In the 21st century, the telecoms industry became globalised – and a global success. But few things can be taken for granted. Today the world looks a very different place. The coronavirus pandemic has highlighted how restarting the global engines of production is far from easy, with labour shortages and a microprocessor drought lingering into next year. Cyber-attacks have crippled supply chains. An increasingly confrontational China is perceived to be threatening neighbours. Since it embraced global markets, China has focused on what is called economic statecraft, in Chinese: jingji waijiao, the use of trade and business to achieve foreign policy goals. So what else lies on the horizon?
Chinese Chip Shops
China’s accession to the World Trade Organisation in December 2001 was a prelude to fierce competition and enormous growth. Today, that’s more of a cause for concern. Not only have supply chains have been disrupted by trade issues, but China’s long-term strategic focus on science and technology is causing governments to seek a Plan B.
“They’re clearly pioneering in a number of areas and the West is lagging behind,” notes David Rogers MBE, CEO of Copperhorse chair of the mobile industry’s GSMA Fraud and Security Group, and an advisor to DCMS. “For crucial technologies, where is the clever stuff going on? A lot of it is China domestic based. They’re building a huge skills base of people and techniques. They’ve reached that level of maturity”
For decades Western microprocessor producers were content to outsource manufacturing to Asian suppliers, closing facilities in the US and Europe. The United States today has only a 12 per cent share of chip manufacturing. China, by contrast, has invested around $120 billion in production with a target to reach 70 percent self-sufficiency in semiconductors by 2025. While it still lags behind some state of the art areas, with the more forceful stance of China, that outsourcing has created a huge strategic vulnerability.
A hundred miles from the coast of China is the nationalist government in Taiwan – and the most talked about potential supply chain disruption. Taiwan is home to the most sophisticated chip factories or foundries in the world. The most important of these is the Taiwan Semiconductor Manufacturing Company, TSMC, which has a fifty per cent share of the world’s microprocessors, and around half of the revenue banked by chip manufacturers. All of TSMC’s foundries are located either on the island of Taiwan, or in mainland Communist Party-controlled China itself. But arguably more significant than its volumes, is the fact that TSMC produces the most advanced chips in the world.
These are built to a 5 nanometer (nm) process, with a 3nm process coming later this year, in 2022. The dimension once referred to something specific - the width of the transistor gate, but confusingly, it is now a marketing term independent of any technical characteristic. Nevertheless, a lower process size still corresponds to an increase in transistor density, and more transistors means more logic, or more memory capacity (or both), on any given die size. This means more chips per wafer, and a lower ratio of faulty chips. TSMC creates 5nm chips for the US company AMD, for Apple and Qualcomm, and each is recognised as the leader in performance in its category.
“China has been trying to build up its semiconductor industry for fifty years and it’s found it’s hard to do,” says Dr Rosilyn Layton of the American Enterprise Institute, co-founder of the China Tech Threat think tank and chair of the Telecom Policy Research Conference. “It’s not like building a car. They have the demand internally, but even after poaching some of the best from companies like TSMC, or Applied Materials, they don’t have the designers of the chips.”
Chinese aggression towards Taiwan has increased sharply since the United States’ chaotic withdrawal from Afghanistan. There’s no doubt that capturing TSMC would be a prize for the People’s Republic technology industry.
“Taiwan is quite compromised,” says Layton. “Will TSMC be able to operate as before if the board is commandeered or enjoined?”
TSMC is rushing to complete its first foundries in Europe and the United States, but attention is now focused on Chinese technology acquisitions.
The juddering restart to manufacturing post-pandemic has also prompted more direct attention from Governments. David Rogers notes that this was on the radar before coronavirus hit, as vital suppliers were on the entity list.
In 2018, UK Department for Business, Energy & Industrial Strategy [BEIS) published the National Security and Investment White Paper, proposing safeguards for foreign takeovers. Currently only three UK companies are protected – BAE Systems, NATS and Rolls-Royce – via a ‘golden share’ owned by the UK Government.
This culminated in the National Security and Investment Act 2021, the NSI, which came into effect on 4 January. for more information see www.bit.ly/3yboLPF.
This new legislation gives the Government the power to “call in”, that is to say review, an acquisition “for assessment if it reasonably suspects that it is a qualifying acquisition (this guidance explains what these are) that has given rise to, or may give rise to, a risk to national security.” It has the powers to impose conditions or ultimately, block the transaction.
China recently acquired a small Welsh graphene manufacturer The Perpetuus Group with the Business Secretary referring the bid to the CMA. But it comes too late to stop the leading compound semiconductor facility, Newport Wafer Fab, being acquired by a Chinese-controlled entity. Compound semiconductors are highly advanced components that amplify power and light, and do the job by an order of magnitude better than silicon chips. The UK has carved out a global lead in these vital components, which are critical to the performance of products ranging from electric vehicles to satellites. Wingtech acquired Newport Wafer Fab despite the presence of US bidders.
“Those chips end up in lots of things. If that happens to be on an Electronic Control Unit that’s the core component of a car, then the car won’t move. You can’t easily substitute it. The global supply chain relies on these pivot points,” says Rogers.
Governments have no choice but to intervene. “There’s no resilience in the supply chains. The Americans, the Germans, we realise that. So subsidies are coming in”
A shortage of the finished microprocessor is the most obvious manifestation of semiconductor fragility. But in recent years attention has been drawn to the companies and technologies that make the chip: the vital tools that make the tools.
Companies including Applied Materials, KLA, and Lam Research have all supplied manufacturing equipment to firms like CXMT and YMTC, both linked to the Chinese military. Dr Layton has echoed calls for the US to enforce the 2018 Export Control and Reform Act to block such sales. It’s trickier when the manufacturer is not American. For example, only two companies, ASML based in the Netherlands, and Japans Nikon, produce extreme ultraviolet photolithography equipment which etch the silicon. And only ASML can produce it for 5nm processes. The US has tried to convince ASML not to export its state-of-the-art lithography equipment to China but received pushback.
Man in the middle
The protection of intellectual property is another focus. Doing business in China means creating a joint venture, in which technology transfer to the Middle Kingdom is implicit. A decade ago the China Business Review estimated that IP theft reduced the potential profits of European companies by 20 per cent.
Semiconductors are hard to copy. The CIA noted how China has taken an innovative approach to stealing commercial secrets. The “thousand grains of sand” method uses civilians or amateur information gatherers.
“I think if we quit America and went entirely back to China, China’s development would halt,” a senior Chinese engineer in Silicon Valley cited in Studies in Intelligence (Vol 59/4, 2015)... “America is the base that will allow China to develop.”
Shockwaves reverberated through the industry when it was reported that ARM’s China operation had declared itself the owner of ARM’s intellectual property and would develop its own products based on that. Around 25 billion ARM-based chips were shipped in 2020. These reports turned out to be incorrect, but the industry is sufficiently worried by the takeover of ARM by Nvidia to increase investment in an open chip architecture called RISC-V.
Opposition to export controls comes from manufacturers themselves – particularly in the United States, and is voiced through the trade organisation SEMI, which represents the global electronics design and manufacturing supply chain. American chip companies earn more than 25 percent of their revenue from the Chinese market
“Semiconductor Manufacturing Equipment makers don’t care where demand is coming from,” Risto Puhakka, President of VLSI Research, has admitted. “As long as the ducks are quacking they are generally not concerned where the end market resides.”
Senator Tom Cotton calls it the ‘Long War’, of which 5G is a part. The United States should “restore secure, scalable domestic productive capacity in areas critical to national security” he writes in his policy document. And it should not be distracted.
“They will gladly promise to reduce carbon emissions in 2060 if the United States would merely give them Taiwan today,” Cotton writes in a policy document Layton agrees that this is difficult today.
The Wassenaar Agreement is an export control regime that covers conventional weapons and dual use technologies. It’s in the hands of the US Department of Commerce today, but Layton is one of several voices calling for it to be moved the State Department.
Rare Earths and other Minerals
The building blocks of the electronics supply chain are raw minerals themselves, and this is the high-tech manufacturing industry’s Achilles heel. A small number of elements are vital to batteries, electronics circuits, magnets for turbines, and without them phones, electric cars and communication and computing equipment can’t get made at all. This makes them the core of an economic and national security policy. Not only has globalisation allowed China to maintain a monopoly over the supply of many of these, they will be even more important given the legislative commitments to ‘clean’ technologies.
The World Bank estimates production of mineral essential to clean tech, such as graphite, lithium and cobalt, will have to increase by almost 500 per cent by 2050. Lithium production alone will need to increase from between thirteen and fifty-one times the level it is today, depending on which battery technology eventually prevails. If the UK were to switch every petrol or diesel powered vehicle for an electric equivalent, it would require twice the world’s annual cobalt production today – just for the UK. Much of it is mined by children.
The most strategic of these minerals are seventeen ‘rare earth’ elements, but in a future increasingly dependent on batteries, cobalt and lithium are equally vital.
Rare earths were viewed as a vital strategic asset by the United States from the 1950s onwards, and provided public support. By the 1970s it was the established world leader in their supply. It funded a Rare-earth Information Center to disseminate knowledge throughout the private sector. China copied the policy in the 1980s, but the US lost interest. RIC was abolished. The waning production is because it’s a dirty business: processing one ton of rare earths is estimated to generate 2000 tonnes of toxic by-products. Responding to pressure from environmentalists, domestic US production was downscaled, and much shifted to China.
Calls to maintain the extraction and refining of rare earth minerals as a strategic asset were ignored in the rush to globalisation. By 2001 China had become the leading exporter of rare earths, although it has shifted strategy again in recent years. Since extraction is labour intensive and difficult, China has reduced its domestic extraction and instead now dominates the separation and processing stages. Nevertheless, this gives China control of 90 per cent of the refining and processing of the minerals.
For example, the group of neodymium, dysprosium and praseodymium known as NdpR are needed as magnets in electric motors and wind turbines. China refines 70 per cent of the neodymium used.
As a result of the 190,000 tonnes of rare earth magnets 175,000 are made in China. 80 per cent of lithium. Japan makes a chilling case study. In 2010 in response to a diplomatic dispute over the Senkaku Islands, China cut exports of rare earths by 40 per cent. The global market price quadrupled. Japanese government then established a strategy of finding alternatives supplies, explicitly called “Escaping China”. This saw investments made in South Africa, the United States, Brazil, Chile, Kazakhstan, and Malaysia. It has not been easy; in a decade it has 59 per cent of the Chinese supply.
“The deployment of 5G networks, for example, will support a number of industries that will become voracious consumers of critical minerals,” the China Research Group noted in a November 2021 report.
“There are very few rare earth projects without any links to China, thus significantly complicating any attempt to reduce dependence.” One additional problem is that China keeps prices low, deterring private investment in alternative suppliers. Increased competition for non-China minerals however has seen prices rise, with lithium increasing fivefold in the past year.
“Of thirteen potential sites in Africa, for example, only two are producing, three have failed, and the other eight are at very early stages. There are issues of contested ownership, nationalization, and of course environmental concerns. Most of these projects started at least a decade ago,” Kristin Vekasi of the University of Maine noted in 2019.
Controversially. Hunter Biden’s investment firm brokered a $3.8 bn deal that transferred a US owned Copper and Cobalt producer in the Democratic Republic of Congo to China Molybdenum.
Belatedly, Governments are recognising the policy as a strategic error, and are working on building domestic or regionalised supply chains. With its world class scientists, the UK has been doing some innovative policy work too.
Last April the University of Birmingham’s Centre for Strategic Elements and Critical Materials and the Critical Elements and Materials (CrEAM) chaired by former chief scientific advisor to the Government, Sir John Beddington reported. The Centre recommend “Make the UK an international refining centre for specific technology-critical metals by 2025.” In addition, it recommended reviewing waste management laws so much more can be recycled. The recycling rate for lithium batteries, for example, is very low at 3 per cent. The EU has mandated a target of 70 per cent by 2030.
The China Research Group also recommends that the UK both encourage processing and take the lead in recycling.
“This strategy looks increasingly out of kilter with almost every major industrial economy, exposing us to a high level of risk of supply disruption. This is compounded by poor supply chain transparency,” the Group reports.
The Advanced Propulsion Centre as part of the Automotive Transformation Fund has also investigated the possible establishment of an independent, non-Chinese and UK-based Rare Earth magnet operation in the UK to produce neodymium iron boron magnets.
In May 2021, Less Common Metals Ltd published a study for the Advanced Propulsion Centre about providing a source of magnets for UK industry independent of China. In addition to NdPr, dyprosium and terbium are needed – and much rarer. It acknowledged that creating a market will be challenging, because of China’s pricing. – raw material prices are 20 per cent lower than published export prices. A robust non-Chinese supply chain requires: an integrated mine to magnet company, or agreement to take a single margin at point of sale.
In recent years cyber strikes by states, or groups affiliated with states, have begun to pose a genuine risk to national security – and telecommunications has been in the front line. With the industry’s increasing reliance on software, and the intrinsic interconnected nature of networks, that’s created what experts call a greater “attack surface”.
These factors were behind both the decision to control “high risk vendors” within the UK telecoms supply chain, confirmed in January 2020, along with the recognition that the mobile telecoms equipment supply chain lacked diversity – another risk. his is being addressed by the Telecom Supply Chain Diversification strategy - backed by £250m - which includes FRANC.
Sovereign states now face catastrophic threats – something encapsulated in the acronym MAED (Mutually Assured Economic Assured Destruction) or MADE (Mutually Assured Destruction of Economy (MADE) – an echo of the policy of Mutually Assured Destruction (MAD) that dominated the Cold War. This is explained in a 2011 paper by the US think tank the Rand Corporation:
“The operation of MAED is somewhat different from classic mutual assured destruction (MAD). It is at least theoretically possible to limit the escalation of a military clash to the sub-nuclear level. It is not possible to so limit the economic consequences. For example China is not going to continue buying US Treasury notes if the American and Chinese navies clash somewhere off Taiwan or in the South China Sea. Apple is not going to be shipping iPads from factoriesin China..” But the analogy may be misleading, because the reciprocity that made MAD work can’t be guaranteed after a first-cyberstrike.
“A first strike might be worse than a nuclear first strike. There will be no response. It may not be possible to strike back,” a national security expert tells us.
Ransomware attacks hit the headlines in 2017 when large parts of the NHS were crippled for weeks by the WannaCry virus. Typically, the attack begins with a successful phishing attack with just one employee clicking a link, and activating a vulnerability in the local PC. This spreads to the network. The software then encrypts an organisation’s computers and demands for payment are made. Although little publicised, many do.
No ransom was ever paid with WannaCry, and Marcus Hutchins, a British hacker, found a kill switch within the virus. It’s believed the software was the North Korean Government conducting cyber weapons testing.
A more recent threat came with the Solar Winds attack, the most extensive supply chain attack seen so far. This did not require an employee to activate, but the complacency of a trusted vendor.
Malicious code was inserted a widely-used piece of enterprise management software, deployed by many government agencies and Fortune 500 companies - including the ten largest telecoms companies in the United States, It lay inactivate for many months. Brad Smith of Microsoft called it “the largest and most sophisticated attack the world has ever seen”. Supply chain attacks like this are extremely difficult to defend against, as the customer trusts the software vendor to inspect the integrity of what it distributes. Solar Winds stealthy nature meant it was undetected.
The UK can claim a leadership position with the National Cyberspace Security Centre, and over a decade of operating the Huawei Cyber Security Evaluation Centre (HCSEC), a partnership with GCHQ which inspected software code, binaries and development processes in great detail. The most recent report in 2020 concluded that Huawei’s promised security transformation scheme, announced was little more than talk, something independent experts confirm. It has been the work of the NCSC that has ultimately led to the recommendations that now manifest themselves in the Telecommunications (Security) Act 2021 which became law on the 17th November.
Some long-term macroeconomic trends become apparent only when you piece together the separate parts of the picture.
One is the workforce and skills. Concern has been raised recently that 75 per cent of US technology sector workers are not US citizens. While the most ambitious and talented can reach the top – the CEOs of Alphabet (Google), Microsoft, IBM, Adobe VMWare and now Twitter were born in India - for three decades, Silicon Valley has become increasingly dependent on relatively low-cost labour.
In the UK telecoms sector there are signs industry is stepping up. Networks need skills and in October last year, Vodafone announced the creation of 7,000 new software engineering posts across Europe, almost doubling the software services team. The new teams will work on products and services ranging from IoT, smart features of networks and cyber security.
As discussed above, dominance over the price and supply of key materials and tools makes sovereign states uncomfortably dependent on one source for key technologies. But this may only be the start.
“China has transformed itself into a clean-energy powerhouse that now produces most of the world’s solar panels, wind turbines, electric vehicles, and lithium-ion batteries,” the MIT Technology Review noted in August 2020. In a market economy, China kept its input costs low, driving out competition from Europe and the rest of Asia. The full report can be reaad at www.bit.ly/31KHh5h.
Powered by cheap energy, China stands to dominate far more supply chains, including finished products like electric vehicles. Mobile manufacturer Xiaomi committed $10 billion to creating a rival to low cost Chinese manufacturers. In the automotive sector Nio and Xpeng produce electric vehicles that are far cheaper than Western manufacturers. Observers see analogies between where the Chinese car manufacturers are today and the entrance of the Japanese companies in the 1960s. Chinese companies already own Volvo, Lotus and MG. The move to electrification and a greater level of technological innovation in cars and the whole mobility market plays well to the introduction of new market entrants who don’t have anything to lose.
Professor Jun Arima, Japan’s representative to fifteen UN COP climate conferences, and a lead author a Lead Author of the IPCC Sixth Assessment Report.
“The pragmatism of the Paris Agreement has recently warned of the long-term consequences of an asymmetric approach to carbon dioxide reductions.
“Emissions reductions in the West mean cheap energy for China,” Arima explains. “On the other hand, the developed world is facing the high costs of rapid reductions in fossil fuel consumption and the purchase of renewable equipment, solar, wind turbines and electric vehicles from China. This simply helps make Xi Jinping’s ‘Chinese Dream’ – the rejuvenation of the Chinese nation – a reality”.
Professor Arima notes that China has already committed tens of billions of dollars building coal-fired power plants in 152 countries through its Belt and Road Initiative, and is involved in more than 300 current projects, financing 70 per cent of the coal-fired power plants under construction worldwide. That gives it a huge and permanent manufacturing advantage – with multiple supply chains now at risk. Arima is also concerned that unobtainable ‘net zero’ targets have derailed what was a global consensus on climate change. The Paris Climate Agreement (concluded at COP21 in 2015) allowed nations to self-report, but this gave way to what Arima calls the “inflexible fundamentalism” of demands for ‘Net Zero’, which has split the world’s developed and developing nations, as we saw at the conclusion of COP26.
“China is the sole beneficiary of these … policies and the international discord that they create,” Arima wrote recently. He was also an early critic of China’s proposed global power grid – although after covid there seems little prospect of Western democratic nations signing up to that.
Today’s telecoms supply chain diversification looks prescient - diversification is here to stay.
Securing the Networks
The Telecommunications (Security) Act became law on 17th November 2021. The act gives the government new powers to boost the security standards of the UK’s telecoms networks and remove the threat of high risk vendors.
The Act will require “all telecoms providers to take appropriate and proportionate measures to identify and reduce the risks of security compromises occurring, as well as preparing for the occurrence of security compromises”.
Security compromises are defined to include:
- Anything that compromises the availability, performance or functionality of a network or service.
- Any unauthorised access to, interference with or exploitation of networks or services.
- Anything that compromises the confidentiality of signals or data.
- Anything that causes signals or data to be lost, unintentionally altered or altered without permission of the telecoms provider.
- Anything occurring in connection with a network or service that causes a compromise on another network or service that belongs to another telecoms provider.
Everyone’s covered, from traditional MNOs to newer networks.
The code of practice will apply to the largest national-scale (‘Tier 1’) telecoms providers, “whose availability and security is critical to people and businesses across the UK”, and these will be subject to intensive monitoring and oversight from Ofcom.
The code will also apply to medium-sized (‘Tier 2’) telecoms providers, who will be subject to some Ofcom oversight and monitoring. These providers are expected to have more time to implement the security measures set out in the code of practice.
The smallest (‘Tier 3’) telecoms providers, including small businesses and micro enterprises, will also need to comply with the law.
Satellites and GPS
One very obvious risk to the telecoms infrastructure passes silently and invisibly over your head. The world’s mobile networks rely on the GPS satellite network, run by the US military, and used by billions around the world.
Reliability was already an issue of increasing concern. An analysis by Ericsson of North American operators revealed that GPS loss of one hour or longer affected more than 15 per cent of all sites nationwide over a 12-month period. This impacted the applications we use every day.
“Timing outages are destined to become significant performance and availability challenges, even for providers that were never affected by such events in the past,” Ericsson researchers warned in 2019.
But in an increasingly unstable geopolitical environment, newer and potentially catastrophic space-based threats have emerged.
Two dozen GPS satellites orbit at an altitude of about 12,550 miles, which is about half the altitude of a traditional geostationary (fixed position) satellite, but much higher than the new generation of LEO (low earth orbit) satellites like Starlink, and the UK-backed OneWeb. Physically targeting a GPS was technologically challenging – something relegated to a Bond villain – with attackers preferring to develop jamming and spoofing attacks. GPS jamming works by broadcasting noise on the same frequency as that used by the satellites. In turn this has prompted the relatively new field of anti-jamming techniques.
Blind Interference Signal Suppression (BLISS) is being developed to jam the jammers.
But in November last year. Russia demonstrated an entirely new threat: an ASAT (anti-satellite) weapon that destroyed its own Kosmos 148 satellite. This created a debris ‘cloud’ of some 1,500 objects, posing a risk for other space users, including the International Space Station. As if to emphasise the threat, a Russian newsreader accompanied a report with the warning that GPS would be targeted.
Neither Russia nor China rely on GPS, as they have their own GLONASS and Beidou satellite networks, with similar numbers in orbit. The two powers have been co-operating ever more closely on these since January 2014. For example, the Chinese and Russian satellite networks now share a common monitoring and assessment platform, and both will be based on a common multi-frequency radio frequency chip going forward. Roscosmos will install a satellite ground-monitoring station in Shanghai and reciprocal Chinese stations will be built in Russia.
Trelavour Downs produced economic lithium during the second world war. In early 2020, Cornish Lithium’s geologists conducted a highly successful experimental drilling programme. This demonstrated that Lithium grades were present at depth. Cornish Lithium plans to accelerate work to prove the viability of the projec and to expand on its metallurgical testwork by building its first mineral processing pilot plant to treat 20 tonnes of granite and produce a lithium mica concentrate and furthering work on producing battery grade lithium hydroxide at a larger scale.