The smartphone is ubiquitous in our daily lives.
For many people life without a smartphone is simply unthinkable.
There is probably no nation which loves smartphones more dearly than China – all 640 million of them. In China smartphones are used to pay bills, make bank transfers, buy a coffee, hail a taxi, organize a train ticket, order food delivery, hire a house cleaner, hire a chef, messaging, browse the internet and in some rare cases they are even used to call people.
If you look in any public place in China almost everyone has a device in hand and eyes intently glued to the screen. You see it when couples are on dates. Even when driving mopeds.
The really amazing thing about smartphones is not that they are widespread (they are great) but how quickly this happened. The first Apple iPhone was launched in only 2007. At the time of launch there were many disbelievers: Steve Ballmer of Microsoft said “No chance of any significant market share”, the Nokia CEO said “It doesn’t change our thinking”.
The smartphone shows that consumers can quickly adopt new technology.
Adoption of autonomous vehicles will result in massive disruptions to market, rewriting of regulations, new challenges for infrastructure and new services will be adapted to this new “device”. These changes will only accelerate further adoption until these new “ride-able” devices will also become integral to our daily lives.
The opportunities (and risks) of autonomous cars for automobile manufacturers and their suppliers are readily apparent. However, there is also a tremendous opportunity for service providers in developing services for autonomous vehicles. Between them the two largest Application (APP) platforms in the world, Google Play and Apple, have over 5 million APPs available (although there is a degree of overlap between Android and Apple versions of the same APPs).
Many of these APPs would be applicable to driverless cars and many new ones with novel functions will spring up. Traditional APPs such as looking up the weather or watching a streaming movie will also be applicable to driverless cars, but new more specific functions will be required such as more detailed mapping, parking and traffic information as well as tracking fuel and various other automobile consumables and location of service providers to refill such consumables. Ultimately, a driverless car is pointless if it still needs a driver to perform these functions. Accordingly, fully integrating driverless cars into the Internet of Things (“IoT”) revolution will allow for interoperability between your car and the relevant service providers. These cars will need to fill up, park and go in for maintenance without human guidance. Freeing up drivers from these tasks will pose a challenge for the widespread adoption of driverless cars but also provides opportunities for service providers.
A key requirement for autonomous vehicles will be the sharing of data. Data will improve the safety of cars as machine learning operations improve through increased experience as shared through the data. While each vehicle operates independently, it will still be part of a complex infrastructure connected by telecommunications networks to other cars, roadside infrastructure, and the multitude of other connected devices. As such, telecommunications networks and operators will become the backbone of how autonomous vehicles operate and interact with the environment.
As cars become increasingly more autonomous, human attention will eventually not be required and travel time will become, primarily, leisure time. As such, consumer demand for entertainment during this leisure time will increase and new, data-intensive forms of entertainment, including augmented and virtual reality, on top of traditional entertainment such as music and movies will be adopted. Revenue from connected car services, including navigation and entertainment, is expected to reach USD 40 billion globally by 2020.
Telecommunications companies and over-the-top service providers will be the (ahem) drivers of autonomous car connectivity. It will be integral to develop interoperability between different platforms and various forms of content being used in such vehicles. The networks and compatibility will need to be seamless to meet current … and future expectations of consumers. However, the streaming will not be only in one direction. A crucial piece will be the data generated by the consumers and sent back to the service providers who will be able to aggregate and consolidate this data across different devices, applications and platforms will be important in order to properly utilize it.
Connectivity will also open up new business streams for telecommunications and other service providers. Where the focus was primarily for media and entertainment, the increasing prominence of smart/connected devices along with autonomous vehicles will enable these companies to enter into these new business segments.
Light detection and ranging systems (known as LiDARs) and artificial intelligence will be critical to maintaining safety for driverless cars. These sensors are not only placed all over the cars themselves but will also be installed in the surrounding infrastructure such as roads and throughout smart cities. This technology will collect huge amounts of data that will need to be synthesized almost instantaneously in order to avoid accidents and ensure cars operate as intended.
The 5G Revolution
When 3G networks were introduced at the end of the 1990’s the telco industry was looking for a new product that could boost demand for their new high-speed network. It was not until the introduction of smartphones (we will ignore Japan for the purposes of this discussion), the Blackberry in mid 2000’s and then the iPhone in 2007 demand for this more powerful network really exploded. Soon after, 4G and LTE (long term evolution) networks were introduced. However, with the expectation of billions of new connected devices being activated over the next few years from increased smartphone adoption, to IoT devices and autonomous vehicles, the limitations of 4G and LTE are rapidly becoming apparent. Given the many potential safety issues that will be involved with connected devices including emergency sensors and self-driving cars, latency will need to decrease by 25 to 40 times of what it is today. It will need to be brought down to one millisecond.
Current 4G, LTE and mobile broadband networks will be unable to support the explosion of connected devices that will result from the IoT revolution. As the amount of data that will be collected, synthesized, and shared between devices increases exponentially with every newly connected device and use, a faster and more scalable infrastructure will be required – 5G. The automotive industry is keenly aware of this issue and established the 5GAA Automotive Association to promote the future of connected mobility.
To ensure the safety of autonomous vehicles, the industry has been focusing on V2V (vehicle-to-vehicle) technology so driverless cars do not collide on the road. However, in addition it also leverages the ability for driverless cars to gain information from each other in real time. However, with the anticipated growth in connected devices, the trend is now developing towards V2I (vehicle-to-infrastructure) and V2X (vehicle-to-everything) technologies.
However, 5G networks are not expected to be prevalent until 2020 and therefore adoption of fully autonomous vehicles which will require higher bandwidth that can be supported by current 4G and LTE networks. Accordingly this infrastructural issue may impede adoption of fully autonomous vehicles until much later.
Currently, one of the major difficulties facing widespread adoption of autonomous vehicles will be overcoming the fragmented regulatory regimes across the world and trying to consolidate and standardize regulations at a global level. Right now, both manufacturers and software developers face inconsistent and sometimes conflicting regulations in different jurisdictions. This will add to the difficulties to develop new technological products for an international market.
A key telecom regulatory issue that will be faced by all governments will be the issue of allocating sufficient radio frequency spectrum for autonomous vehicles. For truly autonomous vehicles to function, cars using V2X technology will require access to sufficient spectrum allocation with specific frequencies to prevent interference and to efficiently communicate with other cars sharing the road. Further, the allocated spectrum must be within a dedicated frequency range where performance will not be tampered with by poor weather or traffic conditions.
Currently, there are two competitive technologies standards for V2X communication. One is DSRC, short for Dedicated Short Range Communication which enables cars to communicate with other vehicles within a short range. DSRC is widely used in Europe and the US and the latter has reserved the radio frequency 5.9 GHz for the communication standard. The other one is LTE -V2X technology which is popular because of its use in public communication networks (e.g. 4G networks). Audi, BMW, Daimler, and Rolls-Royce, Vodafone, Ericsson, Intel, Huawei and Qualcomm are some of the industrial players pushing for LTE V2X technology.
At present when reading the tea leaves it seems the Chinese government is tending towards LTE V2X technology. In 2016, the Ministry of Industry and Information Technology (“MIIT”) has approved the 5905－5925MHz as the frequency range for LTE-V2X testing and research in China. On 5 January 2018, China’s National Development and Reform Commission (NDRC) issued a draft Strategy for Innovation and Development of Intelligent Vehicles (“Draft Strategy”) for public comment. Visions set out in the Draft Strategy include 90% of the highways in China’s big cities will have been covered with wireless telecommunication networks for vehicles (LTE–V2X) by 2020 and 5G– V2X will basically meet the needs to allow for the development of intelligent vehicles by 2025.
Another issue that faces connected vehicles is cybersecurity. The wireless technology and networks used in connected cars may be susceptible to remote cyber-hacking unless essential safety mechanisms and underlying jurisdictional guarantees in place. For example, a connected car may use 70 electronic control units (ECU) that are then connected to a controller area network (CAN) protocol. To date, the vast majority of light-duty vehicles use the CAN standard protocol to connect different modules within the car and communication technology to connect to existing cloud infrastructure and other vehicles. Vehicles can easily be hacked through the CAN network as was demonstrated in 2015’s highly publicized remote hacking of an on-road Jeep Cherokee which resulted in Chrysler recalling 1.4 million vehicles. In response, governments will need to mandate minimum cybersecurity standards for vehicle systems. In June 2017, China’s Cybersecurity Law came into force and China is building its cybersecurity system. Vehicle cybersecurity will be a key issue to be addressed and regulated by Chinese government.
Other regulatory issues include data protection, ownership of data and privacy concerns on the part of consumers. There are a number of current technologies with increasing trend towards using big data as a means to extract valuable and often commercialized insights. The regulators will need to balance the merit of utilizing gigabytes of generated data flow with consumer concerns. One proposed solution is data minimization, which is, to only collect and store the data deemed necessary and further anonymize and aggregate vehicle generated data to remove all personally identifiable information. Additionally, multiple self-regulating industry bodies such as the European Automobile Manufacturers Association (ACEA) have published guidelines and principles with the aim of ensuring automakers meet standards to protect consumer privacy.
Other ancillary issues requiring regulation includes data storage timeframe, disposal or destruction of data, rights of the vehicle user/owner to access the data and the discoverability of the data in legal proceedings to name a few. China has been taking steps to improve privacy protection in recent years and this trend is likely to continue with China taking a more restrictive position on consumer data collection and transfer in connection with autonomous driving.
Chinese Telecommunications Regulations
The telecommunications sector is restricted in China and tightly controlled, especially in respect of foreign investment. With few exceptions, a joint venture with Chinese partners is required to be established if foreign investors intend to provide telecommunications services in China and the shareholding of the foreign investors in such joint venture cannot exceed 50%. Under PRC law, a license is required before an entity provides relevant telecommunications services. In many cases, even if legally allowed for a foreign-invested entity to obtain a license the entity may face difficulties in practice as many local telecommunications authorities seem unwilling to issue such licenses.
The Telecommunications Regulation of the People’s Republic of China is the primary legislation regulating provision of telecommunications services and according to which and the Administrative Measures for Telecommunications Business Operating Permit, all telecommunications service providers must obtain operating licenses prior to commencing operations. This is the case whether it is for the provision of basic telecommunications services or value-added telecommunications services. The MIIT is the primary regulatory authority.
Semi and fully autonomous vehicles are connected vehicles and V2X communications are needed when these vehicles are on the road. Under PRC law, one or more of the following services will likely require a value-added telecommunications services license (“VATS License”) in the context of internet of vehicles (IOV):
1. Information Services
Information services means the service activity of providing information services by way of data collection, development and processing, and setting up information platform via mobile communications or internet.
The 2015 revised Classification Catalogue of Telecommunication Services (“2015 Telco Catalogue”) further classifies information services into 5 main sub-categories and the possibly applicable sub-categories in relation to autonomous vehicles include:
- internet publishing platform and delivery services (e.g. APP stores accessible via vehicle terminals)
- information survey query service (e.g. information or photos search via vehicle terminals)
- instant information exchange service (e.g. audio communications via vehicle terminals) and
- information protection and processing service (virus scanning by software installed in vehicles).
Chinese telecommunications regulations categorizes information services via internet into “commercial internet information services” and “non-commercial internet information services”, and stipulates that the provider of commercial internet information services is required to obtain an internet content provider (ICP) license. On the other hand the provision of non-commercial internet information services only requires the service provider to obtain an ICP filing.
“Commercial internet information services” are services provided through the internet to online subscribers for charge, such as provision of information and entertainment, while “non-commercial internet information services” means the provision through the internet of information that is in the public domain and openly accessible to online subscribers for free. Given that most over-the-top services provided to autonomous cars will likely be on a subscription based business model which will charge an access fee it is likely that at least an ICP license will be required but potentially also other value-added telecommunications licenses.
2. Cloud computing services
The IOT trend allows the connection of a range of devices using the cloud. These range from smart appliances to autonomous vehicles. The autonomous vehicles will embrace driving centric features and services powered by software, data, analytics, and over-the-air transmission of software updates and data flowing between the vehicle and the cloud.
Generally cloud computing service is divided into three major service models: Infrastructure as a Service (IaaS), Platform as a Service (PaaS) and Software as a Service (SaaS). According to the 2015 Telco Catalogue, it is usually understood that an entity providing IaaS model cloud computing service will need to obtain a license for an internet data center service (“IDC License”). While for PaaS, it is understood that an IDC License will also be required and more specifically, it refers to the license for internet resources collaboration service according to the 2015 Telco Catalogue. For SaaS, an ICP License rather than an IDC License is generally required because SaaS is highly homogeneous with the information services under the 2015 Telco Catalogue. However, the detailed structure of each SaaS will need to be analyzed in order to determine which license will need to be obtained.
Under PRC law and the Specific Commitments on Services in the Protocol of Accession of the PRC to WTO, foreign investment (except for qualified Hong Kong or Macau investment) is prohibited from engaging in IDC services and will not be able to obtain an IDC License.
Due to China’s limits on foreign investment in respect of IDC Licenses, most foreign investors (such as Microsoft Azure and Amazon, etc.) cooperate with Chinese enterprises holding IDC Licenses in order to carry out cloud computing services in China.
3. Call centre services
Autonomous vehicles will need to have wireless connectivity in order to link cars to call centres to enable automatic crash notification, road-side assistance and concierge service.
Three types of call centre services are likely to be involved – emergency call service (E-Call), breakdown call service (B-Call) and information call service (I-Call). E-Call is a system giving an automatic message to an emergency call centre in case of the vehicle crashes; B-Call is a system sending automatic message for roadside assistance and towing service; and I-Call provides ancillary services such as weather and other tailored services for vehicles.
Under 2015 Telco Catalogue, call center services are built for other entities to serve customers or users of such other entities. If a call center is built for an entity itself to serve its own customers or users then this is likely to be treated as “after-sale” services and VATS License is generally not required.
4. Online data processing and transaction processing services
Online data processing and transaction processing services refer to the services of online data processing and transaction processing provided for users via public communication networks or the internet by using various types of data and transaction processing application platforms connected to the public communication networks or the internet. The services for online data processing and transaction processing include transaction processing services, electronic data exchange services and network/electronic equipment data processing services.
In the context of IOV, the operation data of the autonomous vehicles can be automatically collected via the system built-in for the vehicles for the purpose such as remote control or diagnostic actions. In addition, payments such as paying for refuelling or parking costs will likely be made directly via the system of the autonomous vehicles. The providers of such services are likely to be required to obtain a VATS License as online data processing and transaction processing services.
5. Storage and forwarding services
Storage and forwarding services refer to the message sending services provided for users by using the storage and forwarding mechanism, which include storage and sending of voice mail, email and fax (yes people still remember faxes).
Service providers are likely to provide drivers (for semi-autonomous vehicles) or passengers (fully autonomous vehicles) with entertainment or work functions to save or send voice mails, emails or faxes by using the system of the autonomous vehicles, in which case a VATS License for storage and forwarding service will be required.
In addition to the above general requirements of Chinese telecommunications law there are additional specific licenses may also be needed. A prominent example for autonomous vehicles is for internet mapping services. Incidental activities would include streaming videos, gaming, and voice-over-IP and video communications.
Relaxation on Foreign Investment
As mentioned above, foreign investors are restricted in providing telecommunications related services in China and a joint venture is generally required to be established with the shareholding of the foreign investors being not more than 50%. There are, however, some exceptions in the Shanghai Free Trade Zone where shareholding by foreign investors can be 100%:
- APP store (under the category of information services);
- call centre services; and
- storage and forwarding services, provided that the foreign-invested entity’s location of registration and service facilities must be located within Shanghai Free Trade Zone for all three types of service.
- In addition, a wholly foreign owned enterprise (i.e. foreign investors hold 100% shares) has been allowed to be established in China to engage in commercial e-commerce business (i.e., the category of online data processing and transaction processing services) since June 2015. 
Legislation specifically regulating applications was promulgated in June 2016, the Regulations for the Administration of Mobile Internet Application Information Services (“APP Regulations”). The APP Regulations specifically addresses issues relating to the provision of internet information services through applications.
According to the APP Regulations, ICP License/filing must be obtained for information services provided through applications. Accordingly foreign restrictions on information services provided via the internet will also apply to services provided via applications. The APP Regulations are very likely to apply to autonomous vehicles as it can be expected they may be treated as smart mobile terminals.
It is likely that autonomous cars will have a similar disruptive effect on the auto industry as the iPhone had on the mobile phone industry.
However, the repercussions will be far bigger as the auto industry towers over the mobile phone sector – even post smartphone. The repercussions, and importantly opportunities are clearly understood by the Chinese government. Today China is the world’s biggest automotive market with around 29 million vehicles sold in 2017. China has done well in the disruptions to the global economy in the last 20 years such as globalization. Becoming a leader in autonomous vehicles would be another great opportunity to expand China’s economic footprint.
This massive domestic market and also being part of the China autonomous vehicle eco-system will be very enticing for international companies. However, China’s strict regulations on telecommunications related services will strongly impact how foreign investors’ will enter and compete in this dynamic market in terms of autonomous vehicles and they will need to plan accordingly.