EconByte

Issue 12/2019

Huawei all the hate

There has been a lot of talk lately about 5G (5th generation mobile internet), both from positive (technological) and negative (political) points of view.

On the tech side, Samsung last week unveiled its folding phone, equipped with a 5G modem, to mixed reviews. The reviews were mixed, not because of the phone's 5G capabilities but because there are doubts as to whether people are ready to pay $US1,980 for a phone (Huawei's more impressive foldable phone, the Mate X, was announced on Monday with a price of $2,600!). Fair enough, too, but early adopters will always pay a steep price to essentially beta test new technology before it becomes mainstream. My prediction? Samsung (and Huawei) won't sell many folding phones but once the kinks in the technology are ironed out, production costs come down and the likes of Apple catch up, folding phones will become the norm (I'm talking at least 5 years here).

Then on the political side there's China's Huawei and its 5G hardware, which is copping plenty of heat. But more on that in a bit; I'm going to start with the positives.

The technology that underpins 5G is, without a doubt, going mainstream in the next 3 - 5 years. It's up to 100 times faster than 4G, has reduced latency ("ping"), can better handle simultaneous connections, uses less energy and is cheaper to maintain (Ericsson estimates it's ~10 times cheaper than 4G). No wonder then that telecommunication companies are rolling out infrastructure at breakneck speeds, with an Analysys Mason report finding that China, South Korea and the United States are leading the race, with China holding a narrow lead.

While relatively lower prices, faster browsing speeds and less video buffering when on the road will be nice, the real hype centres around will be built on the back of 5G: namely, an expansion of the "internet of things" (IoT), from smart fridges to fully automated vehicles.

The fact is the existing 4G network just can't handle the stress that a fully integrated IoT network would place on it. Today, the IoT is mostly in-home and connects to the internet via (often-insecure) home WiFi, transmitted over traditional fixed-line broadband. While 5G will not necessarily change that model, it does have the potential to do so. For example, given the lower cost and increase efficiencies, 5G will allow for far more devices - from home appliances to vending machines to every motor vehicle - to bypass the home network entirely, communicating directly to the cellular airwaves.

And therein lies the political problem.

The United States' government worries that the Chinese government, through its influence over China's leading 5G technology companies such as Huawei, will "backdoor" the hardware in order to facilitate espionage. As US Secretary of State Mike Pompeo warned last week:

"If a country adopts this and puts it in some of their critical information systems, we won’t be able to share information with them, we won’t be able to work alongside them... We’re not going to put American information at risk."

Those concerns led the Australian government to ban Huawei from its developing 5G network, likely increasing the costs and reducing the quality of the network. While in Australia's case making 5G more expensive makes political sense - its struggling National Broadband Network (NBN) will have to compete with 5G in a few years - that's not the case for the other "five eyes", the United Kingdom, New Zealand and Canada, none of which have forbidden Huawei from 5G.

Incidentally, the United States itself hasn't banned Huawei and Donald Trump tweeted his support for competition, not prohibition in the 5G space:

"I want the United States to win [5G] through competition, not by blocking out currently more advanced technologies. We must always be the leader in everything we do, especially when it comes to the very exciting world of technology!"

Whatever the case, the concerns about Huawei are overblown, for the following reasons:

  • It's not in Huawei's, or the Chinese government's, interest to backdoor its 5G equipment, as the ramifications of getting caught would be severe;

  • If the Chinese government wanted to spy on foreigners, there is lower hanging, harder-to-detect fruit to poison (e.g. the IoT devices themselves!); and

  • Information should really be secured (encrypted) at the device and transport levels, meaning even if something were intercepted it wouldn't be of any use.

Thankfully for consumers, the United Kingdom's National Cyber Security Centre has determined that there are ways to limit the risks from using Huawei in its 5G network. Similarly, Germany and New Zealand have not ruled Huawei out as a 5G equipment provider.

The real reason Huawei is being singled out is political in nature, not technological. Silicon Valley is well aware that the likes of Huawei are currently ahead of American companies such as Cisco in the 5G space. Hyping up national security concerns and pressuring governments into banning Huawei is nothing more than an attempt to advantage American companies without resorting to messy trade barriers.

Enjoy the rest of this week's issue. Cheers,

— Justin

The bits

The "bits" are an assortment of articles that caught my eye this week, categorised by subject, with some brief comments from yours truly.


New frontiers

The United States warns its allies not to use Huawei, so Australia bans the Chinese company and world-leader in the 5G space. I'm glad to see there are still a few level heads in the United Kingdom (and elsewhere).

Incidentally, 5G is moving fast but as this article points out, it'll still be a while until 5G-enabled phones start to show up en masse. Given people are holding on to their existing smartphones longer than ever, 5G isn't anywhere near mainstream adoption.

A good article about Huawei's origins. The quote at the end nails it: "Huawei has been supplying access network kit to the UK's fixed and mobile networks for over 15 years. If there was a smoking gun, you would think someone might have found it by now in the code."


Artificial intelligence

TL;DR: You can find a pattern in anything if you look hard enough. Machine learning and big data may be leading to results that are not able to be replicated and are often wrong.


The internet

It's just one study but it's an interesting one that points out "...how important the internet has been in enabling creative people to make money from their creations". How many people would never have been 'discovered' if it weren't for the internet? This week's image (at the bottom of the issue) was taken from the study; be sure to check it out.


Retail

Did you know that back in 1950's New Zealand (Otago, no less), about 50% of households had their groceries delivered? Apparently grocery delivery is something that died with the widespread adoption of the motor vehicle and has only recently re-emerged. Talk about coming full circle!

Amazon spends a LOT on investment and research and development (R&D) instead of stock buybacks, which is why it pays no federal tax (for the moment).

Robert Mujica, New York State's Budget Director, has penned an open letter about the Amazon / New York fiasco. Highly recommended; a snippet: "We underestimated the effect of the opposition’s distortions and overestimated the intelligence and integrity of local elected officials."


Privacy

We all know that Google makes its money through advertising, but this is great. Google tried to ban adblockers from its Chrome browser, citing better performance, but essentially lied about the results, forcing it into an embarrassing reversal.

Meanwhile, by the US summer this year Firefox will block, by default, all cross-site third-party trackers, "strengthening privacy without your having to do a thing". I know which browser I'm choosing.


Gaming

That's a 26.7% year-on-year growth in revenue. People love watching other people play games, whether physical or virtual. I expect the industry to expand for some time yet.


Mobile devices

The keyword is "yet". The Fold is far, far too expensive for all but hardcore fans and it will no doubt be laden with bugs. Wait for the third generation.

When you can't compete, offer interest-free credit! Apple is offering two year financing to Alipay users who buy their products. This will help its China sales but it doesn't do anything to address its longer-term lack of competitiveness, which will eventually spread to Western markets as well.

Image of the week

View source
Creators earning money on the internet

"The internet has been an amazing platform for creators to make money -- and that includes millions of people who probably wouldn't have made any money in the past." It has also given many people a platform from which to springboard big careers (remember Justin Beiber? Yeah me neither. But he started out on YouTube).

That's all for now. If you enjoyed this issue, feel free to share it.

Huawei all the hate was compiled by Dr Justin Pyvis. Feel free to send feedback, suggestions for future issues, ideas, insults, or pretty much anything that crosses your mind to his Keybase chat.