Why everyone is freaking out about a White House plan to nationalize the country's 5G data networks

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A leaked White House memo that calls for the government to build and control a “5G” next-generation wireless data service drew immediate backlash Monday from industry groups, regulators, and even some within President Trump’s own administration. Although the proposal is reportedly dated, its disclosure sparked a debate over how much weight it carries.

Both Democrats and Republicans decried the idea of the government stepping so forcefully into an area that has largely been in the hands of private actors.

“Any federal effort to construct a nationalized 5G network would be a costly and counterproductive distraction from the policies we need to help the United States win the 5G future,” said Ajit Pai, the Republican chairman of the Federal Communications Commission, the nation’s top telecom regulator. Pai’s criticism was echoed by the rest of the bipartisan commission.

The memo, which was first reported by Axios and attributed to Trump national security officials, argues that Chinese companies have come to dominate the market for the chips and antennas necessary for sustaining a 5G wireless network, and that poses security risks for a U.S. 5G network. As a successor to 4G LTE, 5G is expected to provide a reliable, ultrafast wireless connectivity to a growing industry of high-tech inventions such as self-driving cars and artificial intelligence — even “true AI enhanced networked combat,” according to the memo. The “moonshot” project could resemble that of the 1950s-era national interstate system, according to the internal documents.

But there was confusion Monday concerning the significance of the National Security Council memo. Senior officials at the Commerce Department and the White House’s National Economic Council were livid at the suggestion that the memo reflects administration policy and called it hogwash, according to a senior industry official who spoke on the condition of anonymity to describe private discussions. Some suggested the proposal was leaked as a trial balloon meant to gauge the public’s appetite for the policy.

“I’ve seen lead balloons tried in D.C. before, but this is like a balloon made out of a Ford Pinto,” said Michael O’Rielly, a Republican FCC commissioner.

Apart from the nation’s highways, the federal government has rarely taken a direct role in building such networks, making the NSC proposal remarkable in its ambitions.

“People are flabbergasted,” said one former U.S. telecom regulator, who spoke on the condition of anonymity to speak more freely.

The White House didn’t immediately respond to a request for comment, but according to Recode, the administration said it doesn’t plan to build a 5G network.

The NSC proposal contemplated partnering with telecom companies to build a national 5G network. But it ultimately concludes that Washington should play a much larger role, potentially putting it at odds with large telecom carriers such as AT&T and Verizon that have staked their future on providing their own 5G service.

“We can’t comment on something we haven’t seen,” AT&T said in a statement. “But, thanks to multi-billion dollar investments made by American companies, the work to launch 5G service in the United States is already well down the road.”

The NSC proposal also reflected a major shift in tone for an administration that is better known for stripping away federal regulations and showering tax incentives on businesses.

“This development … is potentially the most significant government policy affecting stock market values in our sector since the 1996 Telecom Reform Act,” said the industry analysis firm New Street Research in a note on Monday. “The announcement puts a very significant cloud over the terminal value, and therefore the stock value, of all ISPs.” Still, it added, the impact to the industry would likely play out over years, if the proposal moved forward at all.

Telecom industry officials said Monday that they do not believe the memo has gained much support beyond the NSC, and that the proposal fails to grasp the complexity of the undertaking it outlines.

“We have spent decades and hundreds of billions of dollars building those networks,” said the senior industry official. “Now the [U.S. government] is going to build one from scratch? It just doesn’t make sense.”

Cybersecurity experts acknowledged that China is seeking to dominate the market for networking equipment, and enjoys some advantages over the United States.

“Our companies went out of business — Nortel and Lucent,” said James Lewis, senior vice president at the Center for Strategic and International Studies. “And we didn’t replace them, so we basically gave up a strategic industry. And the Chinese competitors are subsidized.”

Still, he said, the memo overstates the risk and fails to account for the global competition in 5G technology.

The U.S. intelligence community views network equipment made by Chinese companies with close ties to Beijing as insecure, according to James Barnett, a retired Navy rear admiral and an expert on telecommunications security. But, he added, for the United States to react by nationalizing part of its own telecom industry would “represent an enormous shift in the way the communications business in the U.S. works.”

The NSC memo argues that by encouraging U.S. firms to build networking equipment domestically, the United States can create more manufacturing jobs and enhance the security of its nationalized network, which would eventually lease capacity to other carriers. It estimates that the network could be deployed in as little as three years.

But the Trump administration could be forced to spend much of that time trying to overcome opposition from the telecom industry.

“The government should pursue the free market policies that enabled the U.S. wireless industry to win the race to 4G,” said Meredith Attwell Baker, president of the wireless industry trade group CTIA.

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