Japan’s 5G: a Mirror for Europe

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

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

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

Japan’s domestic technology solutions

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

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

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

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

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