China-LAC: Enduring Challenges
How will increasing Asian investment in Latin America influence economics and politics in the region?
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In November, the World Radiocommunication Conference 2019 adopted an international treaty that identified spectrum for 5G wireless technology, setting the stage for range of new ultra-high-speed and ultra-low latency consumer, business, and government services across the globe. As Latin America prepares for next-generation telecommunications, a wide variety of factors—domestic and external—will shape 5G deployment in the region. The following are five key observations of Latin Americas mobile telecoms landscape at present.
1. At present, the Latin American region is making considerable strides in 4G availability. Mobile operators in the region will continue to focus on 4G deployment as they prepare for an eventual 5G experience.
The availability of fourth generation (4G) wireless technology ranges considerably in Latin America, according to OpenSignal’s 2018 State of LTE report, from relatively high levels in Peru (83 percent coverage) and Mexico (80 percent coverage) to lower levels in Costa Rica and Ecuador, for example, where 66 and 57 percent of those populations have access to 4G (including LTE) speeds, respectively.
Despite some disparity in regional availability, 4G access is on the rise across much of the Latin American region. Chile shows steady progress in 4G expansion, for example, among all of the country’s major cellular providers—Claro, Entel, Movistar, and WOM. In October, Chile’s Telecommunications Sub-Secretariat (SUBTEL) initiated a public consultation called “Plan Nacional de Espectro” to increase the amount of available radio spectrum.
The region’s 4G adoption rates, or the actual use of 4G technology by a country’s citizens through smartphones or other devices, are still relatively low, however. According to GSMA, a trade association representing the interests of mobile operators worldwide, Peru had achieved a 23 percent 4G adoption rate in 2017. Only 20 percent of Mexico’s population had adopted 4G technology that same year. Brazil had the highest 4G adoption in the region at 46 percent in 2017. This compares to an average 74 percent 4G adoption rate in the US and Canada. Despite slow progress on adoption of new generations telecommunications in the region, GSMA predicts that Brazil, Chile and Colombia in particular will have much higher smartphone adoption rates by 2025, at 87, 82, and 81 percent, respectively.
The fifth generation (5G) of wireless technology, which uses larger spectrum channels and new wireless infrastructure to achieve much faster speeds than 4G, nearly eliminating processing delays, or latency, has only been deployed in a handful of global markets to date, including some in China and South Korea, and the US. As these “first movers” set the global standards for technology development and application, certain Latin American countries are taking steps to prepare for eventual 5G deployment.
GSMA intelligence forecasts that the first 5G launches in the region will take place in Mexico and Uruguay in 2020. In cooperation with Nokia, Antel Uruguay has already deployed a “commercially ready” 5G network in La Barra, Maldonado Province and in the municipality of Nueva Palmira, in Colonia. Both AT&T, which is already operating 5G trials in the US, and Mexico’s Telcel have announced that they will pursue partial 5G network deployment in Mexico in 2020. The North American nation’s considerable manufacturing sectors are well-positioned to take advantage of 5G’s many expected industrial internet of things (IIoT) applications.
Argentina, Brazil, and Chile have also begun public consultation processes on the use of mid-frequency bandwidths for 5G, for example, and Chile is planning an auction of both low- and mid-frequency spectrum for the new technology in 2019. Anatel, the Brazilian telecommunications regulator, is currently organizing the country’s first 5G spectrum auction, set for March 2020. The Brazil auction is expected to be among the largest single 5G auctions worldwide, with multiple bands of spectrum up for sale at once.
Some in the region, such as the Brazilian Telecommunications Association, are collaborating with international counterparts on the development 5G technology and to determine global standards. Brasilia reportedly established a partnership with Sweden’s Ericsson to build an internet of things and 5G research center in the state of Sao Paulo, for example. Huawei reportedly opened an IoT lab in the state of Sao Paulo in partnership with the Institute of Technology (FIT), a research entity founded in 2003 and accredited by the ministry of science, technology, innovation and communication (MCTIC). Huawei also supports an IoT center with Telefónica and a separate partnership with Pontifical Catholic University of Rio Grande do Sul on a smart public lighting system. In August, the Uruguayan government signed a memorandum of understanding (MOU) with Huawei to deepen cooperation on emerging technologies, such as 5G networks, artificial intelligence, IoT, and cloud computing.
Despite the region’s ongoing 5G preparations, Latin America’s mobile operators, such as América Móvil and Millicom are likely to focus on building out their 4G/LTE networks before investing extensively in new technologies, especially in those cases where returns on 4G build-out are relatively limited. 5G availability will be constrained in the coming years by long-standing, investment-related obstacles in much of the region. Telefonica reportedly plans to focus on more established markets by selling off most of its Latin American assets. Latin America’s still-limited progress on recommended 5G spectrum allocation will also delay deployment, as will a relatively small initial consumer base as the region’s mobile users take time to upgrade to 5G-enabled handsets. 5G adoption is forecast to reach an average of only 8 percent of Latin American consumers by 2025.
Even so, most predict considerable growth in 5G access in the region over the next few years. Industry trade organization 5G Americas forecasts nearly 3.5 million 5G connections in the region by 2021, which will grow to 17 million in 2022 and 75 million in 2023. GSMA predicts a more conservative 58 million 5G connections by 2025. As 5G becomes increasingly prevalent, 4G LTE will peak at 510 million connections by 2022, according to 5G Americas. The business case for 5G will strengthen as the region’s mobile usage grows in quantity and technological sophistication, according to Principal Global Advisory.
2. The Latin American region stands to benefit from 5G, but in ways yet unknown.
Latin American consumers may stand to benefit from 5G’s technological advances, but in ways not yet fully understood. The technology will undoubtedly enable web pages, video and other data to load faster on mobile devices, but 5G’s super-fast connections and low latency (ability to process high volumes of data with minimal delay) could also promote advances in such areas as robotics and automation, virtual reality, and artificial intelligence and machine learning. These developments could very well restructure economies and transform the way that we live our lives. A range of anticipated applications, including in healthcare, precision agriculture, mining, and financial services, for example, have the potential to transform industries, affect economic productivity, and shape labor markets.
As one of the most urbanized regions in the world, with about 80 percent of people living in urban areas, Latin America stands to benefit considerably from the development of 5G-enabled smart cities. The incorporation of advanced information and communication technologies (ICT) in city planning could improve the flow of traffic in congested areas, for instance, or the delivery of public utilities.
Producers in the region’s main manufacturing centers will also presumably benefit from a boost in IIoT capacity, which is already growing in countries such as Mexico and Brazil, as 5G cuts lags in data processing. 5G speeds would vastly improve machine (M2M) communication in factories, for example, albeit with potential drawbacks for local labor forces.
Companies are also exploring possibilities for mining and agricultural applications, which would be impactful for certain countries and communities in Latin America. 5G speeds could enable mining automation and new mine safety technologies, for instance, but the availability of mining-related applications will depend on 5G coverage in rural areas, which is still a distant reality. Even in the US, rural areas will likely only have access to broadband at lower, slower bandwidths. Hyper-fast access would rely on the use of many “small cells,” or low-powered radio access points that connect mobile devices to mobile networks over a small area. Deploying and maintaining “small cell” infrastructure in remote areas is prohibitively expensive for most providers.
As it stands, many of region’s most pressing development challenges, to the extent that they can be addressed by mobile connectivity, are as easily supported by further development of 4G networks than by 5G’s super-fast speeds. Efforts to bridge the digital divide by connecting wider segments of the Latin American population through 3G and 4G enabled technologies, along with extensive educational campaigns to educate consumers on the use of smartphones, the internet, and related applications, could result in job creation and greater access to financial services, among other promising results, according to Rachel Samren of Millicom, who spoke at a recent Inter-American Dialogue event on 5G and Smart Cities in Latin America. Moreover, innovative IoT applications are already evident across the region’s economic sectors using 4G-enabled technologies. For example, in 2018, Ericsson , Vivo, Raízen and EsalqTec announced an agreement that will boost the development of the IoT in agribusiness through the use of the 450MHz band for 4G/LTE in the Piracicaba region, in the state of São Paulo. The projects aims to increase agrobusiness productivity.
3. China’s advanced equipment at low prices is attractive to many countries in the Latin American region, regardless of US and other warnings about the security implications of utilizing Chinese technologies.
At present, there are only five companies in the world offering 5G radio hardware and complete systems: Huawei (China), Ericsson (Sweden), Nokia (Finland), Samsung (Korea), and ZTE (China). Huawei currently leads the pack in developing products built to 5G’s new high-speed, low-latency standard, “putting it in a position to furnish core infrastructure components to many countries and providers that are urgently looking to upgrade mobile networks,” according to the NATO Cooperation Cyber Defence Center of Excellence (CCDCOE).
Huawei’s cutting-edge technologies, along with an already extensive presence in Latin America’s major markets, will ensure that the company plays a prominent role in 5G deployment in the region in the coming years. In Brazil alone, six out of seven 4G mobile networks were constructed by Huawei. The Chinese company, which has been operating in the country for 21 years, has a factory producing telecommunications infrastructure in the state of Sao Paulo state. A new $800 million smartphone plant has been promised following the country’s upcoming 5G auction. In Mexico, China’s government has also supported the development of the country’s Red Compartida, a wholesale wireless network, by investing in Atlan Redes, which has managed the project alongside Promtel, the country’s telecommunications investment agency. In addition to Huawei’s already-extensive presence in the region, the company’s competitive pricing and collaboration with Latin America on other areas of interest (e.g., crime mitigation) make it an especially attractive partner for regional governments and service providers.
The US and some European allies have noted that China’s 5G technology isn’t particularly cost-effective once you factor in the government time and resources needed to address potential security risks, including the sorts of “hidden backdoors” in certain Huawei equipment discovered by Vodafone Italy between 2009 and 2011. Citing security concerns, including that Huawei and other Chinese companies could be exploited by the Chinese government for espionage, some countries have introduced laws that restrict specific manufacturers (Australia, Czech Republic, and the United States) or issued non-binding guidance (Estonia). European Union nations will share data on 5G cybersecurity risks and produce measures to tackle them by the end of 2019, the European Commission said in March. In other cases, service providers themselves have taken the initiative. BT Group, the UK’s leading telecommunications operator, announced in December 2018 that it would abandon Huawei devices (both existing 3G and 4G, and new 5G).
The Latin American region would appear to be more focused on achieving access to high-speed telecommunications technologies than on the possibility of surveillance and other security risks from China, however. Regional governments are also seemingly unfazed by US warnings about limiting partnerships with countries that use Chinese telecoms equipment. US President Donald Trump raised these issues with Brazilian President Jair Bolsonaro during a March meeting in Washington, DC, but Brazilian Vice President Hamilton Mourão has since noted that Huawei will be allowed to participate in network development after Brazil’s 5G rollout. Argentina is also expected to strengthen ties with China and Chinese companies as the Alberto Fernandez administration reframes its foreign policy. Indeed, for most of Latin America, interest in attracting Chinese investment is unwavering, whether in telecoms or other industries. Huawei is prioritizing outreach in Latin America and other developing regions for this very reason, especially as the US and certain other developed countries scrutinize its technologies and intentions.
4. If a security threat exists, it’s already a problem for Latin American nations. But 5G could make things much worse.
If backdoors exist in Chinese technologies, then the Latin American region is already vulnerable to network intrusion in its various forms—Chinese 3G and 4G networks and equipment could already presumably be exploited by Chinese companies, if they were so inclined. The security stakes are far greater with 5G, however. As 5G makes high-speed internet increasingly available, the number of devices in the network will increase dramatically. These will include traditional mobile and broadband connections, but also internet-enabled devices from dishwashers to self-driving cars and medical devices. As Reuters’ Jack Stubbs explains, “5G will also rapidly become a part of each country’s critical national infrastructure, as it is embedded in everything from hospitals to transport systems and power plants.” This all significantly increases the risks associated with system vulnerabilities.
For this reason, according to The Washington Post, US national security officials are already planning for a future in which Huawei will have a major share of the advanced global telecommunications market and “have begun to think about how to thwart potential espionage and disruptive cyberattacks enabled by interconnected networks.”
Of more immediate concern than possible backdoors in Huawei 5G infrastructure are accounts from African security officials that Huawei has helped governments in Uganda and Zambia spy on political opponents, including by intercepting their encrypted communications and social media, and by using cell data to track their whereabouts. Such efforts in Latin America could have profound political implications, before 5G ever gets of the ground.
5. Latin American governments and institutions will increasingly find themselves navigating a complex and contentious US-China dynamic, whether on 5G or in other areas.
Latin American governments find themselves in an unenviable position as they seek to strengthen ties with China while limiting reactions from the US. US-China competition—whether on trade, Taiwan, or in the tech space—has has clear effects on Latin American countries, whether by re-orienting global supply chains, ensuring continued Northern Triangle ties to Taiwan, affecting prices for the region’s tech consumers, or shaping the region’s infrastructure and other deal-makings with China.
On the issue of 5G, the US government has insisted that its warnings to Latin American governments about Chinese technologies address very real security concerns and are not intended to advance US economic interests. US officials rightly note that the companies that would benefit most from a greater focus on 5G security are not American ones, but industry leaders from Europe, such as Ericsson and Nokia, as well as Korean firm Samsung. But in the context of growing great power competition, US messaging on 5G comes across as anything but objective. And for those in the region who recall the 2013 revelations that the US National Security Agency had monitored former Brazilian president Dilma Rousseff’s phone calls, and spied on Brazil’s state oil corporation, the US has limited credibility in matters of international surveillance. For Latin American governments, it all comes down to whom they trust and their own ability to deliver new technologies to constituencies. Unless Huawei is directly implicated in electoral or other machinations in the region in the coming months, Latin American decisions to ban China’s cheaper and higher-quality 5G infrastructure are highly unlikely.
 This took the form of a 5G NR (new radio) NSA (non-standalone) “radio base,” with a radio frequency of 800 MHz in the 28 GHz frequency band, according to Antel.
 5G needs spectrum in three key frequency ranges—low (sub-1 GHz), mid (1-6 GHz), and high (above 6 GHz)—to deliver widespread coverage and support all use cases.
Margaret Myers is director of the Asia and Latin America program at the Inter-American Dialogue. Guillermo Garcia Montenegro was an intern with the Asia and Latin America program.
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