NEC, Japan’s leading producer of telecom equipment, and NTT, the country’s largest telecom network operator, recently announced plans for joint R&D and global marketing of 5G and other products incorporating their leading-edge optical and wireless telecommunications technologies.
To cement the alliance and support the R&D and marketing, NTT (Nippon Telegraph and Telephone) agreed to invest 64.5 billion yen (US$603.9 million) to acquire a 4.8% stake in NEC Corp.
On top of that, Japan’s Ministry of Economy, Trade and Industry (METI) plans to provide 70 billion yen to NEC, Fujitsu and other Japanese companies to develop 5G equipment and networks. Specific goals announced by NEC and NTT include:
- Develop and sell worldwide a compact digital signal processor featuring both world-leading performance and low power consumption, plus optical transmission equipment incorporating this circuit. A DSP is a specialized microprocessor, in this case optimized for large-capacity optical communications.
- Work with global telecom network operators and communication equipment vendors to promote Open Radio Access Network alliance specifications while developing and selling globally competitive products compliant with O-RAN specifications, aiming for top global market shares through ultra-high-speed processing, ultra-low latency and ultra-low power consumption at levels never before attained.
- Develop innovative technologies and optical/wireless devices enabling greater capacity, higher functionality; lower-cost submarine cable systems; large capacity, low latency and automatic/autonomous space communication; and more sophisticated technologies to ensure infrastructure network security.
O-RAN open standards allow different companies to supply different parts of a telecommunications network, facilitating the development of alternatives to the three large integrated suppliers Huawei, Nokia and Ericsson.
In March, NEC and Rakuten Mobile, Japan’s newest wireless telecom service provider, announced that shipments of a 5G radio unit produced by NEC had begun. This should enable the build-out of Rakuten’s 5G network later this year.
Meanwhile, faced with Conservative Party opposition to Huawei, Prime Minister Boris Johnson’s UK government reportedly is talking with NEC and considering it and South Korea’s Samsung Electronics as alternative suppliers of 5G equipment. In October 2018, NEC and Samsung announced a partnership to develop 5G and IT solutions for global markets.
And it should be noted that submarine cables are another area in which the US government is trying to restrain and counter China.
21st century industrial policy
In December 2018, the Japanese government issued guidelines prohibiting its ministries and military from using communications and computing equipment judged to be insecure. Japan’s telecom carriers – NTT, KDDI, Softbank and Rakuten, which at that time was applying for a license – quickly followed suit.
Chinese companies were not named, but Huawei and others were effectively banned from Japan’s government and 5G telecommunications markets.
This, combined with a 15% tax break, should enable NEC, Fujitsu and other Japanese telecom equipment makers to rebuild their economies of scale, cash flow and ability to invest in the development of new technology. According to industry sources, Huawei’s 5G products are 30-40% cheaper than Japanese alternatives, while Ericsson’s and Nokia’s are 10-20% cheaper.
All this comes just in the nick of time. After years of decline, NEC and Fujitsu have only about 1% each of the global market for network infrastructure, compared with more than 30% for Huawei, more than 25% for Ericsson, more than 20% for Nokia, about 10% for ZTE and 4% for Samsung.
However, unlike the United States and Canada, which let Lucent, Motorola and Nortel go out of business, Japan’s NEC and Fujitsu survived in their home market while their global market shares plummeted. Unlike the US, which is trying to stop Huawei regardless of the consequences for its American suppliers, Japan has an industry to protect.
Concerned about short-term budgetary considerations and free-market principles, Japan’s strategically blind fiscal conservatives favored a tax break as low as 5%, but they were overruled by Prime Minister Shinzo Abe. Abe is concerned about national security and the impact of advanced telecommunications on all aspects of society – for the next 100 years.
This is something the Chinese can understand and it is, perhaps, one reason why Japan has been able to sidestep the acrimonious dispute between China and the US while taking an uncompromising stand in its own interest.
No 1 in Facial Recognition
Chinese facial recognition technology has received a lot of attention recently, but NEC’s is not only better, it has the additional advantage of not being controlled by a totalitarian government. In the face recognition vendor tests conducted by the US National Institute of Standards and Technology (NIST) in 2018 – results announced in October 2019 – NEC took first place for the fifth time.
So far, NEC has applied its facial recognition technology to personal identification at Narita Airport and sports events, a pilot program in western Japan’s Wakayama that includes airport greetings; keyless hotel rooms; theme park entrance and cashless shopping; the development of ATMs for a Japanese bank; a collaboration with the Kitahara Neurosurgical Institute to verify changes in the condition of patients; technology services to the World Food Program and the deployment of a child fingerprint identification system for use with immunization in developing countries.
Over the next five years, market research organizations expect global demand for facial recognition technology and services to expand by 50% or more to at least $7 billion (about 750 billion yen). And now that the US has sanctioned two of the three Chinese entities in NIST’s top five – Yitu and SenseTime – NEC should find it easier to acquire new customers.
The other two companies in the top five are Microsoft and the Shenzhen Institutes of Advanced Technology. A total of 49 organizations from China, Europe, Japan, Russia, Europe and the US participated in the evaluation.
NEC is also using facial recognition – as well as biometrics, video analytics, the internet of things and artificial intelligence – in its strategy to make cities safer and more efficient. Target markets include public safety, cybersecurity, digital government, city management, smart transportation and digital healthcare.
NEC’s facial recognition technology can also identify people wearing masks worn to prevent the spread of Covid-19 and other infectious diseases. Security wickets that can recognize people wearing masks have been installed at the employee entrance to the company’s head office. Sales should follow this fiscal year.
Japan and NEC may help US President Donald Trump put pressure on Huawei, but the result will be more, not less, competition for America. Friendly competition, but competition none the less.
Scott Foster is an analyst with Lightstream Research, Tokyo.