Posts Tagged ‘Ericsson’

Germany Is Soft on Chinese Spying

December 10, 2018

Huawei has deep ties to the Chinese government. Berlin might let it build the country’s next generation of communications infrastructure anyway.

The logo of Chinese electronics company Huawei on Sept. 2, 2015 in Berlin. (John Macdougal/AFP/Getty Images)

The logo of Chinese electronics company Huawei on Sept. 2, 2015 in Berlin. (John Macdougal/AFP/Getty Images)

Last week, New Zealand decided to exclude the Chinese technology company Huawei from providing equipment to operate its 5G high-speed mobile network due to “significant national security risks.” The country follows Australia and the United States, which have also excluded Chinese companies from supplying 5G infrastructure.

In Germany, meanwhile, security has so far hardly played any role in the debate over the fifth generation of cellular technology. In the terms of reference published last week by the German Federal Network Agency for its 5G auction, security was not even included in the conditions for awarding the contract. In October, the government announced: “A concrete legal basis for the complete or partial exclusion of particular suppliers of 5G infrastructure in Germany does not exist and is not planned.”

That is dangerously misguided. As Australia’s intelligence chief has pointed out: “5G is not just fast data, it is also high-density connection of devices—human to human, human to machine and machine to machine.” 5G will carry communications we “rely on every day, from our health systems … to self-driving cars and through to the operation of our power and water supply.” 5G will be the backbone of our industries and societies. “Critical infrastructure” hardly gets more critical. And the security risks are accordingly high. Wherever Chinese technology companies supply 5G infrastructure, they will have access to huge volumes of sensitive data and industrial secrets—and there’s reason to think they would eventually be forced to spy on behalf of Beijing. The Chinese government could also use these companies to disrupt other countries’ infrastructure in a future conflict.

Given the massive cybersecurity and national security risks, the only responsible decision is for Berlin to follow the Australian, New Zealand, and U.S. lead and ban Chinese providers from the German 5G network. In doing so, Europe’s strongest economy would send a crucial signal to the rest of the European Union members that are grappling with the same decision.

Contrary to Huawei’s claims, the decisions by Australia, New Zealand, and the United States were not motivated by crude protectionism. In none of these three countries will domestic suppliers be the primary beneficiaries. The anomaly of the 5G market is that there is no leading U.S.-based supplier covering the full technological spectrum. The companies profiting from a ban on Huawei and ZTE are mainly two European companies: Nokia and Ericsson.

Still, those calling for banning Huawei face an uphill battle across Europe. Huawei has strong supporters (not least due to its very professional lobbying operation and deep ties within the political scene). It markets itself as a private company, which is organized as a cooperative and is in no way under the control of the Chinese state. Network operators such as Deutsche Telekom are among Huawei’s cheerleaders. Deutsche Telekom warns against excluding “high-performance suppliers” such as Huawei if the country wanted to build its 5G network quickly and at cost. Huawei already supplies much of the existing German 3G and 4G infrastructure.

For Deutsche Telekom and other network operators, the situation is clear: Huawei offers innovative and reliable products at highly competitive prices. Legally, Deutsche Telekom does not bear any liability for the security risks associated with Huawei technology. And the company does not care about the fact that Huawei’s price advantage is the result of a highly skewed playing field in China. In the world’s largest market, domestic providers control 75 percent of the market, giving them unbeatable economies of scale.

Remarkably, Huawei’s defenders also include the Federal Office for Information Security (BSI), Germany’s cybersecurity agency. Its president, Arne Schönbohm, believes the agency has the capabilities to check on whether suppliers meet security requirements, providing “technically substantiated statements of trust.” Huawei, for its part, describes itself as “the most audited company in the world.” The company offers to put its equipment through any inspection in testing centers jointly run with governments. Last month, they put one such center into operation in Bonn in cooperation with the BSI. Schönbohm was enthusiastic: “We welcome the opening of this laboratory, which enables a further and deeper technical exchange between Huawei and the BSI.”

His ebullience is misguided. The Bonn center follows the British model, where the Huawei Cyber Security Evaluation Centre has existed since 2010 controlled by the British intelligence service GCHQ, among others. Yet just this year, the British inspection report could give “only limited assurance” that Huawei products do not pose any risks to national security. This prompted the government to warn network operators that current rules could be changed and that certain suppliers (i.e., Huawei) could be excluded. Speaking about building Britain’s 5G network, just this week MI6 chief Alex Younger said the UK needs to take decision on “the extent to which we are going to be comfortable with Chinese ownership of these technologies.”

The final British decision is still pending, but the conclusion for Germany should be clear. If the British GCHQ, which is technically far superior to the German BSI, cannot issue a clean bill of health for Huawei, we don’t have to wait for the BSI’s own efforts. In the future, the testing centers will be in an even worse position. Checking for possible hardware backdoors will only be a small part of the job. Virtualization (and related software) will play a central role for 5G. And with weekly software updates, infrastructure operators will have a front door to compromise systems. No testing center would be able to check weekly software updates in advance.

For good reasons, the German intelligence services, unlike the BSI, take a far more critical view of the Huawei risk. They share the Australian intelligence community’s negative assessment, which, according to anonymously sourced reports in November, is based on at least one case of Chinese intelligence agents using Huawei employees to obtain access codes for a foreign network.




Silicon Valley Helped Build Huawei. Washington Could Dismantle It.

December 9, 2018

The arrest of Meng Wanzhou has raised the stakes for Huawei and its overseas partners


Huawei consumer business group’s chief executive Richard Yu presents the new phone Huawei P10 Plus at the Mobile World Congress in Barcelona, Spain. (AP Photo/Manu Fernandez)


American companies have been crucial in helping Huawei Technologies Co. become the world’s dominant telecommunications player.

Silicon Valley giants from Intel Corp. INTC -4.40% to Broadcom Inc. and Qualcomm Inc.QCOM -1.96% are top suppliers of Huawei, which buys their components to make equipment such as base stations and routers and Huawei mobile phones. By one estimate, Huawei will buy up to $10 billion of components from American companies this year—roughly the value of China’s automobile imports from the U.S.

Qualcomm and Intel are also working with Huawei on its development of next-generation 5G technologies, a field in which the Chinese company’s aim to be a global leader has alarmed some in Washington.

These interdependencies show how any U.S. actions against Huawei for alleged sanctions violations, which could go as far as a ban on it buying from American suppliers, could devastate Huawei’s operations, and curtail business for U.S. tech companies. Huawei’s chief financial officer, Meng Wanzhou, was arrested in Vancouver on Dec. 1 at the behest of U.S. authorities investigating fraud related to sales to Iran.

Market LeaderHuawei has steadily gained market sharefrom rivals.Telecom-equipment market shareSource: Dell’Oro GroupNote: 2018 through the third quarter; figures includebusinesses of defunct companies acquired by Nokia(Siemens and Alcatel-Lucent) and Ericsson (Nortel)
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The arrest raised the stakes for Huawei and its overseas partners and has cast a pall over trade negotiations between the world’s two largest economies. Shares of tech companies in China and the U.S. have already slumped this year as fears rise that trade tensions will disrupt business across the Pacific.

In the wake of Ms. Meng’s arrest, Huawei has sought to reassure its suppliers. In a memo dated Dec. 6 and viewed by The Wall Street Journal, Huawei said it knew of no wrongdoing by Ms. Meng and it is “unreasonable of the U.S. government to use these sorts of approaches to exert pressure on a business entity.” Huawei’s partnerships with global suppliers wouldn’t change, it said.

China Huawei Filiale in Beijing (picture-alliance/AP Photo/Ng Han Guan)

If the U.S. concludes Huawei evaded U.S. sanctions, further actions could follow. Huawei’s chief Chinese rival, ZTE Corp. , was originally slapped with a fine after it admitted to evading U.S. sanctions, but subsequent violations of its settlement agreement led the U.S. government to temporarily ban American companies from selling it products—sending ZTE to the brink of collapse. Authorities imposed a similar ban on Chinese chip maker Fujian Jinhua Integrated Circuit Co. in October, citing national-security and economic concerns.

U.S. companies stand to lose too, with China being the second-biggest buyer of its $58.4 billion of semiconductor exports last year, according to the U.S. International Trade Administration. Huawei alone is on track to buy about $10 billion of components from U.S. companies this year, up from $8 billion in 2017, estimates Handel Jones, chief executive of technology consulting firm International Business Strategies Inc., which tracks China’s high-tech sector.

“It’s a pretty extensive list of companies that would be heavily impacted” if Huawei were to lose access to its American suppliers, Mr. Jones said. ”It would be a very serious situation.”

Huawei is by far the biggest-spending Chinese tech company when it comes to research and development. It has an in-house chip-design unit that is the seventh largest in the world. It is working on high-end chips for artificial intelligence, and its chips are increasingly displacing foreign suppliers in its smartphones: Only 7% of the semiconductors inside Huawei’s top-of-the-line P20 Pro are from American suppliers, according to ABI Research, compared with 60% in ZTE’s high-end Axon M device.

Yet Huawei still relies on imports from U.S. chip companies such as Broadcom, Xilinx Inc. and Analog Devices Inc. for components used in its telecom equipment, according to a breakdown of its suppliers by investment bank Jefferies. Huawei buys equipment from data-storage equipment maker Seagate Technology PLC for use in its enterprise business, and uses memory chips made by Micron Technology Inc. in its smartphones, the bank said.

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A Xilinx spokeswoman said the company “is aware of the situation and is monitoring it closely.” The other suppliers either declined to comment or didn’t respond to requests for comment.

It’s a pretty extensive list of companies that would be heavily impacted.

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Intel and Qualcomm, which draw huge revenue from China, are seen by Huawei as more than suppliers. In Huawei’s annual report, Intel is described as a “strategic partner,” and the companies work together in a range of areas, including next-generation 5G technology.

On Dec. 5, Huawei announced it had completed a test of key 5G technology using Intel processors and a Huawei base station. In September, Huawei credited help from Intel as it made its first phone call on a type of 5G network.

Intel declined to comment.

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Qualcomm has also been a collaborator in 5G. Earlier this year, the San Diego chip maker said it supplied prototype equipment used in a 5G test by Huawei. In 2015, Qualcomm, Huawei and China’s largest chip maker, Semiconductor Manufacturing International Corp. , launched a joint venture in Shanghai to work on next-generation chip technology.

Fears about Huawei’s dominance in 5G technology were behind the U.S.’s decision to scuttle the takeover of Qualcomm by Broadcom earlier this year. Both companies declined to comment.

Write to Dan Strumpf at

Germany Resists Pressure to Abandon Huawei

December 7, 2018

German officials were reportedly pushing earlier this year for their government to follow other countries’ lead and slap a ban on Chinese IT firm Huawei. But Berlin doesn’t seem inclined to bow to US pressure.

Logo von Huawei (Reuters/H. Hanschke)

Chinese multinational tech giant Huawei Technologies opened a new information security lab in the German city of Bonn last month. Some observers see the move as designed to butter up German regulators ahead of the country’s 5G mobile spectrum auction.

The German network regulator (BNetzA) is finalizing the terms for the 5G licensing round it plans to hold in the first quarter of 2019.

The total cost of building Germany’s 5G networks could be €80 billion ($91 billion) and this means high stakes for Huawei and its rivals Ericsson, Nokia, ZTE and Samsung.

Not too bothered

Germany doesn’t have its own indigenous telecoms hardware industry to speak of and maintains close trade and investment ties with Beijing.

The German interior ministry has said there is no legal basis to exclude foreign equipment providers from the country’s 5G system and no such measure is planned.

Read more: China’s Huawei finance chief arrested in Canada, faces extradition to US

There is no formal bilateral agreement on preventing commercial cyber espionage between Germany and China, but the number of known China-originated commercial cyber espionage attacks on German companies has dropped in the past two years, according to the Australian Strategic Policy Institute (ASPI).

This is corroborated by the Federal Office for the Protection of the Constitution (BfV), Germany’s domestic intelligence agency. The fall has been linked to an increase in Chinese foreign direct investment in high-tech and advanced manufacturing industries in 2016.

Former BfV head Hans-Georg Maassen has linked the decline to an increase in the use of legal tools for obtaining the same information, such as corporate takeovers.

“Industrial espionage is no longer necessary if one can simply take advantage of liberal economic regulations to buy companies and then disembowel them or cannibalize them to gain access to their know-how,” Maassen said.

But things may be changing. “The German public discourse around China has changed in the last year or so, not primarily rushed by the US,” cyber security specialist Raffaello Pantucci told DW. “The Germans have seen several cases where the Chinese have crossed a line.”

Read more: Exit the Dragon? Chinese investment in Germany

Pantucci believes the Chinese will now have difficulty winning the 2019 5G auction. “This puts the cat among the pigeons. No country can avoid this dilemma and I think it’s now very unlikely a Chinese firm will win.”

Huawei Australien (Imago/ZumaPress//Imago/M. Schwarz)Australia has cited national security risks with regard to Huawei

Issues in the UK, Australia and New Zealand

Britain’s BT Group said this week it will remove Huawei Technologies’ equipment from its core 4G network within two years and has also excluded Huawei from bidding for contracts to supply equipment for use in its core 5G network.

However, a ban remains unlikely in the UK, due to the advanced stage of Huawei’s involvement in 5G development in the country.

New Zealand has also rejected Huawei’s first 5G bid, citing national security risks while earlier this year, Australia banned Huawei from supplying 5G equipment for the same reason.

US pressure

The US is putting increased pressure on its political allies, including Germany, to exclude Huawei from their next-generation mobile networks. Washington has long said Huawei and ZTE, another Chinese hardware maker, are potential menaces to security and privacy.

US authorities have pointed to China’s national intelligence law, which they say could force Chinese companies to facilitate spying efforts in other countries. US authorities cited the issue when they blocked Broadcom’s hostile takeover of Qualcomm earlier this year.

In 2013, the US Commission on the Theft of American Intellectual Property estimated that the theft of Intellectual Property was $300 billion (€257 billion) annually, with 50 to 80 percent of the thefts attributed to China.

But why is it all such a big deal?

“Many states are concerned about using Chinese telecommunications and technology companies in critical infrastructure companies for a range of reasons,” Daniella Cave, a specialist on cyber security at ASPI, told DW.

Firstly, she says, the Chinese state has a history of aggressive and wide-ranging espionage and intellectual property theft.

Secondly, the national intelligence law they introduced in 2017 compels organizations and individuals to participate in intelligence activities and to keep secret the intelligence activities they are aware of.

Thirdly, there have been allegations that Chinese companies have been complicit, knowingly or unknowingly, in the theft of secrets and valuable government data, Cave says.

A double-edged sword

“I think the Chinese state’s introduction of the national intelligence law is going to place suspicion on the international activities of most of China’s large companies going forward,” Cave says.

“But it’s a double-edged sword for China, as the Chinese Communist Party has made it virtually impossible for Chinese companies to expand without attracting understandable and legitimate suspicion,” she adds.

Cave believes most developed states will be looking at ways in which they can move away from the use of Chinese products in their critical infrastructure.

“A lot of companies have already, and will continue, to look at ways in which they can minimize the risks to their supply chain by closely scrutinizing the hardware and software in their systems.”

Why Being First in 5G Matters

September 13, 2018

The U.S., China, South Korea and Japan all see a big payoff from winning the battle for the wireless future


The race to be the first 5G country has begun—and the winner stands to gain a lot.

Around the world, giant wireless-technology companies are coordinating with their governments to come up with winning strategies to implement 5G, the next generation of cellular networks that promise to deliver ultrafast speeds and open up a range of new applications.

The U.S., China, South Korea and Japan are leading the early rounds. AT&T T 2.30% and Verizon plan city-by-city 5G launches starting later this year, while China expects national coverage by 2020.

While wireless-industry executives say applications that tap the full potential of 5G—self-driving cars, virtual reality and remote surgery—are several years away, leading the way does matter for a country’s economy, if the race to 4G is a guide. If the U.S. hadn’t led the way on 4G, the country might not dominate mobile technology, and its platforms, such as Instagram, Snapchat and perhaps even Facebook and Netflix might not have become global powers.

“The Ubers, the Airbnbs, the Netflixes of the world came about because of 4G,” says Rob McDowell, a Republican former Federal Communications Commission commissioner. “No one foresaw the app economy coming. What’s exciting about 5G is that nobody can really fathom what’s going to happen.”

Being slow to 5G, he says, would put “the U.S. at a competitive disadvantage globally.”

Letting innovation happen

Short for fourth-generation cellular technology, 4G was designed to zap video and other gobs of data from cell towers to smartphones. Having easily accessible 4G on AT&T and Verizon networks helped entrepreneurs test ideas like Snapchat. It also persuaded people to use data-intensive smartphone apps, when they might have lacked the patience to wait for Instagram videos and pictures to load on slower 3G networks.

“The proverbial guys in the garage have a shot” to test business ideas if the newest wireless technology is available, says Roger Entner, lead analyst at telecom research-firm Recon Analytics. “If the network is not there, they don’t have a shot at all.”

In a study commissioned by U.S. wireless trade association CTIA, Mr. Entner concluded that America’s 4G leadership led to roughly $125 billion in revenue for U.S. companies that could have gone elsewhere had the country not been at the technology’s forefront. He says the 4G launch increased wireless-related jobs in the country by 84%, to 4.6 million in 2014 from 2.5 million in 2011.

Fifth-generation technology promises to be even more transformative. Consumers won’t notice a difference until they upgrade to phones compatible with 5G technology, which won’t become widely available until at least 2019. But when 5G is fully functioning in several years, it will be so fast that people can download full-length movies on their phones in a few seconds instead of several minutes currently. The data will travel nearly instantaneously, perhaps fast enough to mimic human reflexes to help self-driving cars avoid accidents. In fact, some auto experts say, 5G could be crucial to the success of autonomous vehicles.

The technology could also reshape the landscape for telecommunications firms. If people can download huge amounts of data at ultrafast speeds, wireless connections could be powerful enough to replace cable and internet providers that need to plug wires into homes.

A device revolution

What’s more, 5G will allow many more objects to connect to cellular towers, enabling the long-promised Internet of Things, in which everything from home appliances to implanted medical devices are connected to the network.

Accelerating Change

The next generation of wireless service, 5G, will deliver peak download speeds about 100 times faster than 4G. It will also eliminate most of the latency, or reaction time, when phones and other devices connect through the network. Consumers will see the difference in much more than just their smartphones:

Downloading media

A two-hour movie that takes six minutes to download on 4G will need three or four seconds on 5G.

Autonomous vehicles

Self-driving cars could get a boost. They could “talk” with other cars and with road sensors with human-reflex-like responsiveness.

Virtual reality

Consumers will get smoother and more seamless VR experiences.

Health care

5G will better enable services such as remote patient monitor-ing and remote surgery through connected health-care devices.

Internet of Things

5G will allow virtually anything, including sneakers and heart monitors, to be internet-connected. 5G could connect perhaps a trillion devices in the next decade and enable smarter homes, cities and energy grids.

Sources:; CTIA

“The most important issue is enough capacity,” says Marty Cooper, the former Motorola executive credited with inventing the cellphone. “5G is going to be an important element in running factories.”

With 5G, manufacturers can more easily put chips in every part of their machines that can let engineers know when a part needs repair or replacement. Farmers can put internet-connected sensors on livestock to figure out when they’re sick or giving birth, or all over their soil to tell when it needs more or less water. Some researchers are testing the idea of remote surgery, in which a doctor could operate on a patient on another continent, using a robot arm.

At home, people could connect components of their refrigerators or laundry machines to the internet, so they can detect when it needs servicing. Runners can connect sneakers to the internet to track mileage and speed. And people could have implanted heart or blood monitors automatically send readings to doctors via cellular networks.

Some of this technology is available now on 4G, though devices must typically connect to a Wi-Fi network or smartphone. 5G would let these devices be always internet-connected, as long as there is a cellular signal, and would theoretically let many more objects connect to cellular networks without slowing down traffic. Mr. Entner says 4G can connect up to 2,000 devices per square kilometer, while 5G could support up to one million devices in the same area.

It isn’t just greater speed and connectivity that make this possible: 5G technology also requires less power than before, which means people don’t have to constantly reload those tiny transmitters with new batteries.

“5G has a layer specifically built around the Internet of Things, built around longer battery life, so now batteries last 10 years instead of one year,” says Glenn Lurie, a former AT&T Mobility chief who is now CEO of wireless-technology company Synchronoss Technologies Inc.

All of this is why 5G has underpinned recent actions not just in the mobile industry, but also in the U.S. government. Verizon recently chose a 5G equipment expert, former Ericsson Chief Executive Hans Vestberg, as its new boss. T-Mobile and Sprint say the government should approve their merger if the U.S. wants to keep pace with China in 5G. The carriers are salivating at the prospect of selling services to manufacturers, utility companies and regular people.

U.S. tech giants including Intel are trying to persuade the White House that higher tariffs on China could threaten American 5G leadership, by raising the costs of goods required to build 5G networks.

Considering the benefits

For their part, U.S. officials have said that winning the 5G race is critical to both the economy and national security. That is, in part, how the government has justified the extraordinary steps it has taken to curb Chinese wireless-electronics giant Huawei, preventing its sales in the U.S., among other actions.

Officials believe Huawei could spy on behalf of the Chinese government, which becomes an even greater risk in a 5G era, in which exponentially more machines and everyday objects are connected to the internet. Huawei says it would never spy on behalf of any country.

Another worry is that if China develops widespread 5G first, it could be in a better position to experiment with autonomous vehicles and other emerging technologies—and displace Silicon Valley as the hub for the leading engineers.

But some 5G skeptics question how great an impact the new technology will have. For instance, William Webb, a former Motorola director of corporate strategy who is now a telecom consultant, doesn’t see huge promise in the technology.

“5G doesn’t bring anything I can imagine that you can’t deliver with 4G,” he says. He compares the 5G to the Concorde, the innovative passenger jet that was a commercial failure because not enough people were willing to pay for the extra speed it offered to justify its expense.

Autonomous vehicles can’t rely on cellular connectivity in tunnels or even bad weather, since rain or extremely high humidity could distort 5G signals even more than it does with 4G, he says. That means most of the brains of self-driving cars will be inside the car’s computer instead of over a mobile network.

Mr. Webb says that virtual-reality headsets and remote-surgery machines are more likely to be connected to Wi-Fi routers, which are connected to land lines that will still be faster than 5G.

Like some other skeptics, Mr. Webb also says it doesn’t matter which country comes first, especially in an increasingly globalized world where multinational companies have offices everywhere.

If entrepreneurs need a 5G connection to work on applications, they can easily set up a lab that mimics 5G, or travel to labs, such as one at England’s University of Surrey, Mr. Webb says.

Some observers argue that there is another point that gets lost in discussions of the race to 5G: No matter which region of the world develops 5G first, whether it is America, Europe or Asia, the companies that will benefit the most are patent holders, says Dimitris Mavrakis, an ABI Research analyst.

He says those companies include Qualcomm and InterDigital in the U.S., Huawei in China, Finland’s Nokia , and Sweden’s Ericsson . “If we want to talk about economic impact, we have to look at the big patent holders,” he says.

In fact, those big patent holders may be even better poised to benefit from 5G than they did from past wireless advances. The U.S. wireless group’s study said Japan—which led the way on 3G—failed to capitalize on the social-networking and music services it developed in the early 2000s, in part because those businesses were Japan-centric.

But the study’s author, Mr. Entner, says foreign companies today are better suited to export their products internationally. He points to Huawei, which turned itself from a company focused on the domestic Chinese market to one that is now the world’s biggest maker of cellular-tower equipment and related infrastructure, as well as the world’s No. 2 smartphone brand.

Who’s in the lead

In a separate study it commissioned earlier this year, the CTIA trade association found that China, South Korea and the U.S. were leading the 5G race, in that order.

CTIA considers China the front-runner because its wireless carriers have pledged large-scale 5G launches by 2020, while the government is supporting the effort.

South Korea tested 5G during the Winter Olympics earlier this year, and in July the government said Korean carriers will all launch 5G at the same time in March 2019 to avoid competition that could drive up marketing costs.

The U.S. is likely to have the first working 5G networks by the end of this year, but only in a few cities. AT&T plans to launch in Dallas, Atlanta and other cities, while Verizon has picked Sacramento, Calif., and elsewhere.

Mr. Entner says being first doesn’t matter that much, if the runners-up are only a few months behind. But a longer lag risks serious economic losses. “Not winning the network race guarantees you to lose,” he says.

Mr. Woo is a Wall Street Journal reporter in London. Email

Appeared in the September 13, 2018, print edition as ‘Why Being First In 5G Matters.’


Swedish business worried by gridlock after inconclusive election

September 11, 2018

Corporate leaders warn of risk to competitiveness from expected weak government

© Bloomberg

By Richard Milne in Stockholm

Sweden’s most senior business leaders have warned that the country’s competitiveness is at risk from an election that has failed to deliver a clear winner and instead is likely to produce a weak minority government.

Swedish business has been worried about drift in the country after eight years of minority governments, which have failed to tackle reforms of the labour and housing markets as well as the integration of immigrants.

“Based on the election result, it is difficult to foresee an outcome that delivers the stable leadership necessary to address these problems. If we fail to solve these problems, we will likely see a deteriorating competitiveness,” Hakan Samuelsson, chief executive of Volvo Cars, told the Financial Times.

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Sunday’s election resulted in gridlock with the ruling centre-left bloc all but tied with the centre-right opposition, with 144 seats and 143 seats respectively in the next parliament.

Forming a government could be a lengthy and complicated process as the nationalist, anti-immigration Sweden Democrats have 62 seats, giving them significant potential influence in parliament. All parties refuse to deal formally with the party owing to its roots in the neo-Nazi movement.

Mr Samuelsson added that if the parties did not get a grip on Sweden’s problems “we should not be surprised to see people losing trust in established parties and being attracted by simplistic solutions”.

The two parties at the extremes of the Swedish spectrum — the Sweden Democrats and the ex-Communists of the Left party — collectively gained 7 percentage points from elections in 2014 while the two biggest establishment groups — the ruling Social Democrats and the centre-right Moderates — lost a combined 6 percentage points.

Jacob Wallenberg, part of one of Europe’s most important corporate dynasties, which has significant stakes in companies including Ericsson, Electrolux and AstraZeneca, told the Financial Times that he was also concerned about keeping the export-driven economy attractive to business.

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“For Sweden to remain competitive, my hope is for a government with a clear vision on how to develop business and thus the welfare of the country . . . If we have a weak government, there is a risk that the issues that are important to business will not be dealt with as strongly as one could hope,” he said.

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Mr Samuelsson voiced worries about issues including the “unacceptably high” levels of unemployment among youths and immigrants despite strong economic growth. “The performance of our education system is unconvincing in international comparison and we need to be better at attracting skilled competence from abroad,” he added.

The Volvo Cars boss also pointed to the need for more investment in roads and railways, better integration and a strategy to tackle inner-city violence. “We are concerned about the future competitiveness of Swedish industry in a global economy,” Mr Samuelsson added.

Despite the record showing for the Sweden Democrats and international headlines about the rise of the “far-right”, Mr Wallenberg said Sweden was still “actually functioning quite well”.

“Broadly speaking, the political environment is fairly centrist, with not too wide differences between right and left as you have in the US,” he said.

Trump Should Play the Long Game on Trade

May 31, 2018

While the U.S. fixates on steel, China seeks to dominate 21st-century technology.

People work on machines in Foxconn factory in Guiyang, Guizhou Province, China, May 28.
People work on machines in Foxconn factory in Guiyang, Guizhou Province, China, May 28. PHOTO: ALEKSANDAR PLAVEVSKI/EPA-EFE/REX/EPA/SHUTTERSTOCK

If Commerce Secretary Wilbur Ross’s goal when he flies into Beijing Saturday is merely to pressure the Chinese to buy more American goods, the Trump administration is wasting an opportunity.

A pledge by China to reduce its trade surplus with the U.S. is difficult to enforce and easily discarded. It distracts from the underlying problems in the U.S. trading relationship with China while giving the Chinese more time to dominate the technologies of the future.

Rather than short-term tweaks to the balance of trade, the administration should seek long-term policy changes that level the playing field and strengthen the rule of law. This requires focusing on four critical issues.

First, the U.S. should insist on an end to China’s trade-related investment measures. The Chinese use TRIMs to pressure foreign companies into transferring intellectual property to Chinese partners or licensing it on a noncommercial basis as a condition of doing business in China. TRIMs amount to a sophisticated shakedown with Chinese bureaucrats playing the role of white-collar extortionists.

Second, the U.S. should demand the elimination of limits on foreign ownership of Chinese companies. These foreign-equity caps provide another avenue for the seizure of U.S. intellectual property. The Chinese joint-venture partner, often aided by a TRIM, may coerce the transfer of a foreign partner’s technology.

Third, the U.S. should press for changes in Chinese procurement rules that require goods sold to the Chinese government to be made in China. For U.S. companies, this can only be done in combination with a Chinese partner, which then gains control of any technology used in the manufacturing process.

Rules prohibiting practices like these are routinely included in trade agreement like the Trans-Pacific Partnership and the European Union’s free-trade agreements. Working with allies, the U.S. can and should extend them to China.

Finally, the U.S. must press—both in bilateral negotiations with China and in the World Trade Organization—to end China’s trade-distorting subsidies to state-owned enterprises. China has been clear about its desire to dominate key technological domains with long-term economic, military, and strategic significance. The “Made in China 2025” targets include artificial intelligence, quantum computing, advanced semiconductors, 5G, the Internet of Things, robotics and electric vehicles.

China provides key companies with low-cost capital, energy and other resources that give them an unfair advantage over non-Chinese enterprises, especially in sales to the Third World. Because they have state subsidies, for example, Huawei and ZTE already undercut companies like Ericsson, Fujitsu and Nokia , grabbing business across the globe that would go to non-Chinese businesses if the playing field were level and enhancing Chinese dominance in telecom.

While China aims to command the industries of the future, the Trump administration is pursuing trade policies to reclaim America’s share of the last century’s economy by fixating on goods like steel, aluminum and internal-combustion cars. While important, these industries employ an ever-declining number of Americans and generate a diminishing share of gross domestic product. Instead of trying to protect these industries by taxing American businesses and consumers with high tariffs, the administration should safeguard the U.S. competitive edge in the digital economy, data analytics, biotechnology, nanotechnology and other likely drivers of 21st-century economic growth.

The Chinese are happy to engage in drawn-out discussions about limiting steel and aluminum sales to the U.S. and reducing tariffs on imported American automobiles. This buys them time to develop crushing advantages in technology that will matter much more in the coming decades. Chinese negotiators would be smart to tell Mr. Ross they are reducing their 25% tariff on imported U.S.-made automobiles. That—combined with a promise to buy more U.S. goods packed with valuable technologies—would be a small price to pay to keep the Trump administration’s attention away from more important issues.

U.S. policy makers should remember that 70% of Americans see foreign trade as “an opportunity for economic growth through increased U.S. exports,” according to Gallup’s February 2018 World Affairs poll, while only 25%—the lowest since the question was first asked in 1992—see it as “a threat to the economy from foreign imports.”

America’s trade negotiators should play the long game. The Chinese are. One lesson of American history is that U.S. workers and innovators have always been able to compete with anyone when the rules are fair. That should be the Trump administration’s principal trade goal.

Mr. Rove helped organize the political-action committee American Crossroads and is the author of “The Triumph of William McKinley ” (Simon & Schuster, 2015).

Race for 5G Speeds Up, Lifting West’s Top Suppliers

April 27, 2018

Nokia and Ericsson say U.S. wireless carriers are planning to upgrade to 5G sooner than expected

Nokia CEO Rajeev Suri—seen above in Barcelona in February—said U.S. wireless carriers should start significant spending on 5G equipment in 2018’s second half. Carriers originally weren’t expected to spend heavily on 5G until 2019 or later.
Nokia CEO Rajeev Suri—seen above in Barcelona in February—said U.S. wireless carriers should start significant spending on 5G equipment in 2018’s second half. Carriers originally weren’t expected to spend heavily on 5G until 2019 or later. PHOTO: YVES HERMAN/REUTERS

The race for 5G, the next generation of wireless technology, is heating up sooner than expected.

That is promising to benefit two struggling Nordic telecommunications-equipment makers just as their two largest competitors—both from China—are hitting potentially serious hurdles.

Ericsson AB of Sweden and Finland’s Nokia Corp. NOK +1.53% said in the past week that U.S. wireless carriers were planning to upgrade their networks sooner than expected, which would give a boost to both companies’ long-declining equipment sales.

“5G momentum is building fast,” Nokia Chief Executive Rajeev Suri said Thursday, referring to the next, superfast generation of network technology. “There is competition between countries on 5G, with many pushing to be first, the United States and China to be sure, Japan and South Korea, but also within the Nordics and the Middle East.”

Mr. Suri said U.S. wireless carriers should start significant spending on 5G equipment—which includes cellular-tower electronics and related components—in the second half of 2018. Carriers originally weren’t expected to spend heavily on 5G until 2019 or later. The new technology promises superfast connections.

Meanwhile, China’s booming telecommunications-equipment makers, Huawei Technologies Co. and ZTE Corp. , are facing growing pressure in the U.S.

Last week, the Commerce Department all but banned ZTE from buying components from U.S. suppliers, though much is still unclear about how sweeping enforcement will be.

The sanctions stemmed from U.S. allegations that ZTE broke the terms of a previous settlement, brokered after the company admitted to shipping U.S. telecoms equipment to Iran and North Korea, in breach of U.S. sanctions.

The Wall Street Journal reported on Wednesday that the Justice Department is investigating whether Huawei also violated U.S. sanctions related to Iran. After that report, the company scrapped plans for a €500 million bond sale.

The actions come amid a broader Washington campaign to curb Huawei and ZTE over national-security fears that their equipment could be used to spy or disable communications. Both companies have said they pose no threat.

The Modern Cell Carrier: How We Got Here

The U.S. wireless industry is dominated by four major players: Verizon, AT&T, T-Mobile and Sprint. Now that just about everyone has a cellphone, each operator is looking for new ways to grow. But how did we go from the days of one giant landline monopoly to four competitive cell companies? Illustration: Shaumbe Wright/WSJ

Nokia and Ericsson once dominated the global telecom-equipment industry, but have steadily lost ground to the Chinese rivals in the past decade. Huawei in 2017 led the global telecom-equipment market with a 27% share, followed by Nokia’s 17%, Ericsson’s 13%, and ZTE’s 10%, according to Dell’Oro Group, a research firm.

Besides different countries vying to win the 5G race, customers are generally demanding faster internet, for streaming videos and other reasons, Nokia’s Mr. Suri said Thursday. Wireless carriers want to keep up with rivals who will be advertising their 5G networks. Mr. Suri said manufacturers are also investing in 5G connections for factories and other industrial uses.

Partly because of the stepped-up pace, Nokia said Thursday it now expects industrywide declines in equipment sales to carriers to come in less than feared. Nokia said those sales should fall just 1% to 3% in 2018. In February, Nokia predicted a 2% to 4% drop.

Turning Up?Nokia and Ericsson are both showing signs ofa turanround. Quarterly net incomeattributable to shareholdersEricssonSource: FactSet$1= 8.71 Swedish krona
.billion Swedish krona2015’16’17’18-20-15-10-50510
NokiaSources: FactSet, the company (Nokia 1Q 2018)€1=$1.21

Meanwhile, Ericsson shares have risen 20% since it reported last week that its losses narrowed sharply. Investors see a turnaround effort—involving cutting jobs and divesting itself of businesses that aren’t related to selling telecom equipment—taking hold. Ericsson also sees 5G momentum rising in the U.S.

Chief Executive Borje Ekholm said carriers in North America are “investing heavily…in order to be early on 5G.”

There is still a long way before either company climbs out of the deep holes that years of losses have left them in. They are both still losing money, just not as much of it.

Ericsson said its first-quarter loss was 725 million Swedish kronor ($83 million), compared with 10 billion kronor in the same period a year earlier. Sales fell 9% to 43.4 billion kronor.

On Thursday, Nokia reported a first-quarter loss of €191 million ($232 million), compared with €450 million a year earlier. Its first-quarter revenue was €4.9 billion, down 8%.

Huawei is the world’s biggest telecoms-equipment maker and it is the No. 3 smartphone manufacturer behind Apple Inc. and Samsung Electronics Co. Last month, it said its net profit rose 28% to 47.5 billion yuan ($7.5 billion) for 2017 on the back of strong smartphone sales.

Write to Stu Woo at

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Trump’s China Concern Adds Pressure in Race to Be First With 5G

April 2, 2018


By Scott Moritz, Olga Kharif and Todd Shields

  • First company to claim faster service could win consumer prize
  • Some see U.S. tech supremacy as one of the stakes of the game

The Trump administration’s concern about China’s growing technology clout is putting even more pressure on U.S. wireless carriers in their marketing battle over which company will be the first to offer 5G.

 Image result for 5g, photos, art

Verizon Communications Inc., AT&T Inc. T-Mobile US Inc. and Sprint Corp. are rushing to deliver fifth-generation wireless service that will perform as much as 100 times faster than 4G. At stake is the potential to grab market share in an industry where consumers are fiercely loyal to their carriers. And the companies need to upgrade their networks quickly so they can quash the idea that government should intervene to accelerate the process.

“The race is really about getting that 5G icon on the handset,” said Chetan Sharma, a wireless consultant. In the consumer’s mind, 5G is way better than 4G, he said. Verizon boosted its market share by 5 percentage points after it was the first to roll out 4G more than seven years ago.

While fully standardized coast-to-coast 5G networks are at least two years away, the carriers are pushing hard into technology development and waging a fierce marketing campaign through a barrage of press releases. Verizon knows the value of being first, which may explain why it’s issued three times as many announcements touting 5G than its smaller rivals.

 Behind the marketing is billions of dollars in engineering. Carriers, software developers, chipmakers and phone manufacturers are spending about $200 billion a year in 5G research and deployment. The aim is to have a ubiquitous network that can run with lower latency, or lag time, in transferring data — the type of super-fast connections that enable advances like robotic surgery and autonomous cars.

At the same time that carriers are fighting for consumer mind share, the threat from China has prompted the Trump administration to consider creating a nationalized 5G network to protect U.S. security. President Donald Trump has already killed Broadcom Ltd.’s proposed takeover of Qualcomm Inc. on concern that China would gain an edge in critical 5G technology.

The U.S. government is also trying to make it easier for American companies to compete with China. The Federal Communications Commission voted this month to ease environmental and historic reviews for companies installing some antennae for 5G service. Ajit Pai, the agency’s chairman, said the vote amounted to “concrete action that will help the United States lead the world in 5G.”

In addition, the FCC is moving to block some spending by carriers on gear from companies posing a national security threat — an initiative that could strengthen barriers confronting Chinese equipment makers eager to sell in the U.S.

The consideration of a national 5G network drew strong opposition from industry officials and even Pai, who was named chairman by Trump. Opponents said private industry is better suited to advance the technology than the government. The White House said the plans were only in the early stages and that no decision has been made.

Read more: U.S. said to weigh emergency law for China investments

For its part, China has been encouraging development of 5G and has identified some airwave bands like 3.5 gigahertz for use as a possible global spectrum. That’s turned up the pressure on the U.S. to allocate more mid-band spectrum, said Mark Lowenstein, a mobile-industry consultant.

Verizon showed seven years ago that getting even a few months ahead of the pack can lead to significant market-share gains and years of bragging rights. Verizon’s lead in 4G LTE gave it a “decade-long perception of network superiority, which translated into probably one of the longest sustained periods of subscriber gains,” Sharma said.

Verizon launched 4G in December 2010. In the previous five years, the company’s average share of new subscribers was 36 percent. From 2010 to 2015, its average share of new users jumped 5 percentage points to 41 percent, partially due to the faster network, Sharma said.

Different Approaches

No carrier wants to be seen as the laggard. And yet at this point there’s no agreement on whether high or low frequencies are best for 5G. High frequencies carry more data but can’t travel far and are easily blocked by rain and foliage. To make high frequencies work, a network requires many more antennae in a smaller radius. Low-frequency airwaves don’t carry as much data but can travel greater distances and through walls. The four carriers are taking different approaches:

  • Verizon is using high-frequency airwaves to beam 5G broadband to homes, and starting mobile 5G service this year
  • AT&T is also testing high-frequency airwaves, promising mobile 5G this year
  • Sprint is using mid-band airwaves for nationwide mobile 5G in early 2019
  • T-Mobile is implementing multiple bands for mobile 5G this year

And while each company will inevitably dispute any first-place claims by the others, consumers are going to be swayed mostly by speed.

“T-Mobile will probably use low frequency and be the first with 5G,” said Jennifer Fritzsche, an analyst with Wells Fargo & Co. “And if you combine that with the marketing power of that company, it will be a powerful mix.”

See related story: Google-led plan to upend wireless industry gains momentum

For now, while the 5G battle might be mainly about public perception, it’s still a race no one is willing to lose.

“Verizon is the furthest down the road in trialing,” said Michael Mahoney, senior managing director at Falcon Point Capital LLC, which invests in wireless companies.. “And then AT&T. They are old hands at this game. They are also very conscious about not being burned by marketing.”


China’s Huawei Is Determined to Lead the Way on 5G Despite U.S. Concerns — “5G will be made in China.”

March 30, 2018

Mobile giant inundates standards-setting confabs with its representatives and recommendations

Huawei has sent large teams of representatives to industry meetings to establish 5G standards. Above, the company’s booth during the Mobile World Congress in Barcelona in February.
Huawei has sent large teams of representatives to industry meetings to establish 5G standards. Above, the company’s booth during the Mobile World Congress in Barcelona in February. PHOTO: GUO QIUDA/XINHUA/ZUMA PRESS

CHENNAI, India—The U.S. government is trying to thwart Huawei Technologies Co.’s ascent in wireless technology, but the Chinese company is determined to prevail.

Far from Washington, where the government has called Huawei a national-security threat, the world’s largest maker of cellular-tower equipment is trying to lead development and design decisions for the next generation of mobile networks, dubbed 5G.

Huawei is sending large teams of representatives to industry-sponsored meetings—including one held last week in this south India port city. Just as the home-movie industry agreed years ago on specifications so DVD players from different manufacturers played the same videos, wireless-technology companies are now meeting to establish 5G standards.

Huawei’s representatives are swamping such conferences with design recommendations for how the new system should work, leveraging Huawei’s large research-and-development budget and its growing workforce of skilled engineers, according to the meetings’ attendees and outside analysts.

The U.S. and Europe, with the help of Western firms, were the quickest to roll out today’s 3G and 4G mobile networks. Now, industry leaders say China, with Huawei’s leadership, is ahead in the race for their successor.

“5G will be made in China,” said Dimitris Mavrakis, a director at ABI Research.

The next-generation network promises better reliability and speed, as well as the potential to more fully unlock new technologies such as self-driving cars. But the industry is still crafting the technical details about how 5G will actually work at meetings like the one held in Chennai.

Some companies are pushing certain standards that rely on technology they have the right to patent. In addition, hardware manufacturers support standards that would be in line with products they have been developing.

Huawei, which is also the world’s No. 3 smartphone maker, sent 40 representatives to the Chennai meeting, behind only the 41 from South Korean smartphone leader Samsung Electronics Co. , according to conference records. San Diego chip maker Qualcomm Inc.brought 30 delegates. Huawei’s major wireless-equipment rivals, Sweden’s Ericsson AB and Finland’s Nokia Corp. , sent 25 and 18 representatives, respectively.

Representatives from Chinese companies now hold 10 of the 57 chairman or vice chairman positions in decision-making panels at the France-based industry group that organizes the standard-setting meetings, according to Jefferies Group researchers.

Even before the current 5G discussions, Huawei had been ramping up its research and patenting efforts, nearly matching design contributions for 4G standards by the then-undisputed leader in wireless equipment, Ericsson.

Huawei has been a leader in 5G-standards submissions to the cellular industry’s specifications-setting consortium, 3GPP, according to early tallies. As of early 2017, it had submitted 234 contributions, compared with runner-up Ericsson’s 214, according to the latest data available from wireless-patent developer InterDigital Inc.

Huawei said Friday it increased its research-and-development budget to $14.3 billion in 2017, up 17% compared with a year earlier. That is more than the combined 2017 total of Ericsson and Nokia, which respectively spent $4.6 billion and $6 billion, though, unlike Huawei, neither has a major consumer business.

U.S. leaders have made clear they are trying to prevent a world in which most telecom electronics are made by Huawei and its Chinese peers, fearing Beijing could spy, steal trade secrets or cast cyberattacks through them. A Huawei spokesman says the company is employee-owned and that no government has ever asked it to spy on or sabotage another country.

A Trump administration panel stepped in earlier this month to block Broadcom Ltd.’sattempt to buy Qualcomm, saying the deal could reduce Qualcomm’s research-and-development budget and the American firm’s own influence on 5G development. In a letter, the panel cited Huawei’s growing presence at meetings like the one in Chennai: “Chinese companies, including Huawei, have increased their engagement in 5G standardization working groups.”

The U.S. wireless industry is dominated by four major players: Verizon, AT&T, T-Mobile and Sprint. Now that just about everyone has a cellphone, each operator is looking for new ways to grow. But how did we go from the days of one giant landline monopoly to four competitive cell companies? Illustration: Shaumbe Wright/WSJ

After four days huddled over laptops in the conference rooms of a luxury hotel in Chennai, one of India’s most-populous cities, attendees set “new radio” specifications—standards that will dictate how the cellular towers of the future will talk to smartphones and other devices. About 400 telecom-industry representatives from 176 companies—mostly men, some sporting backpacks and short-sleeve dress shirts—hashed out the new rules between smoking-room cigarette breaks.

While the group reached quick consensus on the radio specs, controversy flared over another topic. Huawei and Ericsson representatives faced off over how many topics the conferences should tackle in the next series of meetings that start after June.

Ericsson representatives argued the workload at these conferences was already too much—and submitted an official proposal to reduce the number of topics addressed in future meetings.

Huawei, meanwhile, proposed tackling more topics in coming meetings. Attendees say Huawei takes advantage of its large delegation to influence as many topics as possible.

“We don’t have the same amount of delegates,” Ericsson’s head of standardization, Jan Farjh, said in a recent interview before the meeting. “We do not intend to flood the process,” he said. “I think you compete with competence.”

The Huawei spokesman says the company “respects and follows the … standardization principles where debate and disagreement among members are common.”

Ericsson and Huawei representatives each made their case to other delegates in the hotel hallways during breaks. By the time the major discussions had ended and the hotel put on a traditional Indian dance performance, delegates reached a compromise: They tentatively put about 20 topics on the group’s future agenda, according to attendees. That was more than what Ericsson wanted, but fewer than Huawei had pushed.

Xiaomi, China’s New Phone Giant, Takes Aim at World: Apple, Samsung Get Ready

June 8, 2015

Entrepreneur Lei Jun’s smartphone startup used social networking to win over Chinese, but can he repeat overseas?

Founder, Chairman and CEO of Xiaomi Global, Lei Jin (L) and Vice President, Hugo Barra gesture during the launch of Xiaomi’s Mi4i smart phone and Mi Band in New Delhi on April 23, 2015

By Eva Dou
The Wall Street Journal

NEW DELHI—When Xiaomi Corp. launched a new smartphone here in April, there was an air of chaos. Employees were still stuffing gift bags that morning, and a few staffers from Beijing headquarters, pressed for time, arrived on tourist rather than business visas.

After Xiaomi Chief Executive Officer Lei Jun stepped onstage, his first time speaking publicly in English, he veered off script. His odd phrasing went viral in online videos of him repeatedly asking the crowd, “Are you OK?”

No matter. The Chinese smartphone seller’s online offering of 40,000 phones sold out in 15 seconds. Hundreds lined up outside the launch venue, including 17-year-old Raghav Goyal, who drove seven hours to attend and said the Xiaomi phone was a much better value than its big-name rivals.

“Apple is gone!” he shouted after the unveiling. “Apple and Samsung are gone!”

That is the kind of zealotry Mr. Lei, 45, is counting on to replicate overseas his success in China, where he has used an unusual mix of social-network marketing, fan-appreciation festivals and his own tech-star status to become No. 2 in smartphone-market share after Apple Inc. 

Little known in the West and just 5 years old, closely held Xiaomi (pronounced sh-YEOW-mee) is in ways still a disorganized startup. But it is also among the world’s fastest-growing smartphone companies and most valuable startups, with a valuation of $46 billion by some estimates.

Selling full-featured phones at near cost, it has come to battle Apple and Samsung Electronics Co. for the No. 1 spot in China. It dented Samsung SSNHZ 0.00 % ’s China market share badly in 2014, one factor forcing the South Korean company to post a sharp profit drop and to rethink its strategy.

Xiaomi’s high-end 64 GB Mi Note Pro smartphone costs 2,999 yuan ($489) in China, compared with 6,088 yuan for a 64GB Apple iPhone 6 and 5,288 yuan for a 32GB Samsung SSNHZ 0.00 % Galaxy S6.

But Mr. Lei has bigger, global ambitions, of which his push into India is part: to create the first Chinese consumer brand that is cool abroad. China, he says, is no longer about cheap manufacturing and copycats. “Xiaomi’s mission,” he says, “is to change the world’s view of Chinese products.”

Mr. Lei’s mission echoes that of South Korean concerns a generation earlier. Companies like Samsung SSNHZ 0.00 % used low-price me-too gadgets to build global brands and grab market share from Japanese electronics makers, who had done the same still earlier to American companies.

In seeking to turn his brand into one the world recognizes, Mr. Lei wants to build on the Xiaomi name’s remarkable rise in China. Xiaomi sold its first smartphone in mid-2011. In the 2015 first quarter it had 13.7% of the Chinese market, just behind Apple’s 14.7%, according to IDC. Xiaomi says its sales more than doubled last year to 61 million smartphones and it expects to sell up to 100 million this year.

A brand called ‘Mi’

Xiaomi’s phones, branded “Mi” for English versions, have yet to demonstrate that Mr. Lei’s business model in China—where Xiaomi doesn’t advertise much and sells mostly online—will translate abroad. It doesn’t disclose sales outside China; IDC estimates about 8.6% of its 2014 smartphone shipments were abroad.

Mr. Lei has had to alter his approach in India, where most consumers buy in physical stores, by striking a deal with brick-and-mortar retail channels. Xiaomi expects to enter Brazil this year, but Mr. Lei says it will be cautious about entering other countries after concluding it needs time to grow in markets it already sells in, including Singapore and several other Southeast Asian countries. Xiaomi says it doesn’t have immediate plans to sell phones in the U.S.

Xiaomi faces new low-cost competition at home, where it is also selling more phones through physical retailers that charge higher prices. And it lacks the patent portfolios that big rivals use to fend off lawsuits. Sweden’s Ericsson  has sued Xiaomi in India, claiming Xiaomi’s phones infringe on its wireless patents. Xiaomi declines to comment on the case. Ericsson says it sued “as a last resort” when Xiaomi didn’t respond to attempts to discuss licensing.

Mr. Lei, at Xiaomi’s fifth-anniversary news conference this spring, spoke of the expectations on his company to perform. “Sometimes when I think about it,” he said, “I can’t breathe.”

Xiaomi, like many tech companies, pays contract manufacturers to build its products. Its lineup includes television sets, routers and smart wristbands that it designs itself, and it has invested in startups that make everything from air purifiers and smart light bulbs to a GoPro GPRO -like action camera and Segway-brand scooters.

Attendees line up at a Xiaomi smartphone launch event in April in India, Xiaomi’s biggest export market.

Attendees line up at a Xiaomi smartphone launch event in April in India, Xiaomi’s biggest export market. Photo: Kuni Takahashi/Bloomberg News

Phones are its biggest sellers. It designs them with specifications similar to those of Apple’s iPhones, Samsung’s Galaxy line and other models. In product launches, it compares features of its new smartphone with the iPhone’s, then announces the price—half the iPhone’s or less. Its latest model, the Mi Note Pro, is encased in glossy white glass and is about a millimeter thinner than an iPhone 6 Plus.

Xiaomi keeps marketing costs low by spending largely on cultivating a fan base instead of on ads. It holds fan parties every few weeks in a different city, where executives meet enthusiasts and give gifts. It has an army of employees to interact with consumers on social media.

It sells the majority of its phones online, where prices don’t need to include a profit margin for retailers. It sells them at near cost, Xiaomi executives say.

Mr. Lei’s goal is to get customers eventually to buy Internet services that are more profitable than Xiaomi’s smartphones, such as games, apps, videos, financial services and advertisements in its content.

“In the smartphone world, there is no one comparable” with its business model, says Aditya Awasthi, research head at LexInnova, a Houston tech-consulting firm. “It’s a new-age smartphone company.”

Born a schoolteachers’s son in central China’s Hubei province, Mr. Lei found inspiration to be an entrepreneur after reading about Apple co-founder Steve Jobs. At Hubei’s Wuhan University, which gave students only four hours a week on computers, he says he sneaked extra time and carried a paper dummy keyboard to practice. After college, he founded a software startup with classmates.

“We did very average,” he says, “and that was a big blow to me.”

In 1992, he joined a software firm, Kingsoft Corp., becoming chief executive in five years. Kingsoft missed the early rise of China’s Internet industry, he says, and he resigned in 2007 after its initial public offering. He rejoined Kingsoft as chairman in 2011; he is still chairman and its largest shareholder.

“He reflected a lot on himself, on Kingsoft, and why we missed the big trends in Internet,” says Hongjiang Zhang, Kingsoft’s CEO. “He’s someone who really wants to do something that has huge impact.”

‘A pig can fly’

Mr. Lei says he learned that seizing the right opportunity was as important as hard work. “Even a pig can fly if it stands at the center of a whirlwind,” he says.

After several years in semiretirement, “one day I woke up and thought, ‘I’m already 40 and I’ve achieved nothing,” he says. “I had a dream when I was young to found a global, first-rate company.”

In April 2010, he founded Xiaomi with Bin Lin, a former Google Inc. and Microsoft Corp. MSFT  executive. The name means “millet,” a Chinese staple that is nutritious but inexpensive. While consumers in China at the time could buy expensive foreign smartphones or cheap Chinese knockoffs, there was a void between that Mr. Lei decided to target.

“He told me he’d sell over the Internet, engage users actively,” says Hans Tung, an early Xiaomi investor and GGV Capital managing partner, of Mr. Lei’s January 2010 pitch. “We both believed e-commerce and mobile Internet would be the big trend.”

Mr. Lei offered stock to woo veteran engineers and executives from Silicon Valley companies, early investors say. He invested his own money and attracted funds from concerns such as Qualcomm Inc. QCOM  venture-capital arm. “It all added up to something very different from the scores of other OEMs I had met in China,” says Jeff Lorbeck, senior vice president of Qualcomm China, referring to gadget makers.

At first, Xiaomi made software, its own smartphone user interface that ran on Google’s Android operating system, tapping “crowdsourcing” to get online enthusiasts to help develop it. Xiaomi’s engineers then designed phone hardware, and it signed up some of the same contract manufacturers Apple used.

Xiaomi introduced its phone in August 2011, with Mr. Lei trumpeting that it had a faster processor than Apple’s iPhone 4 and Samsung’s Galaxy S2. Its price was 1,999 yuan, under half that of a 16GB iPhone 4 in China. Apple and Samsung declined to comment for this article.

Xiaomi had a ready customer base: It had attracted more than half a million users to its online forum, it says, and marketed directly to them.

Mr. Lei built a following on Weibo, China’s Twitter equivalent. He and staff interacted with customers on message boards. In 2012, with its second model, sales exceeded seven million smartphones.

Xiaomi introduced just a few models a year, keeping down engineering expenses. It upgraded its flagship phone’s quality each year, combating initial complaints that its devices felt cheap, sometimes touting that key components matched those in the iPhone and came from the same suppliers.

Big market-share gains came after it introduced a lower-cost smartphone line, the Redmi, in 2013. The phones cost less than comparable devices from Samsung and helped Xiaomi become China’s top smartphone vendor in the second quarter of 2014, surpassing Samsung, according to IDC. Dong Han, 29, a Beijing resident, bought a Redmi Note last year because he says it was a good bargain compared with other brands. “Xiaomi provides value for money,” he says.

Xiaomi expanded to selling TV sets in 2013 and a tablet in 2014, while adding other peripheral products. It invested in dozens of Chinese startups, including one that bought the Segway brand in April. It says it has over 8,000 employees.

Xiaomi doesn’t disclose financial details but says it is profitable. People familiar with its operations say it makes healthy profit margins on peripheral products such as batteries and headphones that help make up for thin phone margins.

Mr. Lei fosters a startup style. He appears at launches in a black T-shirt and jeans. Headquarters has an open floor plan and an office dog. Some desks are covered in stuffed animals, often rabbits in Chinese army hats—Xiaomi’s mascot.

“We do a lot of things opposite from Kingsoft,” says Wang Chuan, Xiaomi’s TV head. “Kingsoft had lots of structure. We have no structure.”

Employees frequently cite Xiaomi’s egalitarian management structure, in which even junior employees meet with vice presidents and each department has high autonomy. “The flat management is one of the great things about Xiaomi,” says one former employee. “Everything operates on trust.”

Xiaomi hopes to use its smartphones, like the new Mi 4i pictured here, to expand market share abroad.

Xiaomi hopes to use its smartphones, like the new Mi 4i pictured here, to expand market share abroad. Photo: PICHI CHUANG/REUTERS

“But,” this person adds, “as Xiaomi gets bigger, you can’t just manage based on trust.”

Some analysts predict Xiaomi’s China sales will level off this year, with competition from others imitating its model. The giant Lenovo Group Ltd. LNVGY -1.84 % and Huawei Technologies Co. have started units to make smartphones aimed at young savvy users, selling and marketing online as Xiaomi does.

Lenovo CEO Yang Yuanqing says Xiaomi’s business model is no longer unique. “It’s just an online model,” he says. “Now everyone knows how to do that.” A Huawei spokesman says it doesn’t comment on competitors.

Mr. Lei also must show Internet services can be a major profit driver. He says he expects Internet-services revenue to triple to $1 billion this year—about 6% of Xiaomi’s projected $16 billion total revenue.

“They’ve created this image of themselves as an Internet company,” says Chris DeAngelis, a Beijing-based consultant at Alliance Development Group, a tech advisory firm. “And they’re not. They’re a hardware company.”

Xiaomi’s big test will come abroad. It entered Hong Kong and Taiwan in April 2013, beginning its foray into Southeast Asia later after hiring former Google executive Hugo Barra as global vice president.

Outside China, Xiaomi depends more on retailers and logistics companies than at home. And Mr. Lei has less star power to help build a fan base.

In India, where Xiaomi started selling phones in mid-2014 and which the company says is its largest foreign market, it faces large, established local competitors such as Micromax Informatics Ltd. Xiaomi distributes in the country to an online retailer, to a telecom operator that sells the phones in its stores, and to a brick-and-mortar retailer. But its products aren’t in most phone stores.

Still, Xiaomi became the fifth largest smartphone seller in India in the 2014 fourth quarter. The April launch—Xiaomi promoted it on Facebook FB 0.11 % and its India fan forum—showed it already has fans.

One was Gaurav Anand, 31, a New Delhi businessman who said Xiaomi’s phone was a much better value than Samsung’s or Apple’s. The Xiaomi Mi 4i costs 12,999 rupees (about $200) versus 53,400 rupees for a 16 GB iPhone 6 in India. “I’ll never buy another brand,” he said.

Write to Eva Dou at