If there is a place for an active industrial policy, now back in fashion in Brussels as the FT’s Europe First series has shown, it is surely 5G. The fifth-generation mobile network with a thousand-fold increase in data capacity is a transformative technological development with a huge array of potential uses through the “internet of things”.

The rise of China’s Huawei as the leading supplier of 5G telecoms equipment has triggered big concerns about national security, European competitiveness and the prospect of long-term dependency on a potentially unreliable company. Having given up their indigenous industry, US officials are now mulling over whether to channel American taxpayers’ money to Huawei’s European rivals Nokia and Ericsson to ensure security of supply. Europe, by contrast, seems remarkably passive.

French President Emmanuel Macron vented his frustration last month, telling The Economist, “Europe has simply failed to have any degree of thinking or co-ordination on the issue. In other words, sovereign decisions and choices were de facto delegated to telecoms operators. I would put it as bluntly as that.”

Europe is lagging behind China, the US, South Korea and Japan in its rollout of 5G. The EU remains a highly fragmented market with hundreds of operators and different national security standards and procedures. It has lost clout in setting international standards. While intense competition is good for consumers, it leaves less cash for investment. Expensive spectrum auctions do not help.

Thanks to its vast domestic market of 800m phone users, the small number of network operators in China and plentiful cheap finance from state banks, Huawei has rapidly emerged as a global behemoth. Its technology can overlay other installed systems and it is often, although not always, much cheaper than its competitors. One southern European telecoms minister told the FT the Chinese company was pitching prices 30 per cent lower than its rivals. These advantages have allowed Huawei to gain about 30 per cent of 5G contracts worldwide.

Finland’s Nokia and Ericsson of Sweden are hardly minnows. Together their 5G market share is about the same as Huawei’s. And they stand to benefit from US restrictions on the Chinese company and US pressure on its allies to follow suit. But the two European companies are outgunned on research and development. Huawei spent $15bn last year and has pledged to hit $20bn, admittedly across more segments. Ericsson spends about $4bn, Nokia slightly more. Their technology is competitive now, but can it remain so?

Nokia’s shares took a hammering in October when it stopped paying a dividend, blaming intensifying competition and rising costs of the 5G rollout. Equipment makers are also being squeezed by other companies, such as carmakers, which are pushing back against licensing fees for technology used, for example, in autonomous cars.

So what is to be done? There is little talk of a merger. “I don’t think there’s a need for a European champion. Nokia and Ericsson are big enough,” says Leif Johansson, former chairman of the Swedish group. A tie-up would be bad for competition and leave a monopoly in some markets, especially if Huawei is excluded from some activities on security grounds. There is no call from France and Germany, the loudest cheerleaders for European champions, for a merger — perhaps because the two companies are not French and German.

The EU has already funnelled about €700m to 5G R&D, which benefits the two European companies but not exclusively. It could significantly increase this support in its next seven-year budget and spread it to industrial applications to stimulate demand. Funnelling cheap loans to Nokia and Ericsson would probably fall foul of World Trade Organization rules. But the EU could hit back. Margrethe Vestager, the EU’s antitrust enforcer, has endorsed a Dutch proposal for new competition tools to curb activities by state-subsidised foreign businesses.

The best thing the EU could do, though, is end market fragmentation so fewer telcos would hold larger multinational licences, operating under common rules on security and spectrum auctions. More profitable customers could help sustain more R&D by Europe’s equipment makers. In the rush to revitalise its industrial policy, Europe risks forgetting the power of a genuine single market.

ben.hall@ft.com

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