US regulators have cited concerns over China’s influence on the 5G standard-setting process in announcing an investigation into Singapore-based Broadcom’s hostile takeover of Qualcomm.
In a letter announcing the investigation, Aimen Mir, the Treasury’s deputy assistant secretary for investment security, said that any “weakening of Qualcomm’s position would leave an opening for China to expand its influence on the 5G standard-setting process”.
Mir noted that Chinese companies such as Huawei, which is also the No. 3 smartphone maker, have increased their engagement in 5G’s development and that Huawei owns about 10 percent of 5G essential patents.
“A shift to Chinese dominance in 5G would have substantial negative national security consequences for the United States,” Mir wrote.
More specifically, he cited Broadcom statements indicating it may focus more on short-term profitability after any acquisition, possibly leading to a reduction in research and development spending.
The $106 billion (£76bn) of debt Broadcom has arranged to finance the $117bn deal could also increase pressure to focus on short-term profits, Mir wrote. The deal would be the largest in tech history, and the proposed debt represents the largest corporate acquisition loan on record.
Mir also cited concerns about Broadcom’s relationships with foreign entities, without elaborating on who they might be.
Broadcom’s proposed takeover warranted a full investigation by the Committee on Foreign Investment in the US (CFIUS), an inter-agency body made up of representatives from the Departments of Defence, State, Justice, Treasury, Commerce, Energy and Homeland Security, Mir wrote.
The letter is dated Monday, 5 March, and was made public by Qualcomm on Tuesday when the company announced it would postpone a critical shareholder meeting from 6 March, rescheduling it to 5 April. Qualcomm said it received the letter on Sunday.
Broadcom was based in the US until 2016, when it was acquired by Singapore-based Avago. The company is in the midst ofreincorporating in the US, and has said it expects the move to be completed in the coming weeks.
An investigation by the CFIUS into a deal that has been proposed, but not yet completed, is highly unusual, and underscores the US’ concerns about maintaining its dominance in semiconductors in the face of advances by China.
Broadcom said it is cooperating with the investigation. “There can be no question that an American Broadcom-Qualcomm combination will provide far more resources for investments and development to that end,” the company said in a prepared statement.
Huawei has close ties with telecom operators in Europe and Asia, and has a dominant position in China, which is expected to form t he largest market for 5G.
CCS Insight said earlier this week it expects China to account for more than half of 5G connections by 2022, and would continue to represent more than 40 percent by 2025.
“China will dominate 5G thanks to its political ambition to lead technology development, the inexorable rise of local manufacturer Huawei and the breakneck speed at which consumers have upgraded to 4G connections in the recent past,” stated CCS Insight vice president of forecasting Marina Koytcheva.
The firm said it expects 5G to take off faster than 4G, hitting 2.6 billion connections by 2025, more than 20 percent of all mobile subscriptions.
5G remains largely undefined as yet, with vendors experimenting with different technologies to deliver next-generation mobile data.
Huawei closed the Mobile World Congress expo last week with the introduction of the industry’s first 5G microwave backhaul equipment, saying it has completed proof-of-concept testing with Vodafone.
The gear uses technologies including multiple-input multiple-output (MIMO), carrier aggregation (CA), 8KQAM modulation, and super dual band microwave, combining traditional frequency and E-band frequency to deliver up to 10 Gbps bandwidth while reducing single-hop latency from hundreds of microseconds to tens of microseconds.
In February the heads of several US intelligence agencies warned consumers and businesses not to buy products and services from Huawei and Chinese telecoms maker ZTE due to national security issues.
“We’re deeply concerned about the risks of allowing any company or entity that is beholden to foreign governments that don’t share our values to gain positions of power inside our telecommunications networks,” FBI director Chris Wray said at the time.
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