The Wall Street ‘hype machine’ is moving full speed ahead with regard to the next leap forward in communications technology – 5G.
And for good reason… this is the year that next generation mobile networks begins to move into the mainstream as 5G technology is launched around the world. The possibilities opened up by 5G’s significantly faster data transfer opens up a whole new world. It will enable the newest technologies from autonomous vehicles to virtual reality gaming to advanced robotics to the Internet of Things (IoT).
Paul Lee, head of telecoms, media and technology research at the consultancy Deloitte said at the 2018 Mobile World Congress: “The last 10 years of smartphones have been about invigorating the consumer experience and entertainment. Now it is about the digital transformation of enterprise. He predicted that 5G-enabled smart devices will displace laptops for workers around the world in the coming years so it is businesses, not consumers that are starting to weigh the benefits of the coming 5G networks.
5G was the main theme of this year’s Mobile World Congress in Barcelona, Spain, the smartphone industry’s biggest annual event. All of the major players in smartphones including China’s Huawei Technologies and Oppo, South Korea’s Samsung Electronics and Japan’s Sony were there showing off their 5G devices. Sorry Apple fans, but their 5G phone is still a ways out.
Of course, 5G is about a lot more than smartphones. The debate going on about national security (think Huawei) and who provides the next generation telecommunications equipment tells you that.
What Is 5G?
5G is the fifth generation of wireless network technology. Browsing Web pages on mobile phones caught on with the advent of 3G, while data transmission became faster and more reliable with 4G.
With speeds 100 times faster than current networks, 5G will enable transmission of huge amounts of data with little time delay. 5G can also support more connected devices than current technology – as many as one million devices per square kilometer (0.62 miles).
The very first operator in the world to make 5G standard calls from 5G mobile phones (from Huawei) was the Spanish subsidiary of the U.K.’s Vodaphone. But 5G will begin spreading this year across the globe, from the U.S. to the large markets in Asia such as China. It will replace the ‘fake 5G’ that some US carriers are touting that is really 4G.
As I mentioned, with the new 5G technology, more devices than ever before can be connected in real time, bringing the concept of the “internet of things” closer to reality. The CEO of Vodaphone, Nick Read says that 5G will be around 10 times more efficient than 4G.
And the potential for 5G is enormous from an economic viewpoint…
A report from the research firm IHS Markit forecasts that 5G will enable $12.3 trillion of global economic output by 2035, fostering new sectors such as smart cities, smart agriculture and autonomous vehicles.
However, it will take time for the faster 5G networks to become seamless enough to support self-driving cars, so consumers are likely to benefit first from faster data speeds in select areas. You will be able to livestream videos in crowded areas without frustration, for instance.
Cost will be one of the primary challenges for 5G to become a global standard. 5G equipment – both infrastructure and 5G phones – will need to move down the typical electronics cost curve until it is affordable for the mass market.
Here is just one example of the enormous cost to move to 5G… the European Commission estimates the cost of rolling out 5G and full fiber infrastructure across the continent to be in the range of 500 billion euros ($568 billion).
Selling 5G ‘Picks and Shovels’
That means the ‘pick and shovel’ companies that supply the equipment and components for 5G to the telecoms companies like AT&T and Verizon are going to be making a lot of money.
According to a report from the research firm ResearchandMarkets, the 5G services market will grow from $53.93 billion in 2020 to $123.27 billion in 2025. That is a compound annual growth rate (CAGR) of 18%. And if you factor in everything from equipment to services, it will be a $252 billion global market by 2025 – a very impressive five-year CAGR of 97%!
With fifth-generation wireless networks set for launch across many markets in the coming months, competition is intensifying among manufacturers of mobile infrastructure equipment. It is difficult at this early stage to identify which companies will come out on top.
The traditional equipment providers that have dominated the 3G and 4G market obviously have a leg up. But there is an opening for upstarts to disrupt things. That’s because the industry is shifting from using dedicated equipment to general-purpose equipment.
In the past, base stations required specially designed devices, and entirely new equipment needed to be installed for every generational shift – something that happened roughly once every 10 years. But this move toward commoditization (standardized products) means that software now reduces the need for new installations.
Fifth-generation technology relies in large part on high capacity transmission, which uses high-frequency, short-length radio waves with short ranges. As each 5G base station covers a smaller area than with 3G and 4G networks, telecoms carriers are looking to build denser networks using cheaper and more compact stations.
In addition to new companies possibly joining the race, this trend also open the door for existing players to catch up or overtake the leaders. For example, because of the U.S.-China trade spat, Samsung Electronics has picked up a lot business, filling the void in the U.S. market left by Chinese manufacturers Huawei and ZTE.
Samsung just happens to be very good at technologies that use 28-gigahertz and other high-frequency bands, which have been adopted by 5G. Both Verizon and AT&T will use base stations supplied by Samsung and Ericsson and AT&T is also using some equipment from Nokia.
To be honest, I would love to add Samsung to the Growth Stock Advisorportfolio. But since it is not easily available to U.S. investors, I had to look elsewhere for a great 5G play that is investable.
I decided to with a company that is both a dominant player in telecommunications equipment and infrastructure, but that is also a major turnaround story. Click here for more about it and my other top 5G play in the “picks and shovels” space.
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