage holds true: What goes around, comes around.