Telecoms

The rapid exchange of information over vast distances has allowed for a global revolution in communications. This trend continues with the development of ever more sophisticated communications means such as quantum encryption, which has the possibility of protecting information from ever more powerful computers. Quantum cryptography uses the physics of the sub atomic world to safely transfer information with another person. In China, scientists have already built a sophisticated communications networks using fiber optic cables using the photons of a laser to send information.[1] These technologies have both economic and security applications and, as such, give material benefits to the states able to develop commercially viable products first.

In the China context, quantum communications technology is of special importance. In collaboration with foreign universities, and detailed further in case study 16, the PRC has developed a quantum communication network leveraging satellite technology and fiber optic cables for an encrypted network connecting Beijing and Shanghai.[2] This supposedly un-hackable encryption network with potential military applications did utilize several western microelectronics and parts but was developed under civilian pretexts. This example highlights the way MCF strategies are implicating the acquisition of foreign technology in the telecomms space. Outside of quantum communications and encryption, the PRC is incredibly active in commercial telecommunications applications with companies such as Huawei and ZTE. While both were the recipient of many American trade restrictions during the Trump administration, both actors are still active in the industry and in the supply of smartphone technology abroad. Additionally, Huawei and ZTE have been contracted for a number of BRI projects to supply internet infrastructure to foreign nations.[3] This poses any number of traditional diversion risks, but also creates concerns about the collection of data from citizens of foreign nations that could be utilized by the PRC.

In Russia, there is already budding interest in the potential applications of this technology to protecting sensitive information from outsiders.[4] The Russian Quantum Center at Skolkovo and Moscow State University’s Center for Quantum Technology are domestic leaders in the field. Neither entity is sanctioned by Treasury, but the former has listed export controls as limiting its ability to import critical components.[5] Russia has a strong cadre of physicists and mathematicians, particularly when it comes to basic science and theoretical developments. The leaders in this space for Russia are young, ambitious, and have the backing of the state and the country’s elite research institutions.[6] However, corruption, and shortsighted political decisions by top leadership have meant Russia cannot domestically supply its scientists with the tools they need to develop the technology at scale.[7] Brain drain to the United States and Europe have weakened Russia’s ability to compete at full strength in this specific space, according to stakeholders in-country.[8]

Takeaways

Russia is largely reliant on international providers or component manufacturers for its telephone systems, including its strategic and military systems. This is true for more traditional communications equipment, for advanced telecommunications equipment, and for novel telecommunications such as quantum communication. Given this, company’s offering telecommunications equipment and components should closely scrutinize transactions to identify any Russian nexus and should refer cases to their national export licensing authorities.

China is more self-sufficient with regards to telecommunications equipment but is likely to continue to be reliant on components and semiconductors for communications equipment sought from the international marketplace. Some such components may be subject to export control and should automatically be referred to export license authorities. Where that is not the case, companies should undertake due diligence to ensure that the entities acquiring components and semiconductors are not linked to China’s strategic or military programs and should avoid selling goods to untrusted distributors in China or to those entities abroad with linkages to said Chinese distributors.