Reports last week showed that the Pentagon was weighing blacklisting SMIC, China’s leading semiconductor manufacturer, arguing that its perceived involvement with military technology alongside civilian products could make ita security threat. This discussion came to a head on Friday, with a letter seen by the media suggesting that the blacklist would indeed go ahead,with companies needing to acquire a permit to export to the Chinese company.

SMIC argues that the restrictions are unwarranted, saying that it has norelationship to the Chinese military and ?manufactures semiconductors andprovides services solely for civilian and commercial end-users”.

News of the sanctions had an immediate impact on the Chinese company,which relies heavily on US technology, seeing its shares fall by around 8%.

This is, of course, the latest in a series of technological clashes in the geopolitical conflict between China and the US. While China has rolled out 5Gon a massive scale, semiconductor tech is an area where the US has a pronounced lead and these sanctions against SMIC show that the Trump administration is willing to push that advantage as hard as possible.

Earlier this month, China created its own ‘entity list’, likely to put pressure on US firms similar to that applied to Huawei and ZTE. While no specific companies have yet been named on the list, it seems likely that targets will include major tech players like Apple and Cisco, who both do significant business in China.

But beyond two superpowers firing shots across each others bows, these constant increases in pressure could have a much more long lasting effect on the balance of the global tech infrastructure. With politics making international cooperation between companies harder and harder, tech supply chains are destined to become significantly diverged, with greater reliance on domestic and allied production lines.

An anonymous op-ed for the Global Times called the US dominance of the semiconductor industry a ?fundamental threat “to China, imploring the nation to ?control all research and production chains of the semiconductor industry, and rid itself of being dependent on the US”.

?From Huawei to SMIC, the Chinese people should see for themselves that we are facing a protracted battle against high-tech suppression being led by the US. This is almost the key process for the great rejuvenation of the Chinese nation,” wrote the author, calling the process ?a long march”.

The creation of fully diverged tech industries poses a myriad of problems on the international stage, potentially leading to diverse mobile standards and a significant lack of interoperability. Progress towards producing self-reliant supply chains will be a long and painful process, especially for China but, as the op-ed shows, doing so is becoming a matter of national pride as much as economic necessity.

The CEO of BT Group,Philip Jansen, has warned MPs that at the current pace it will take until 2033to achieve universal UK coverage of gigabit-capable broadband, or 2027 if some?9bn worth of cuts in tax (e.g. business rates) and red tape can be found.Considerably later than PM Boris Johnson?s target for 2025.

The Government currently plans to invest ?5billion ? focused on helping those in the final 20% of hardest toreach premises ? to ensure that ?gigabit-capable broadband? (via FTTP,HFC DOCSIS 3.1, 5G or fixed wireless etc.) reaches everyUK home by the end of 2025 (here).The final strategy for this is expected to surface alongside the Autumn2020 Spending Review.

NOTE: 2033 was also the date that Theresa May?s government set forachieving universal ?full fibre? (FTTP)coverage.

We already have some idea how this will work (here)and the latest position from BT largelyechoes what they were saying more privately last year, which may help toexplain why the Government has recently watered-down their language to ?goas far as we possibly can by 2025? (here).The time-scale was always somewhat overly optimistic.

At present more than 25% of premises can alreadyaccess a gigabit service and it?s not unreasonable to assume that commercialdeployments alone will take this to around 70% of premises by the end of 2025,although aspects like overbuild between rival networks and uncertainty overlong-term rollout plans make it difficult to be exact (official reports tend totalk of 70-80% as an expectation).

The final 20-30% though is a tough nut to crack by2025, leaving very little time for actual build. On the other hand, we have toremember that BT (Openreach) has its own agenda here and painting an overlynegative outlook helps to sell their position, which as the largest fixed linenetwork operator is not something that the Government can easily ignore.

Meanwhile DCMS are keen to foster alternativenetworks (AltNets) so as to avoid a repeat of the early BDUK SuperfastBroadband programme, which saw BT scoop-up all of the contracts in Phase Onedue to a lack of viable competition in the bidding process (this improved inlater phases). Today?s market has changed a lot and there are now quite a lot ofalternatives, albeit only a few with real scale on their side(e.g. Cityfibre, KCOM etc.).

What are the operator?s demands?

Sadly, the Sunday Telegraph?s article doesn?t do much to set out BT?swider demands, but they do mention one area that the entire industry can agreeon ? business rates (Fibre Tax). Operator?s often have to plantheir investment strategy and payback for deployments some 10-20 years inadvance, which is difficult when the current business rates holiday on newfibre is due to end in 2022.

One estimate suggests that BT alone could save ?1bnif the rates holiday was extended by c.20 years (Scotland recently implementeda 10-year relief), but the above report claims that the Government won?treconsider this until 2023.

Alex Towers, BT?s Director of Policy,said:

?We must end the situation where BTand Virgin Media are actively penalised forinvesting in fibre, because they have to pay higher business rates on a fibreconnection than they do on an older, much slower, copper one.?

Speaking of Virgin Media, the DCMS Select Committee inquiryinto the Government?s gigabit broadband and 5G strategy has recently published somenew responses from the Liberty Global sibling. One of those from VM sets outsome of the fiscal, legislative and regulatory barriers that they say must be ?addressedurgently in order to facilitate build in these harder to reach areas.?

Naturally Virgin Media?s position is perhaps a bitcoloured by their own vested interests (e.g. they?d like any future gigabitvoucher schemes to help foster deployments in commercial areas ? like olderschemes, not only rural ones), although they still make some good points.

Changes Required by Virgin Media

Business rates

Business rates cost major network builders hundredsof millions each year. The Government should avoid taxingproductivity-enhancing technologies and consider removing business rates fromall gigabit capable connections. To help meet its 2025 target, government couldalso consider tying this relief to build in certain geographic areas.

The 380% increase in Virgin Media?s business ratesliability since 2016 [applies to existing infrastructure] affects rolloutdecisions in three ways. Firstly, it diverts substantial cash which couldotherwise be spent on network expansion. Secondly, it acts as a deterrent toinward investors who will not find a more burdensome property tax regime in anymajor Western market.

Thirdly, it directly affects future rollouteconomics by increasing the cost of each new premise passed. The relief regime,introduced by the Government in 2018 to mitigate the impact of the rise inrates, looks negligible compared to the scale of the Government?s ambition forgigabit rollout.

Moreover, it does not apply to all gigabit capabletechnologies or infrastructures and is due to expire in 2022. Scotland, bycontrast, has a relief regime that extends to 2029.

Workforce

To achieve the Government?s 2025 target, networkbuilders will need to access talent easily and cost-effectively. The Governmentshould add roles engaged in network build to the Shortage Occupation List aspart of the new immigration system, enabling those with the right skills toenter the workforce at a time when they are most needed. The Government shouldalso publish a roadmap on how it intends to up skill UK-based workers tosupport its rollout target and reform the apprenticeship system, so thatoperators can confidently access the domestic talent base.

Virgin Media currently employs around 3,000permanent engineering/field staff and has access to up to a further 3,500through contract partners.

Legislation

We support recent Government legislation onmultiple dwelling units (MDUs) and New Build Developments (NBDs), but both needto be strengthened. Granting operators with a right of access to leasehold andcouncil-owned properties, business parks and office blocks, to install gigabitcapable networks would considerably benefit the end-user. Ending thenon-competitive practice of exclusivity agreements in new-build propertieswould also be beneficial.

Streetworks

Better collaboration across Government departmentswith responsibility for streetworks is overdue. The Government also needs toprovide updated and clear guidance to Local Authorities (LAs) on a number ofkey issues delaying streetworks (e.g. the reinstatement of highways and permitschemes) to encourage more cooperation from difficult LAs.

Consumer regulation

Government to ensure that future consumer telecomsregulation remains proportionate and targeted at the most vulnerable, to avoidimpacting adversely on the incentive to invest.

The Government and Ofcom wouldperhaps argue that they are already working to resolve many of the remainingissues of red tape, such as through changes to the existing BuildingRegulations (pushing gigabit broadband into new builds) and theTelecommunications Infrastructure (Leasehold Property) Bill (pushing gigabitbroadband into high rise buildings / apartment blocks).

Meanwhile various changes are being developedby Ofcom andthe Government to update Permitted Development (PD) rights and the ElectronicCommunications Code (ECC). In short, these will make it easier toinstall taller masts, share network information and promote competition inorder to support the roll-out of future mobile and gigabit broadband networks (here).

A review of the Access to Infrastructure (ATI)Regulations 2016 has also been started, which could enable gigabit operators toexpand their networks by more easily being able to harness existingelectricity, gas, water and sewer networks via infrastructure sharing (here).

In the end we?re fairly confident that quite a fewpremises will still be waiting for gigabit-capable broadband come the end of2025, but at the same time a large chunk of the problem should have been solvedby then, we just don?t know how much will be left. Equally it?s worth rememberingthat there will be some flexibility in how Building Digital UK ends up defining ?gigabit-capable.?

In one recent example BDUK appeared to be shootingfor a ?normally available? download speed of at least 500Mbps and uploadspeeds of 200Mbps, which in ?limited circumstances? may fall to at least50Mbps and 20Mbps upload (here);some of this is necessary to account for the fact that data capacity onresidential lines is shared (some variability in performance is to beexpected).

The boss of Broadway Partners, which delivers both fixedwireless and fibre optic networks, has offered a different take on BT?sviewpoint.

Michael Armitage, CEO of Broadway Partners,said:

?We do not share BT?s pessimism about the speed of fibre rolloutacross the UK. The Prime Minister?s target of delivering gigabit-capableconnectivity to 100% of the UK by 2025 is certainly an ambitious goal, but itis definitely achievable, assuming a flexible and pragmatic approach to thetechnology, business models and interventions that are employed.

This is not about an extension to the moratorium on fibre rates,but about harnessing the power of fibre and 5G in combination, about harnessingthe energy and creativity of multiple smaller suppliers, and about engaging thepublic and private sectors in risk-sharing, non-market-distortingpartnerships.?

Today, Three Ireland has announced the switching on of its 5G networkacross the nation.

Around 315 base stations have been deployed so far, giving a totalcoverage of around 35% of the Irish population. Around 500 more are expected tobe deployed by the end of 2020, with Three having invested around ?100 millionin the rollout over the last year and expecting to spend the same again for thenext few years to enhance coverage. Naturally, major areas initially coveredinclude urban hubs, like Dublin and Cork, but some rural areas are alsoincluded.

?What we expect is by the end of next year we will be well in excess of50 per cent population coverage and growing,” said Three Ireland’s CTO DavidHennessy. ?This is about actually having a very substantive proposition outthere for our customers and very substantive service.”

Three is the last of Ireland’s three major mobile operators to launch5G, with Vodafone Ireland doing so in September 2019 and Eir following suitjust one month later. Three’s 5G launch was initially scheduled for a similardate but was delayed, primarily due to a switch from Huawei to Ericssonequipment at a late stage in the technology’s deployment.

Lagging behind by around one year, one would think that Three will havemuch catching up to do when it comes to the next-generation mobile technology,but the company in fact claims that its initial launch is larger than itsrivals’ current deployments.

Three’s 5G uptake should also receive something of a boost from therelease of the new 5G Apple iPhone, expected to hit the market in a few weekstime.

When it comes to accessibility, Three’s customers on more expensiveplans will have access to 5G for free ? assuming they have a compatible device.However, lower-priced plans, including pre-paid, will also be able to access 5Gfor a ?5 supplementary charge.

?Connectivity is vital to our everyday lives, so we wanted to be thefirst in the country to offer prepay customers as well as bill pay customers a5G experience. 5G is transforming how we connect, work, are entertained and howwe live our lives,” said CEO Robert Finnegan. ?Having seen what 5G can do and the latency it provides, I am excited tosee the economic developments and opportunities this brings to Ireland as westrive to compete in a global environment where connectivity is crucial.”