October 16, 2021

While 5G Is Growing in China, GSMA Has Concerns About the Government's Efforts To Impose Data Localization Requirements

In its 2021 report about China's mobile economy, the GSMA, a UK-based organization representing the interests of mobile operators worldwide, notes: "One of the most remarkable contributions of mobile connectivity to mitigate the impact of Covid-19 is the use of advanced and innovative digital solutions to support various response measures. Across China, mobile networks, and 5G in particular, have supported frontline healthcare efforts to stem the rate of infections while also enabling remote business operations to comply with social distancing rules. Indeed, the pandemic has presented a test platform for a wide range of 5G-enabled solutions, further demonstrating the benefits that the technology can bring to society."

Authored by GSMA Intelligence, the research and consulting arm of the GSMA, the report, which is available in English and Chinese, further says the growth of 5G in the world's largest mobile market: "Due to the rapid take-up of 5G in China, the region sits among the global leaders in terms of 5G adoption. In 2020, the region added more than 200 million 5G connections, taking its share of global 5G connections to 87%. Growth in 5G adoption in the China region is supported by aggressive network rollout and a growing device ecosystem."

The GSMA points out that over 80% of the population in China will subscribe to mobile internet services in 2025 and the country is predicted to have over 800 million 5G connections. "By 2025, over 200 million people across China will start using mobile internet for the first time, reducing the unconnected to less than 20% of the population." This presents an opportunity for the mobile sector, which is the first industry to have committed fully to the UN Sustainable Development Goals (SDGs), "to have have substantial positive effects on lives and livelihoods, with tangible results."

The report adds that according to GSMA's 2020 Mobile Industry Impact Report: Sustainable Development Goals, the mobile "sector has made particularly strong contributions in mainland China in 2020 on SDGs 6 (Clean Water and Sanitation), 7 (Affordable and Clean Energy) and 4 (Quality Education). Further, the country scores highest in SDGs 9 (Industry, Innovation and Infrastructure), 6 and 7."

On the topic of data protection and cross-border data flows, the report importantly explains that "Greater intra-regional and inter-regional alignment of data protection laws and a greater variety of mechanisms to facilitate cross-border data flows can boost the benefits expected from 5G, IoT and AI. Conversely, data localization or data sovereignty requirements to keep certain data in-country or to use local facilities can significantly hamper any such gains. This is particularly true for the proliferation of innovative IoT and industrial solutions that are critical to industrial digital transformation, which is being expedited by the pandemic."

Over the past several months, the Chinese government has imposed restrictions on sources of data in the name of protecting consumers. While I agree that companies should implement the most advanced tools to protect consumers' data, such restrictions could harm the benefits AI and IoT is trying to achieve through diverse data sources. Therefore, I support GSMA's assertion that:
Mobile operators and other players in the IoT ecosystem need common business models and technologies that can work anywhere in the world and regulatory frameworks that allow data to flow across borders to enable greater efficiencies and economies of scale. While the application of IoT business models, such as using data from sensors to provide new solutions and services, can lead to further gains for local businesses, these domestic gains can be improved by enhanced trade and investment across borders. Similarly, big data analytics and AI implementations depend heavily on the availability of data. While these may work within a country, particularly one the size of China, restricting the available sources of data may reduce diversity in the data and the value of insights learned from the data for greater regional economic growth.
Given the seriousness of this issue, I am including the report's concluding section in its entirety:
The GSMA has conducted evidence-based research that suggests that over half of the benefits from IoT would be lost if a country decided to implement localization restrictions. Specifically, data localization requirements can:
  • increase business costs through the need to duplicate expensive IT infrastructure, such as data centers
  • cut business efficiencies and competitive advantages by imposing restrictions on cross‑border data flows that hamper ICT companies and mobile operators, especially multinational operators, as they introduce new and better services across their footprint
  • reduce choice for businesses, communities and individuals, who will have access to more limited and lower-quality apps and services delivered from a smaller pool of domestic providers.
In effect, data localization requirements can weaken the business case for adopting IoT, even for the most profitable multinationals. Furthermore, increased costs from data localization requirements can result in suppressed economic activity across the entire economy, with negative impacts not just in GDP growth, but also trade flows, employment and investment. 
Infographic: GSMA Intelligence

Do you agree with the report's findings? Do you have concerns about the Chinese government's actions to restrict the available sources of data?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

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