USA vs. China – Digital iron curtain

Balkanisation of the Internet is bad for everyone.

• Now that 5G is starting to mature, attention is turning to 6G and here it is clear that China has no intention of repeating its semiconductor dependency meaning that two standards are likely to be developed.
• This will begin what RFM and Alavan Independent have long forecasted which is the splitting of the Internet into two incompatible pieces (see here) meaning a smaller economic opportunity for everyone (see below).
• With 5G still being rolled out in earnest and penetration relatively low, no one really knows what 6G is going to look like yet but the geopolitical tension between the USA and China means that China’s striving for technological independence has never been greater.
• Hence, for all technologies which are emerging and where standards have yet to be set, we have long thought that China will attempt to create its own version in order to ensure that there is no repeat of the hoke point that the USA (and allies) have on its ability to make silicon chips.
• This means that it is extremely likely that China will develop and commercialise its own version of 6G which may bear very little resemblance to what the rest of the world comes up meaning that Chinese phones won’t work overseas and vice versa.
• China’s record in this department is not great as it developed its own standard for 3G called TD-SCDMA which was an unmitigated disaster and was quickly replaced with the global WCDMA standards.
• However, this time around the Chinese are much better at mobile technology than they were 20 years ago evidenced by the fact that Ericsson and Nokia admitted a few years ago that at the time, Huawei made more advanced 5G equipment than they did.
• I think that this means that China is quite capable of coming up with a viable 6G standard on its own and that there will not be a repeat of the fiasco it suffered with 3G.
• Consequently, in `10 years-time, it is likely that there will be two completely incompatible standards for 6G, taking us back to the age of 2G when most mobile phones only worked in some territories.
• RFM and Alavan Independent continue to think that this will not be limited to 6G but will be repeated across all technologies where China is competitive like AI, robotics, autonomous driving, quantum computing and the Metaverse.
• This means that 1.2bn users who are currently part of the global digital ecosystem will become members of their own ecosystem largely cut off from everyone else.
• The digital ecosystem enabled by the Internet is so valuable because it has over 5bn members and its value is determined by Metcalfe’s Law of Networking.
• This law states that the value of a network increases by the square of the number of devices that are connected to it.
• Just as this has made the digital ecosystem grow exponentially in value on the way up, the same will be true on the way down should it be split into 2 incompatible pieces.
• Consequently, China’s moves to create its own standards will close it off from everyone else and will make the value generated by all networks smaller in aggregate.
• Furthermore, as China continues to set its own standards in other technologies the more global technology will fragment and the more pronounced the negative effect will be.
• This is why growth in revenues generated by global technology may have already peaked and why the very long-term outlook could be much lower than many would like us to believe.
• This is the digital iron curtain that RFM and Alavan Independent see descending and the latest events in the geopolitical arena make this outcome increasingly likely.
• It seems like a wall is being built after all.