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Doubts about Huawei open doors for Japan's telecom players

NTT and NEC look to old Thai stronghold for sales of after-5G equipment

Southeast Asia is an important market for global telecom companies. People in the region tend to spend longer on smartphones than their counterparts in industrial nations. (Photo by Akira Kodaka)

BANGKOK -- Suspicions that Huawei Technologies telecom gear could serve as back door for Chinese spying have helped breathe new life into a Japanese tech ecosystem long thought moribund.

A number of companies that flourished under the wing Japan's former domestic telecom monopoly, Nippon Telegraph and Telephone Public Corp. -- which was later privatized and split up to form the NTT group -- is attempting to gain a foothold in global markets.

In Europe, the U.K. government's move to bar Huawei from its 5G wireless network is a hopeful sign for a group of tightly linked Japanese manufacturers that once supplied NTT's forerunner. In November, London unveiled a plan to remove high-risk vendors -- read Huawei -- from its 5G network and offered financial support to Japanese electronics maker NEC to help build up 5G networks in Britain.

NEC has taken a number of steps to boost its share in the global market for telecom equipment. In June, it forged a capital and business tie-up with NTT to develop products for telecom networks around the world.

The U.S. government, meanwhile, is working to limit the reach of Huawei, arguing the Chinese telecom company poses a national security threat. Washington argues the Chinese government could use Huawei's networking technology to gain access to sensitive data around the world. Australia, the U.K. and France are also leery of the Chinese, which may give NEC an opening.

But seizing that opportunity will be a tough challenge for NEC, whose less than 1% share of the global telecom market is dwarfed by rivals such as Ericsson of Sweden and Finland's Nokia, which are especially competitive in Western countries.

The main fight for 5G supremacy is thus likely to unfold in emerging economies that lack their own telecom equipment makers.

NTT, Japan's former telecom monopoly, was known for working hand in glove with suppliers, including NEC, to develop equipment. This arrangement became obsolete when procurement in Japan was opened up to foreign manufacturers. But the old alliance with Japanese manufacturers has taken on a new incarnation.

The question is whether the revived partnership will be able to carve out a niche in the international market. Few Japanese remember the industry's glory days, but its footprint is clearly visible in Thailand.

King Mongkut's Institute of Technology Ladkrabang (KMITL) in Bangkok, a leading science and technology institute in Thailand, was the embodiment of Japan's traditional strategy for promoting its telecom ambitions.

On the campus stands a monument marking the foundation of the institution as a telecom training center in 1960. The monument says, in Thai, Japanese and English, that the training center was founded based on an agreement between Japan and Thailand.

In late August, the university held a ceremony in a Bangkok suburb to mark its 60th anniversary. Kazuya Nashida, Japan's ambassador to Thailand, was invited.

 A marker on the campus of King Mongkut's Institute of Technology Ladkrabang in Bangkok commemorates the founding of the institution as a telecom training center in 1960. 

Had it not been for the novel coronavirus pandemic, a cabinet minister from the government of former Prime Minister Shinzo Abe would also have been there. Akira Yoshino, an honorary fellow with Japanese chemical company Asahi Kasei who was awarded the Nobel Prize in chemistry in 2019, had been scheduled to give an address.

KMITL's strong ties with Japan date back to its foundation. At its inception, it was an "NTT university."

Japan's state-owned telecom company was established in 1952 as a spinoff from the former Communications Ministry, which oversaw Japan's postal and telecommunication services. The company opened its first overseas office in Bangkok in 1958.

Takeshi Kajii, the first president of the state-owned corporation, chose Bangkok because it was home to a U.N. agency. It was also part of Japan's plan to open a telecommunications training center in Thailand.

Kajii, who was an engineer at the former Communications Ministry, also served as president of NEC before World War II. He knew that Japan lagged Western nations in telecom technology, but understood that Japan had to sell more products overseas to support the economy.

The challenge was to promote Japanese telecom exports in the face of fierce competition from big Western companies with better technology. Kajii's strategy focused on cooperation with Asian nations, helping them to develop human resources for their telecom industries. The idea was to send Japanese technology and experts to these countries to smooth the way for later exports of Japanese products.

This patient strategy paid off in the 1980s and '90s, when NEC built plants to make telephone switchboards in Asia. After NTT was privatized in 1985, it bought stakes in Asian telecom companies, helping to promote Japanese technology in the region.

The payoff was particularly big in Thailand, where NEC built a plant in 1989 and gained a foothold in the Thai market rivaling those of Ericsson and Siemens of Germany -- whose telecom business was later merged with Nokia's. In 1992, NTT bought an 18% stake in Thai fixed line operator TT&T, which was established that year to finance, build and operate telephone networks in regions outside Bangkok.

Soon after, however, Japan's big telecom players fell on harder times. In the first half of the 1990s, The Thai government asked NEC to supply switchboards and base stations for its nascent mobile communications network. But NEC turned down the offer. Its Thai unit was busy with its fixed-line equipment business, while NEC plants in Japan were preoccupied with supplying NTT Docomo, the mobile arm of the NTT group, according to an NEC executive.

Ericsson and Siemens stepped into the breach, supplying wireless equipment to Thailand. This led the country to adopt European technology and standards for its wireless infrastructure. In the early 2000s, the Europeans were joined by Huawei, which split the Thai market with Ericsson and Nokia.

NEC's strategic blunder in Thailand highlights how Japanese mobile phones failed to capture significant shares in overseas markets, despite Japan's early technological lead, due to the "Galapagos syndrome" -- a myopic focus on the domestic market.

The fortunes of Japan's telecom industry waned further as it failed to keep up with important technological trends, such as the shift from fixed-line to mobile communications, from voice to data, and from switchboards to internet protocol switching. That failure eventually even undercut Japanese companies' dominance at home as foreign players moved in with better technology.

But after three decades in limbo, Japanese companies are eying a comeback on the world telecom market. Once again, they are using Southeast Asia as a springboard to expansion elsewhere.

The NICT Asia Center in Bangkok, an outpost of Japan's National Institute of Information and Communications Technology, will soon begin an outdoor demonstration project for a millimeter-wave radio system using NEC equipment. The system is designed to serve as a wireless link between cellular base stations.

The global bandwidth shortage facing wireless carriers is spurring experiments with the underutilized millimeter wave (mm-wave) frequency spectrum for future mobile communication networks.

As wireless communication technology moves toward 6G, which is expected to launch in the 2030s, and beyond, higher frequency bands will be used. The radio waves used will have shorter wavelengths, which creates problems because the range of radio communication systems falls as the wavelengths become shorter.

So future mobile networks will require more base stations, eventually more than one per person. At present, base stations are connected by fiber optic cable. This is costly, however, and future wireless networks could become too large for fiber optic cables to be a viable option. One potential alternative is mm-wave wireless technology.

NEC has already finished testing the system in Japan. Thailand will be the first county overseas to conduct a trial run for mm-wave technology. It was chosen because of the long-standing relationship between Japan and Thailand, which began with the founding of the telecommunications training center in Bangkok.

NEC hopes the experiment in a hot, humid, Southeast Asian climate that could affect the performance of equipment, will pave the way for the adoption of mm-wave wireless technology as the standard for the Asia-Pacific region, which will be determined as early as next year. That would give NEC an advantage in Thailand and neighboring countries.

Huawei has already established itself as a leading supplier of 5G equipment for Asian telecom networks by leveraging its technological and price competitiveness.

It will be difficult for NEC to win contracts to equip entire base stations, but the company could be a strong competitor if it keeps chipping away at Huawei's grip on niche markets, such as communication between base stations, said Tetsuya Kawanishi, a professor at Waseda University and an expert in radio and optical technologies who is overseeing NEC's test.

In typical infrastructure deals, one company supplies all the equipment. But NTT and NEC are championing an open model for telecom networks, hoping to hold down costs by attracting multiple suppliers. The mm-wave wireless project is aimed at demonstrating the benefits of this approach.

The U.S.-China conflict is fragmenting the global market for telecom equipment, which had been relatively seamless due to deregulation and innovation.

Against this shifting backdrop, Japan's telecom industry is attempting a revival on the global stage. It is an opportunity Japanese companies will not want to let slip away.

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