China’s Rise To 5G Dominance: How China’s Tech Giants Are Driving Geopolitical Ambitions With Jon Pelson

The growing dominance of China’s tech giants in 5G technology has far-reaching geopolitical consequences. To address this challenge, we need to understand the strategies being used to counter China’s dangerous grip on this critical area of tech. In this episode, Jon Pelson, an expert in the telecom industry, shares his insights in his book, Wireless Wars: China’s Dangerous Domination of 5G and How We’re Fighting Back. He dives into the evolution of the telecom industry, from his early days on Wall Street and Madison Avenue to his time at Lucent and British Telecom. He also discusses the rise of China’s tech giants and their impact on global tech supremacy, drawing from his observations during his travels to China. Jon explores the geopolitical implications of China’s dominance in 5G technology, and the strategies being employed to push back against it. If you’re someone who’s interested in the intersection of technology and geopolitics, then this episode is for you. Tune in now.

 

I’m so glad you joined us because our guest is Jon Pelson. After an early career on Wall Street and Madison Avenue, Jon Pelson spent nearly 25 years working as an executive at some of the world’s largest telecom equipment makers and service providers, including Lucent and British Telecom, helping create and market wireless products and solutions.

 

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China’s Rise To 5G Dominance: How China’s Tech Giants Are Driving Geopolitical Ambitions With Jon Pelson

During this time, Pelson traveled to China and watched that country’s fledgling telecommunications company grow and eventually seize the world lead. His observation of China’s use of home-grown business giants to advance geopolitical goals forms the basis for his new book, Wireless Wars: China’s Dangerous Domination of 5G and How We’re Fighting Back. It’s so nice to have you here, Jon.

It’s so good to be joining you here, Diane.

I was looking forward to this. We’ve had a chance to meet. We serve on a board together. I was fortunate to get a copy of your book when I first met you. I thought it was wonderful. What I liked about it was I am not the biggest tech person in the world. I used to sell System 36 and 38 in the ’80s. It’s been a while since I’ve sold equipment.

I thought this is a good educational journey for me to see what happened with everything because back then, AT&T was huge. Things have changed now, and I think a lot of people need background on what was Lucent and where did it come from. Some people don’t even know that much. I want to get a background from you of where you started and how you got to this level of success. If you want to throw in what happened to AT&T along the way, that would be helpful for a lot of people.

I was giving a talk to a college group down at Duke. My kids said, “When you talk about how you worked at Lucent and how Lucent was taken out of business, people won’t know what you’re talking about.” I said, “Do I have to explain? It was Bell Laboratories.” They said, “No. They don’t know what you’re talking about there either.”

I opened the talks, especially to the younger people by explaining that AT&T’s equipment division, Lucent Technologies, which included Bell Laboratories, nine Nobel laureates worked there. They invented the transistor and the silicon chip. Bell Labs invented radar. They invented communication satellites, lasers, and stereos.

This was the world’s greatest technology innovation company. I point out in the book that for less than the cost of an aircraft carrier, China was able to destroy America’s number one technology innovator. This is a company that invented our wartime technology as well as peace technology. That was a company that, after the spinoff, they had a great run. In the dot-com crash, which coincided with the telecom crash, the company was effectively wiped out. We went from over 100,000 employees to about 20,000. We’re sold off to Alcatel, who was sold off to Nokia. That’s where what’s left of Bell Labs now.

It’s interesting to see the progress of where things went. It’s just as interesting how you see the decline of some of our industries, and then the growth of Huawei. Some people may not even be familiar with Huawei. It’s one of those words that maybe you haven’t heard of. I know anybody in the tech industry is very familiar. Can you give a little backstory on Huawei? What it was when you got in, and what it is now in the China telecommunications industry?

Huawei is an equipment maker. The things that they make are the things that run a telecom network, not the things that you typically interface with. Although they have had a smartphone business, too, what they make is the things that enable the phone network to work. When you’re driving down the highway and your cell phone is connected to a cell tower that you go by on the side of the road or the top of a building, all the equipment there is coming from a company like Huawei, Nokia, or Ericsson. It’s the antenna on the top of the tower, the cabling, the radios that are transmitted through the antenna, the switches, and the routers, all sorts of telecom equipment that then connects off to the main wired telephone network to put your call through to whoever you’re talking to.

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That may seem like a side business, but Huawei was doing about $120 billion a year with that kind of equipment. To understand the size, in the late ’90s, they started growing, and by 2015, they had added $100 billion in business. This is not a hyperscale like Google or Facebook. They have to bend metal, attach circuit boards, and ship equipment and install it. Companies don’t grow that big that fast, and they did, which was an extraordinary story. In the process, they became bigger than everyone else put together. They’re bigger than Ericsson, plus Nokia, plus what was left of the other companies. They’re 3 or 4 times bigger, in fact.

When I read your book, one of the stories I found fascinating was you trying to get business in this other country where they didn’t value the same things. You couldn’t necessarily go by their code of ethics. I teach a lot of ethics courses. One of the questions I ask a lot is when you do business in another country and you have another branch or something like that, whose code of ethics do you use and why?

I make students give me this whole talk, so I’m going to put this in my classes when we’re done. This is a good discussion that you and your company didn’t go for the code of ethics going on at the time. You came up with a unique solution that worked out well at the time, but then you might have reread it later. I want to hear that story.

In fact, the book opens with a statement, “As I was trying to sell into Beijing in the ’90s, I wasn’t able to bribe my customers.” My publisher was very concerned about that sentence. I said, “No, let me be clear. I’m not suggesting I wanted to or that I would. What I’m saying is everyone around me was bribing their customers, but in the United States, you had something called the Foreign Practices Act.” I’m not saying no American companies do it, but when they do it and get caught, they go to prison. When you do it in Germany, Sweden, or France, it’s a line item on your tax filings as a deduction. That’s somewhat changing now. It’s not treated the same.

We were competing. We would win a big account selling to a Chinese operator. We’d find just before it was announced that they suddenly were presenting the award to Ericsson or Nokia. Suddenly, all the executives at the company would be driving Mercedes or Volvos, and the fix was in. I did not have any intention of entering that morass.

What I ended up doing, I knew that first of all, the telecom executives at the service providers, that’s the companies out in the US like Verizon, AT&T, or T-Mobile, buy the equipment and run the network. They were not that sophisticated in how to make these purchases. They were making bad decisions. I also knew that the Chinese culture values education and brand.

What I arranged was for the Harvard Business School to come into the city there and teach a class on telecom and business to the executives. This was not illegal. This is corporate education. It’s above board. It’s proper and ethical. What it did was, first of all, it brought them up to speed on how they should be doing it. Second, they all went home with the certificate that had the Lucent logo on one side, the Harvard Business School logo on the other, and their name in the middle.

We’ve got some real friends and loyal customers out of that, and it was a pretty good move. I do understand that when I moved on to another role, one of my successors decided this was all too much trouble and decided to give the corporate jet for use to any of these executives who wanted to fly their families around. He may have ended up doing time or getting fired. I’m not sure how that one turned out.

That wasn’t in the book, was it? I don’t remember that.

No, that one’s not in the book.

Do you regret having educated people? Did they take that information and use it against you ever?

They sure did. In fact, one of the people I had met briefly back in the day but interviewed extensively for the book was a guy named Colin Golder. He was the guy who taught Huawei how to do an international bid and how to respond to a Request For Proposal or RFP. He said they were green as grass. He had no idea what they were doing. They had never sold anything outside of China.

His line to me was, “I showed them how to bid.” They bid for the Saudi Arabia contract, ironically. We won a Saudi Arabia contract finally after 25 years. He taught them how to do a proposal. They bid, they lost, and there’s some consolation in knowing that in the following two decades, they would win $300 billion of other international business.

I found that fascinating because you had such a great idea. With other countries, the way they do business, educating them probably would’ve still been a great idea. What was different about this group?

The funny thing is I was in there with the same view that the politicians in power at the time, the World Trade Organization all had, we have this liberal worldview. We’re all in this together. America’s a rich country, China’s a poor country, and you want to get rich. If China gets rich, that means we have more customers and sophisticated vendors to sell us good products.

The assumption was we’re all trying to be better and have a higher quality of life. I never hesitated to try and lift up our customers or even our partners in the country through joint ventures. Everyone was wrong on the intentions. Deng Xiaoping liberalized the country and brought in journalism. In retrospect, there was always the same end goal, which was more ascension in the geopolitical power role that China had more than raising the economic status of the people.

They took a loss leader to a whole new level in this industry. I teach so many courses where we talk about decreasing the cost of one product. You think a lot in pharmacies that they give you your drugs for less. You’ll get through the pharmacy, you get that, and then you’ll buy ten things coming out. The price slashing and all the things that you wrote about were very fascinating. Do you want to talk about how that went?

There were two people that completely flipped my thesis on its head for the book, and they couldn’t be more different. One of them was an economics professor down at Duke, and the other one was an FBI counterintelligence officer. They each told me their own stories in response to my questions, and the pieces all fit together.

What the economics professor explained was you have loss leaders, and you can dump into a market to try and gain share. As China did, according to the Wall Street Journal, if you put $75 billion into a company to help them gain share in the world, and it takes 10 to 20 years for them to finally hit that pinnacle, you will never get that money back.

 

In that case, it can’t be a loss leader because the time value of the money 20 years later, at $75 billion, you can start making $10 billion a year forever, and you’ll never make it back. You can’t raise your prices through the roof because competitors will come back in and substitutes will take hold. It didn’t make economic sense. The economic studies for a company didn’t make economic sense.

For a country, it became clear that it was the same economic logic as building a tank or a bomb. When you build a $10,000 bomb, you’re not hoping to make a profit. You’re hoping that it will destroy a $10 million tank. If you lose value, but they lose more value, you win. Business would be very ugly if that’s how it was done, where everyone was trying to get the other guy even poorer than they got themselves.

It was the FBI officer who started to give insight about why in the world would a country pour more money into a company than they could ever get back. It didn’t make economic sense. He explained that Huawei had deployed its cell towers in the US around all of our nuclear missile bases and special operations command. That didn’t make a lot of sense either. Why would you want to put in 12 towers in Dakota instead of getting 112 in San Francisco? It became clear this was a conflict-based business strategy.

There are so many things that you talked about that were out of anything I would’ve ever considered in terms of 5G, where that was more military use in the higher numbers. Can you explain that? I don’t think a lot of people really know what 5G is. I remember when I went to speak for Verizon. They had me talk about curiosity. They were talking about how they had to do certain things because it was a very busy time because of switching to 5G, all the legalities, and all the different issues. A lot of people think of 5G as faster speeds or cooler phone does more things, but I didn’t realize that there were these different areas where the data went across. Can you talk about that a little bit?

I can tell you first what 5G is not. 5G is not faster than 4G.

That’s what a lot of people think.

That does not only do people think it, but the company companies tell them that. It’s marketing nonsense. I understand why they want to do that, but for the consumer, it’s a very different solution. To briefly explain, 1G was the first analog car phone. It’s that one in the trunk of your car. It was high-powered and fairly portable. The brick handphones were 1G.

2G was digital. That’s the only difference. You can send a text message, although you had to type it in on your numeric keyboard on your phone. That was an old trick that old-timers know. In 3G, you could start to send emails and you had real texting with a keyboard and rudimentary internet access, but it was slow. 4G was what most people today have, which is you can do video and broadband, and you have always on phones, which is more secure and much faster.

5G is not the next step there. Anyone with a 4G phone, if you’ve got a good connection, you’re getting 30 megabits per second. Who has ever said, “I need 90 megabits per second for what I’m doing on my phone right now.” It’s not a thing. What 5G does is behind the scenes. The chairwoman of the FCC, Jessica Rosenworcel said, “If we get 5G right, what people do with their mobile phones will be the least interesting thing about it.” She’s correct.

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What 5G is, first of all, more secure. A 4G cell site might allow perhaps 1,000 simultaneous connections to it, which in a traffic jam, starts to get loaded up on the highway. 5G isn’t 1,000. It might be 50,000 or 30,000. Where does that matter? Where it really matters is if you’re in a place like a factory where people are replacing all their wired sensors in factories, farms, and ports with wireless sensors, they can reconfigure things better.

You can’t do it with Wi-Fi. As people know it, you get interference, it drops out. It’s not a licensed spectrum. You can’t guarantee that you’re going to have a signal. Someone else can turn on a microwave oven and start jamming your signal by accident. 5G allows far more devices to enable this internet of things to start happening, which all these interconnected devices.

It’s got what’s called low latency, which means when you send a signal from a device and it has to go out to the internet, and then get a response, instead of taking half a second, which 4G might, it might take 100 of a second. Where does that matter? If you’re in an assembly line in a medical equipment factory and there are these syringes flying down the line, you’re doing optical testing, and you’re looking at them to see if they’re made according to spec, you need a camera that can send a broadband image of that device into the cloud.

The cloud compares it against the normal spec, makes a decision about whether that is okay or whether it needs to be rejected, and sends a response back to that device to say, “Flick that thing off the assembly line or allow it to go on.” If it’s half a second of a device, you don’t have a solution. If it’s 100 or 1,000 of a second, now you can start automating your factory.

You see this with farms where the tractors are controlled with 5G or wireless devices. They have soil moisture sensors and pesticides where you can have a drone that looks at a bug, decides if it’s beneficial or harmful, and it may have a hundred of a second to make that decision before it flies by, and then sprays a pesticide or keeps going. Instead of dumping 10,000 gallons of pesticide, you dump a gallon on every one of the bugs you’re aiming at. That’s pretty cool stuff.

Medical too, I thought, was interesting.

In medical, there are applications where you can have field medical work in the military. This is particularly important where you have expensive equipment but can’t have a surgeon on-site. You can start doing things with diagnostics and even with robotics for surgeries. You can’t have a half-second round trip for a doctor’s gesture who’s trying to do remote surgery. There are all sorts of interesting applications here. You see why China would want to have a hand in this because whoever controls 5G controls farms, ports, factories, and hospitals of the world. This is a worry. It doesn’t affect the individual in their day-to-day life unless they want to get food at the supermarket, and then suddenly it’s affecting them.

 

It brings to mind the Bruce Willis movie. When they had the fire, everything must go. I’m sure you’ve probably seen Die Hard where they took control over everything. We’re at the mercy of who’s in control of all this, and it’s interesting. You mentioned the progression to get to 5G. How many more Gs are there? What’s next? This was originally the space for the military, wasn’t it? The 5G spot, did you say that in the book? I thought you did.

There’s a lot of interest from the military in 5G because of autonomous vehicles, drones, and so on. You can’t use Wi-Fi and 4G. It’s not enough bandwidth and not enough twitchiness. It doesn’t respond as fast. The military cares a lot about it. I was talking with a group from the Department of Commerce. They had said, “Is it too late for 5G? Should we be looking at how we beat China on 6G?”

My industry has a lot of BS in it. I said, “Not only is it not too late for 5G, but we’re debating whether 5G is finally going to happen in 2 years or 4 to 5 years. It’s not here. Forget the T-Mobile commercials. They’re marketing for consumers.” The actual architecture of 5G, how it’s designed, how you push servers, not in the cloud but all the way out to the edge of the network next to the factory or the farm, so that they get a faster response, they’re still figuring that out. 5G is a couple of years off. I think it’s 3 or 4 years off. Some experts I talked to say it’s within a year or two, but it’s not here yet.

It’s hard to predict, I would imagine. I remember Moore’s Law. You would double how much space you had. There are all these different things that we knew certain things were coming. This doesn’t seem as easy to predict, is it?

No, it’s not. There is something called fixed wireless. That was the first thing I worked on in telecom in 1996. It was going to be the next big thing. It went zero, and we shut down our entire division of 1,500 people. Fixed wireless didn’t happen. The funny thing is it’s happening now with 5G. Fixed wireless is the idea that at home or business, you don’t even run fiber at all to the location. You just put a 5G antenna on the building and you’re getting 100 megabits per second to each one of these. The technology did happen, but if it happens 25 years too late, it wipes out the investors.

That’s how I felt about QR codes. I thought QR codes were going to be everywhere. To my perception, it seemed like before COVID, you hardly saw them, but then everybody didn’t want to touch anything, suddenly they were everywhere.

That’s right, even something like a Zoom conference that we’re doing now in addition to the audio. It takes an event or a step change for any of these major technologies to happen. The cameras on everyone’s phones were useless until social media caught up and said, “Now, I’ve got something to take a picture of. I’ve got avocado toast in front of me, and people need to see it. The world must know what it looks like.”

This is an interesting subject to talk about because I talk to organizations so much about building curiosity. A lot of the people I talk to want to see data, “Show me data that proves that curiosity impacts engagement and innovation.” It’s intuitive, but a lot of people haven’t done the research. I love your part in the book where you talked about McKinsey’s research for cell phones. Can you share how important research is and sometimes isn’t in that story?

I’ve had a lot of companies bring me in to talk to their partners or clients. I have not received a call yet from McKinsey, and I’m not expecting one anytime soon. The first chapter is called The Study. People in the wireless industry had heard this legend of a McKinsey presentation, the AT&T’s president saying, “There’s no future in the mobile phone business.”

I was able to get a hold of the deck, and I have it here in my office. It’s about a 75-page PowerPoint. This was before PowerPoint. This was in 1985. Jim Brewington, who I interviewed extensively in the book, I asked him, “Do you have the deck?” He said, “I do.” He was sitting in the back of the room. He was the guy, a young junior executive. McKinsey said, “We’ve surveyed thousands of businessmen.” They were businessmen that they were surveying. It wasn’t businessmen and businesswomen. I’m sure that was their focus. “We surveyed consumers. There’s no desire for this mobile phone thing that you guys have invented.”

There’s a quote that I don’t believe Henry Ford said, “If I asked my customers what they wanted, they would’ve said I want a faster horse.” He probably didn’t say it, but the idea is so powerful. When you’ve invented something people can’t conceive of, you can’t ask them what they think of it. You have to look at their underlying need.

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The response to the McKinsey survey was that people preferred using payphones, beepers, and pagers. They had no desire to carry a phone with them. The maximum penetration globally would be 0.5% of the market. It’s about 900,000 users globally, worldwide, which I point out that within about 5 or 10 years, they were adding around 900,000 customers a day into the mobile market. They got it wrong.

They have such a great reputation, so it just shows you that even with great research, you can’t rely 100% on some of this stuff. We’ve got a lot of people looking now to find the next big thing and to do the next big thing. Everybody wants to be relevant. Everybody wants to be innovative. You and I have met because we’re part of the Krach Institute for Tech Diplomacy at Purdue.

Their mission is to advance freedom through trusted technology. They do this by creating a new category tech statecraft that blends high-tech sector strategies with foreign policy tools and builds out a technology trust network. They’re relying on allies, leveraging private sector innovation, and operating based on trusted democratic values.

I know you and I both have served with Keith Krach who is the brainchild behind this, who is the former Chairman and CEO of DocuSign and former Under Secretary of Economic Growth, Energy, and the Environment. They’re trying to ensure that we stay ahead in this technological realm. I want to know what people can do. I know Keith wrote a piece for Fortune about what CEOs should have as a backup plan in case something happens that China gets into any kind of conflict the way that we had with Russia. What do you think people need to know? What can we do as part of this group to help educate people?

This is one of the things that amazes me the most. Some big companies I’ve talked with that have no China plan or a rudimentary idea that we’ve got to have some kind of a plan. Some of them think, “We’ll just relocate a factory.” They don’t realize that the penetration into the supply chain is so comprehensive that you say, “We’re going to make these things here, not in China.” You say, “Where are you going to get the components for it? Those are all going to come from China. You can make the components here. Where do you get the raw wrong materials to make the components?” “I see where you’re going with this.”

You need to create this global supply chain. It doesn’t have to exclude China, but you better not rely on them. We’ve seen that Chairman Xi can be petulant when Australia said, “We should do an investigation into how COVID originated. Doesn’t the world want to all know that?” China said, “We’re breaking our contracts to buy coal, beef, and wine from you.”

It’s purely petulant. It wasn’t a diplomatic response. By the way, it crushed China because Australia ended up saying, “We’re still making coal at the lowest cost in the world” because that’s what China drove. “Now, we’ll just sell it to everyone else in the world.” Meanwhile, China went to rolling blackouts. In a way, the joke was on them.

You do not want to be reliant on a government that’s not transparent and where there’s no recourse or predictability. Now, that’s what China looks like. Companies have to think first, where are we going to get our stuff and make it? You have to have supply chains that you follow all the way back to the origin and make sure that there’s no choke point that entirely relies on China. Maybe there’s a significant flow through there, but you need some backup.

[bctt tweet=”You do not want to be reliant on a government that’s not transparent and where there’s no recourse or predictability.” via=”no”]

You also need to know that if you’re making a product competing against China, don’t try to beat them at their own game. I’ve seen people at one point. Both the Trump and Biden administration pretty much have had continuity on this, which is fantastic. I’ve worked across both sides of the aisle. It’s so refreshing as a Washingtonian to not have to deal with the politics of this. The politics are America, not red and blue.

If you’re competing against China with your own products, it’s essential that you don’t try to take on China by being like China. Let’s not write a big check and get the government to direct an initiative. That’s what everyone’s going to fall in line and do. China owns that. They wrote that book. What we need to rely on are trusted networks. This is a key thing of Keith Krach’s organization that we’re both part of. If trust can become a competitive advantage, you can’t fake that. China can’t say, “We’ll just buy trust then.” You can buy some fealty or loyalty, but they’re never going to trust you if they know that there’s no recourse and transparency.

It’s an interesting discussion to have with certain younger generations when we talk about why you need this. There’s some idealism that we’re going to all get this great Star Trek future and everybody’s going to get along wonderfully. Everybody wants that. I don’t think anybody wants to say we don’t like a particular country.

It sounds negative to say we’re doing this thing to raise awareness because people are thinking that you have some political agenda or something else. What you’re trying to talk about here is we’ve always had some conflict going on in the past, whether we were worried about post-Vietnam or Cuban missiles hiding under our desks for Russians.

A lot of people go, “There’s always going to be something. I’m not going to worry about you guys. None of this has ever led to anything that impacted me.” It’s what I hear. How do you get them to take this as something that we need to do for our future and our kids’ future to keep our country strong, yet not be like, “It’s us against them. We don’t like them.” That’s what a lot of people don’t like to hear.

I’d say about a third of the people I’m working with on these types of issues are of Chinese descent. I couldn’t be happier to be in the United States in a free society. Anytime I’ve heard someone say, “What do you have against the Chinese?” I say, “I’m fighting on behalf of the Chinese who live in Taiwan, Hong Kong, and Mainland China who are in the Uygur regions, and the Chinese who are holding up the blank sheets of white paper hoping that the CCP or the Chinese Communist Party doesn’t open fire on them the way they did in Tiananmen Square.”

This freedom pro is definitely not the US against China. I’ve made the point often that it’s not the West because Korea, Japan, Taiwan, Vietnam, and Indonesia are all our allies in the struggle. The people inside China, their lifestyle has gotten better than it was many years ago when there was mass starvation. The GDP in China in 1980 was lower than in Sudan. That’s how far they’ve come.

Now, it’s not $300 per person per year. It’s about $12,000. It’s about fighting the authoritarianism and totalitarianism of the government. People say, “Why do we care for our children or our grandchildren?” Someone said, “What do you think would happen if China got the upper hand and could call the shots in the US the way they do in so much of the world?” I said, “We don’t have to wonder. We can look at what it’s like to be in China today.”

If you’re educated and you have ideas you want to share, you will be squelched. If you’re lucky, you’ll just be blocked. You can’t do internet searches. You can’t post your opinions. If you’re unlucky, your career is ended or your education is terminated. If you’re really unlucky, you’re disappeared or been executed. China does not have patience for that.

It’s a scary prospect. A lot of people don’t feel comfortable even talking about anything negative about what’s happening, because what if they end up in more power? Do you worry about that at all? You wrote this book. I know you said in the epilogue about around that timeframe that you wanted to keep it on a flash drive and not have it out there. Are you worried about that?

When I started writing the book, I had a fine career in telecom, but I was not an entity of interest to China. I had done work there, but I hadn’t spent years operating in the Chinese office or anything. About 2 to 3 months into my research working on the manuscript, I got that contact from a senior officer at a top recruiting firm asking if I was interested in a job on the board of China Unicom. It’s a state-owned Chinese service provider, bigger than AT&T and Verizon combined.

They had found out I was working on this. They knew about it. I asked people, “How in the world?” They said they got a very wide reach. Perhaps because I was talking through and interviewing people that were being tracked by the Chinese Communist Party, like the people in the National Security Council, law enforcement, and counter intel. They said, “Who’s this guy? Never heard of him. He’s not on any of our lists.” Perhaps they took a peak at my manuscript, which is only protected by a 16-digit alphanumeric password. From what I understand, don’t count on that. Don’t expect that you’re against a state hacker. You’re secured. You’re just not.

I felt that this is a story that had to be told. There’s too much at stake. There are people that are doing things that put themselves at true personal and physical risk. People in the military that I’ve worked with on the book, I have enormous respect and admiration for that. I’m willing to my neck out with a monograph and a book that has my name on it and take a stand there. There are an awful lot of Americans that are doing that now.

It’s a positive thing that a lot of countries want to be in the lead in innovation. This is not unusual in that respect. The problem is you’re up against somebody or a country that doesn’t want that, but we’re at a point where people don’t know what they need to do. We talked about having a plan in case something happens in China where you’re going to get your parts, your supply chain, and that type of thing. What else do we need to be doing?

I read a book, and I can’t remember the book off the top of my head, but it was saying we’ll never going to have it the way we had it. It’s never going to be as good. We’re going to each be separate countries having to rely on ourselves because we can’t get along. Everybody’s going to have to make their own, and nobody will be able to do it nearly as well. Do you think that we’re headed toward that? Do you think that either the US, China, or somebody will end up winning and that will be the end of that?

If someone ends up winning, you got to hope it’s not going to be China. The whole world should hope that because China made it clear. They want to export their collectivism, model of surveillance, and social harmony, as they call it, where everyone in the society gets along with the same set of ideas. That’s not some caricature of the Chinese Communist Party. It’s how they want the world to look.

[bctt tweet=”If someone ends up winning, you have to hope it’s not going to be China.” via=”no”]

America may not be beloved all over the world. We’ve certainly done things that aren’t worthy of that. The model of democracy, independence, and self-determination may not be perfect, but it’s a heck of a lot better than the authoritarian model in China. The funny thing is, global trade is supposed to lead to peace. Interdependency reduces the risk of war. You don’t bomb a country that’s making all your insulin.

You can’t destroy a steel factory if that’s the place that’s making your cars or making your bombs for that matter. You build a national defense, but by trading, you’re supposed to all be in this together. The problem is it appears that China does have a different view. We competed against Japan many years ago. They were such a threat to us, but it was a commercial threat.

We were worried that they were going to take over the car industry, not they were going to take over the country or seize Latin America or Africa and subjugate the people to their philosophy. That all looks so pleasant now in comparison to what we’re confronting with China, which is not a business competition. It is political.

You give some ideas of things that could happen as potentials or innovations. You talked about permissionless innovation, which I found interesting. There’s so much out there about open source. Explain a little bit about permissionless innovation.

That was a concept that I found with the Mercatus Institute at George Mason. Here’s the idea. You just take something that even college kids will recognize. The big commercial value creation over the last years were companies that not only were not backed by the government, but the government tried hard to stop them.

Those are things like Uber, Airbnb, Spotify, Amazon, and Google. These are companies that were doing things that were socially unacceptable. In many cases, it was illegal. You cannot use your private home as a hotel. It’s not zoned as a hotel, so you can’t have strangers staying there for the money. In Uber, you can’t have a stranger pick you up in a car. It socially runs counter to everything you’ve been taught, and it’s unsafe to get into a car with a non-licensed taxi driver.

I’ve lived in New York for many years, and I have no great confidence in the skill and training of your typical taxi driver. I’d take the random guy pulling up in a Camry any day of the week, but this was illegal. They didn’t have taxi medallions. The government stopped them. They sued them. They made them face in court. In the United States, the companies won. Not every time, but in general, they were able to say, “This wasn’t legal, but it should be.” In the end, it was.

Amazon wasn’t paying taxes. They say, “We don’t have any base of location.” The company was built on the idea that they were selling without having added tax. You lose some and you win some, but nobody was disappeared or executed for violating the law with their innovative company. This permissionless innovation has created literally trillions of dollars of value in the last few years.

Almost all come out of the US. I think Spotify is the only company I just named that’s not US based. I will point out that when I talked to my editor about talking about American exceptionalism, she fell out of her chair. I said, “Most of the examples I give weren’t even born in America.” The exceptionalism isn’t that these are Americans doing it. The thing is that system.

I have people from France, Nigeria, South Africa, Japan, and Korea. These are the people that had come here and created companies because our system welcomed it and gave them the opportunity. That’s the exceptional part. Hynek cannot allow this. They cannot tell their innovators. There are so many that are so competent in their engineering and technical community go nuts, break the rules, do something no one’s ever thought of, and disrupt a venerable industry.

Jack Ma did that in China. He’s out golfing in Thailand now. By the way, he’s lucky he’s golfing in Thailand. I found one CEO of a major Chinese financial services company who was arrested for illegal fundraising. He was doing things that were outside the norm. I looked him up. He was arrested on January 7th and executed two weeks later. He was a CEO of a big company.

Speaking of big companies, do we have to worry about some of the big companies like TikTok? You hear a lot about them or taking them off phones or taking it off different devices. Why should the average person think about that?

TikTok is awesome. It’s very entertaining. They’ve developed an algorithm that no one in the world has been able to replicate. I had a video pushed to me that I thought was hysterical. I loved it. I looked and it had about 100 views. There was almost nothing to go on to predict that I would love it, and yet they figured it out and they pushed it to me.

This is powerful, but as we also know, because it’s controlled by the Chinese government ultimately, the CCP controls what goes out on TikTok because the laws there say everyone has to cooperate with the government and the intelligence agencies. You don’t need a warrant. You don’t need to build a case. You just do what the government says.

These things should be very worrisome because they can steer the content you’re getting. Kids are out there stealing Hyundais. That was a TikTok challenge. They were doing dangerous things with fire. Kids were setting themselves on fire. That was a challenge. Sometimes they’re saying, “Let’s see how far we can push these kids.”

That’s awful. Look at confirmation bias alone if they don’t even go that far. We get that in social media in general, don’t we?

We do, and it’s a worry. The US has been a topic with Twitter and Facebook. For some reason, the free speech issue is political and I haven’t understood that. That seems about as American as it gets. As bad as it is here, people say, “I’m being restricted from seeing things I want to see.” That’s a problem, but there’s far more transparency, and there’s recourse here.

You can have some crazy rocket guy buy out Twitter saying, “I’m going to flip this on its head.” You may think that’s terrible. You may think it’s great, but there’s movement, and there’s change. This isn’t stuck wherever the government’s put it. If he did bad things, Twitter will crash and burn, and someone else will have to rise. If he did good things, it will thrive. In China, there is no one shaking it up and saying, “Let’s fix this.”

I’m curious about edge computing. You talked about this in the book. I’ve worked with some companies saying how much faster things are if you work on the edge and you don’t have to go all the way up to the cloud. For those of us who don’t have that background, you talked about the edge being a little bit tricky in terms of what they can do in access. Can you touch on that for a minute?

There are a couple of elements to that. Wireless Wars was not written for technology people or policy wonks. It was written for regular people. I try to describe something like that. It used to be where you had these antennas out at the cell tower. They would lead all the way back into some big brick building somewhere where all the computers, switches, and routers were. That’s where all the intelligence sat in the network. You didn’t even care who built that antenna and that cell site. It could be China or Huawei because all the thinking was going on inside.

 

With 5G, they push the software that you’re using. If you’re looking at a cell site or if you’re downloading Netflix, they’ve already pushed out popular TV shows and movies. They’re not sitting in a Netflix server somewhere in California. They’re pushed out because they know what people are going to download, and there’s no point in trucking it all the way across the country’s fiber optics every time someone downloads it. They’ll push some out to New York, Washington, and Boston out to the edge of the network, they would call that.

That’s called simple cashing. With a corporate application, I talked about the factory. Take a pharmaceutical factory where they’re looking at the temperatures of a mixture that’s being made into a drug. You have some software package that says, “What’s the right combination of heat, pressure, and time that needs to be happening to make this drug properly?”

That software can’t sit in a server in San Jose if they need to be making split-second decisions in New Jersey where the factory is. They start pushing not just the antennas out to the edge there, but they push that software package right out next to the factory so that it can happen without making the round trip. This is all getting back to this industrial process, which is so different from wireless now. They want to have the edge being an intelligent part of the network. If you’ve got an autonomous car and it’s going to swerve to avoid another car, you want that processing to be done right at the cell tower that you’re driving past, not somewhere in Indiana where they have a server farm.

It’s a time where it’s hard to know what to read and what to look at. You never know what news station to watch. You never know where to get information about this stuff. Your book was interesting to me. It was very well-researched. I appreciate that as a researcher of how much you did. I don’t even know how long that took you, but it was well done.

Are there other things other than your book? I hope everybody reads your book because I highly recommend it. It’s called Wireless Wars. Are there other things that people could be doing to learn more about what we need to do to stay in the lead in this whole high-tech war or whatever you want to call this? How can we learn more and have a higher level of education about all this?

One thing people should be doing is making sure they’re personally secure. People talk about passwords and so on. That’s all important. I can’t tell you it’s not. I hear stories about people buying internet of things like a light bulb you can turn off and on. They say, “I don’t care where that’s made. I don’t care if that’s American or Chinese. It’s a light bulb. It’s not an indoor video camera.”

What I learned is that some of these light bulbs coming out of China, the app that you control from your smartphone tracks your personal identification information, your location at all times, perhaps your directory, and other information on your phone. Suddenly, even though you think it’s just a light bulb, someone in Shenzhen knows who you are and where you are at all times.

They can use artificial intelligence to say, “You traveled to a known drug den. We cross-referenced and see that you’re also an employee of a technology firm or defense contractor. This is someone we’re going to take a look at now. We think we now know that this guy whose light bulb turns on when he pulls into the driveway is going to a crackhouse on the edge of town. He then goes to his job at International Dynamics and building missiles.”

You may not be an executive at one of those companies, but if you’re just a regular person, they can also be saying, “When you try to see what this Tiananmen Square thing is or about what’s happening in Ukraine, we’re going to push that away from you. We’re not going to let you see that. You’re not going to get the TikTok videos. You’ll never know what happened, but we’re going to steer you away and you’re going to have a different set of information to make your decisions on without knowing that that’s what happened.” That would worry me if you want to be an informed person living your life to know that someone with interests that are not aligned with yours is now directing what you can know and what you don’t know.

For leaders of companies, other than having a contingency plan in case of any outburst happening from China, what else should they be doing?

Here’s what they need to know. This is different. When I called the book Wireless Wars, it was not because this was a business competition that was almost as fierce as a war. The title means this is a war that’s being waged without the kinetics, missiles, and bullets. This is China taking on these companies not to make more money than them, but to achieve geopolitical advantage for the CCP or the Chinese Communist Party.

These companies better realize that this is not business. Not to China, it isn’t. This is not like trying to beat Samsung or Sony. This is a political and geopolitical struggle where they want to avoid losing money and make money, but that’s secondary. Businesses better realize that they’re playing a different game. It’s not chess and checkers. This is like we’re playing checkers and they’re setting up mortars to aim at our positions. Forget the chessboard. Until companies realize that there’s a different game being played here, they’re not going to be equipped to respond to the China threat.

How do they get educated? We’re doing things with the Krach Institute. Any other things that you’d suggest? Any specific degrees that people should be looking at for their managers? Any education in that respect?

First of all, they can’t simply look to their finance and operations leadership to make the decisions that have always been the case. Every once in a great while you get your government affairs person to weigh in. Even cybersecurity is not sufficient. Krach Institute is doing a training on this, various think tanks are engaged, and the Department of Commerce is working on this right now.

I’ve been working with a group called Business Executives for National Security or BENS. These are organizations where they talk about the issues. You can come together around experts that can speak about the issues and talk to people from think tanks that are China experts. They’re now starting to make the rounds to companies and boards saying, “This is what you have to look at.” You’ll get aid.

The State Department has a new cybersecurity ambassador at large who’s excellent. Department of Commerce has a new cyber person funded in the last couple of months who’s excellent. The government does have resources that can help outside of normal things like CFIUS, the Committee on Foreign Investment in the US. Those are all great and useful, but there are new groups that have been stood up. I think businesses need to work with the government and with experts at various think tanks, people that focus on this and get some insight from them.

We’re seeing universities like Purdue have such a focus on this, which is a good foundation. Everything you wrote about in the book is so enlightening. I’ve recommended your book to so many people like, “You’ve got to read this book.” This is a strange comparison. I love a Neil deGrasse Tyson book. It’s called Death by Black Hole, and it’s all astrophysics stuff.

If you don’t know anything about astrophysics and you come anywhere in the book, you go, “That’s an interesting story.” I listen to it all the time in an audiobook, and I listen to your audiobook as well. I loved your guy who did the audio version, by the way. He was terrific. I have both your audio and your book. I get the same feeling with your book that I get with that one. I could just jump into it and hear a really interesting, “That’s about McKinsey. That’s about the permissionless innovation.”

It’s very good because you get this like, “I forgot about that.” I could come back to it and update myself and learn what it is. You do such a good job of helping somebody who doesn’t have this as their background and has them come up to speed and go, “That’s what that is. I’ve always heard about Lucent, but I never really knew,” or whatever it is that people don’t know. It’s a great foundation. Thank you so much, Jon, for being on the show. Is there anything I didn’t ask you that you want to share that we can finish with?

I don’t think so. This is a terrific conversation. This is one of my favorite interviews I’ve done so far, Diane. I appreciated it. You covered everything that’s important. This was a book written for people that aren’t policy wonks or technologists. Although, I’ve been surprised at how many of those people have picked it up and read it too. I think they appreciate not having to wade through a dense discussion of market share changes and technology standards.

It’s very interesting, and it really is educational. It doesn’t lose your interest at all, and I love that. Thank you so much, Jon. This has been wonderful having you on the show. We will be back.

 

Important Links

• Wireless Wars: China’s Dangerous Domination of 5G and How We’re Fighting Back
• Krach Institute for Tech Diplomacy at Purdue
• Business Executives for National Security
• Death by Black Hole

 

About Jon Pelson

After an early career on Wall Street and Madison Avenue, Jon Pelson spent nearly twenty-five years working as an executive at some of the world’s largest telecom equipment makers and service providers, including Lucent and British Telecom, helping create and market wireless products and solutions. During this time, Pelson traveled to China and watched that country’s fledgling telecommunications companies grow and eventually seize the world lead. His observations on China’s use of home-grown business giants to advance geopolitical goals form the basis for his book, Wireless Wars, China’s Dangerous Domination of 5G and How We’re Fighting Back.

 

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