China’s Bid to Conquer Russia’s 5G Market Should Worry the Kremlin

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China’s Bid to Conquer Russia’s 5G Market Should Worry the Kremlin

Russia’s overdependence on Chinese 5G equipment has implications for the country’s technological development and security.

China’s Bid to Conquer Russia’s 5G Market Should Worry the Kremlin
Credit: Pixabay

Russia-China relations are at their highest level today with expanding mutual trust and increasing political cooperation. This was reinforced during an in-person meeting (a rare occasion amidst COVID-19 realities) by the Russian and Chinese foreign ministers on September 11 in Moscow. In a very comprehensive joint statement following the meeting, alongside many other areas of full-fledged cooperation, a separate paragraph is dedicated to developing digital economy and information technologies, which speaks to the high importance both countries allocate to their technological partnership.

Within that field, one questions looms large: Is Russian 5G to be “made in China”?

Such news recently occupied the front pages of Russian media, with reports of the national leading telecommunication company MTS’s plans to purchase 5G equipment from Huawei for 7.5 billion rubles ($93.5 million). In July, the company became the first telecom provider in Russia to be granted  a license for deploying 5G all over the country with a mandatory deadline for completion by July 2022.

In 2019 Moscow and Beijing had signed an official agreement on cooperation in developing 5G technology in Russia with Chinese expertise. Huawei has become the major driving force behind the deployment of the technology in Russia.  There are several reasons for this, starting with the obvious: Chinese technology equals the quality of global giants in the industry but offers equipment at a lower price.

On top of that, Huawei enacts a very adroit PR strategy focused on promoting its tarnished social responsibility image by creating additional jobs and expanding its research facilities in Russia’s regions. Huawei has 900 employees in Russia and runs four R&D centers in the country. It aims to hire 1,000 more Russia-based employees by 2024.

Finally, Huawei pretends to act as a co-developer of the Russian 5G market by combining efforts with Russian leading fintech companies such as Sberbank (headed by Herman Gref,  Russia’s ex-minister of economics and trade).

MTS’s competitors – Beeline and Tele2 – also have been reaching out to Huawei starting from 2019. For example, in May 2019, Beeline bought equipment from Huawei for 5 billion rubles. MTS buys so called 5G-ready equipment, which is designed to be swiftly deployed in the future. Chinese media supports the country’s global technological march with very pompous rhetoric, which serves as a tool to pave the way for further rollout of 5G in other countries, should the Russian trail prove a success. Some Chinese publications even suggest that cooperation with Huawei is a big endorsement from Russia amid a united front of Western countries seeking to crack down on the company. China’s news outlets lavish a lot of attention on Russia and China’s bilateral cooperation in the telecom sector, underlying that Russia is “firm in 5G cooperation with Huawei,” which contributes to “strengthening strategic high-tech partnership of Russia and China in 5G.”

Huawei’s intensified courting of Russia is believed to be spurred by U.S. sanctions put in place last year. To respond to the United States’ hostile moves, the company had to redirect investments into Russia, expand its research team, and increase Russian scientists’ salary.

Russia’s 5G Landscape

The introduction of the 5G-ready standard is scheduled for 2021. MTS is leading the project with investments of 20 billion rubles. Beeline has also joined the race to provide its clients with high-speed 5G connections, but the company, unlike MTS, chose the Moscow metro region as a starting point, with a total investment of 8 billion rubles. Russia is just at the threshold of the 5G revolution, with Moscow being a testing ground for the years to come. The Russian capital is supposed to launch commercial 5G networks by 2022, but the deadline looks very unlikely to be met on time, since many problems remain.

The Russian 5G industry is stymied by multitudinous impediments, such as the officials’ inability to approve a “road map” for the development of 5G networks in Russia  and stimulating the investment activity of telecom operators. The concept for the development of 5G in Russia has not been approved yet. The previous version was sent back for revision to the Ministry of Digital Development because it came under harsh criticism by industry leaders for many flaws. In 2018 PwC estimated that total costs for developing 5G in Russia from 2020 through 2027 could amount to 610 billion rubles ($8 billion). Russian official estimates are even larger and reach as high as  $10 billion.

A huge problem is the unwillingness of the military and Russian space agency (Roscosmos) to give away the most suitable frequencies of 3.4-3.8 GHz for commercial usage, which is considered a priority by cellular operators. Instead, the providers were left with 24.25-24.65 GHz. Industry experts note that such frequencies do not allow for building full-fledged 5G networks, in particular, due to the low penetrating power of the radio wave. The difference between various frequencies lies in the signal stability, distance coverage of the equipment, and speed of the data transition: A higher frequency (from 2 GHz up) guarantees better internet connection and speed, but also requires more transmitters in the coverage area.

In 2015 most countries agreed to stick to 3.4-3.8 GHz spread. Only Russia and the United States abstained, following their armies’ positions.

The Russian Ministry of Digital Development, Communications, and Mass Media offered to develop 5G within 4.8-4.9 GHz, but imported foreign equipment cannot be applied in that frequency range – thus, the cost for infrastructure and technology development automatically skyrockets. Theoretically, 5G equipment manufacturers (such as Nokia, Huawei, Ericsson, etc.) can tailor-make devices for any 5G frequency spectrum range, but any specialized order would impose extra costs for both producer and purchaser, making it globally noncompetitive.

To better facilitate the rollout of 5G in Russia last year, four leading telecom operators inked an agreement to start a joint venture that will solely focus on the development of new technology. The industry leaders have criticized the government’s intention to participate in the consortium as a shareholder, which would provide it with very significant leverage over the emerging market niche.

Nevertheless, the leading telecom operators of Russia plan to roll out a commercial 5G network in 2022. By 2024 all cities with a population over 300,000 residents should have 5G networks operative in one form or another. Russia thus lags behind many countries that have already developed 5G to the level of commercial application; in 2019 that list included the United States, Great Britain, South Korea, and Germany.

Enter Huawei

Amid strained relations between Russia and the West, the global march against Huawei and political entente of Russia and China make Huawei an obvious partner to assist Russia in promoting 5G. In August, Russian Foreign Minister Sergei Lavrov particularly stressed that Russia would not follow in the United States’ footsteps by icing out Huawei, but is rather interested in interacting with other countries to jointly create modern technologies.

The U.S. has banned Huawei from the 5G revolution on its soil, citing threats of data corruption, the possibility of government spying via Huawei equipment, fears of its cybersecurity vulnerability, and more mundane concerns about the breakdown of the devices themselves. Many European countries followed suit, although experts warn that Chinese technology is no different from Western options, which are also susceptible to hacking and hardware malfunctions. An important concern is that some “back doors” may be left in Huawei equipment in order to allow access to the network and manipulation of interconnected systems, e.g. shutting down power plants.

For Russia, all these fears may also be tangible even though current bilateral ties are very intimate. Both countries’ relations are not free of minor disagreements, such as oil exploration projects in the South China Sea and national resentment in China concerning historical territorial claims in the Russian Far East. China is steadfast about protecting its national interests – Russia is the same. Until the moment those interests stop overlapping, both countries act as trusted partners.

But for Russia, as a major power that is eager to maintain its self-reliance and autonomy, it is advisable to opt for developing 5G networks primarily with in-house technology. In August, the first samples of Russia-made equipment for 5G appeared and telecom companies expressed their wish to test them. Obviously, it would require more time and extra financial resources. Still, if Russian leadership wants the country to retain its defense capability at the optimal level and transform the country into a global technological hub, that is the price to pay.

5G will have extraordinary significance for any country’s digital well-being, so it must be reliable and efficacious. Russia should learn a lesson from the disruption of global supply chains, including Chinese ones, amid COVID-19. 5G is going to be so omnipresent that it will become an indispensable part of the national security agenda. Hence, even though it may take more money (the estimated cost for constructing a factory for 5G equipment is roughly $5 billion) and time (modest calculations speak of two years or more) to deploy 5G in Russia with home-made equipment – it is worth the expense.

Danil Bochkov is an expert at the Russian International Affairs Council. He earned his Master of Economics at MGIMO-University under the Ministry of Foreign Affairs of Russia. He also has a master’s degree in world economy from the University of International Business and Economics (UIBE, Beijing). His expert commentaries have appeared in South China Morning Post and China Daily. He tweets at @danil_bochkov_