What is 5G and Why is it such a Big Deal?in Trusted Advice
5G is the term used to represent the 5th generation of wireless technology. The first generation of wireless communications offering voice only cellular service began in the U.S. in the early 1980s. Consumers who purchased early versions of these phones may recall the poor voice quality and briefcase-sized devices. By the mid-1990s, 2G networks began rolling out. 2G networks allowed SMS messaging, better known today as text messages, for the first time. Investors may remember companies such as Motorola, Ericsson, Nokia and Research in Motion (Blackberry) were the technology and stock market leaders of this era. In 2006, 3G networks introduced greater geographic coverage and faster voice and data speeds. Advances in both the network and chipsets allowed the first smartphones to be introduced with Apple’s iPhone leading the way. Beginning in 2011 in the U.S. 4G and 4G LTE networks, continued to provide enhanced transmission speeds and offered mobile broadband internet access for any devices with wireless modems. In addition to smartphones, the devices included laptops and tablets allowed additional services such as IP telephony, mobile gaming services, video conferencing, such as Facetime, and cloud computing.
Virtually all U.S. wireless network providers have announced plans for 5G networks. On April 11, Verizon will begin rolling out the first U.S. 5G network in Minneapolis and Chicago. All other major U.S. carriers will begin introducing networks in certain cities this year and expect to achieve nation-wide coverage by the end of 2020. 5G phones will begin to be introduced in 2019, but smartphone leaders Samsung and Apple may not have fully functional 5G phones until 2020.
The hype surrounding 5G exists because of the extraordinary leap in speed and reduction in data transmission latency. Latency (the delay that occurs when transmitting data) is around 50 milliseconds with 4G, but will drop by 5,000% to under one millisecond with 5G. 4G has download speeds of 100 megabits per second (mbps). 5G speeds are expected to be 100 times faster at 10,000 mbps. As a note, this is 10 times faster than the download speed most U.S. consumers get from the fixed coaxial cable coming into their homes. This incredible advancement in speed and reduction in latency will enable a faster, more robust network of connected devices.
In order to optimize 5G networks, many more cell towers are necessary to complement existing cellular transmission equipment. 4G networks require a cell tower every 70 kilometers, while 5G networks require one about every 1 kilometer. Carriers will need to build out this network infrastructure, including several hundred thousand street-level “smart poles” in the next few years, as 5G requires closer hand-offs. This will mean a trash-can-sized smart pole on every fourth street corner. In addition, every phone and computer will need new antennas and chips to run on 5G networks.
Innovations which will be spawned from the development and implementation of 5G networks are myriad and transcend many industries. Some of the new technologies are already in development. 1) The Internet of Things (IoT) which is essentially an interconnected network that includes machines, appliances, wearables, buildings, automobiles, and many other devices. There are estimates that suggest that by 2020 there could be 50 billion connected devices and within 4 years there could be as many as 1 trillion. 2) Driverless Cars. The amount of sensory data required for driverless technologies is not possible with 4G networks. But the dramatic improvement in speed and reduction in latency with 5G can handle the nearly 1 gigabyte (GB) of sensor data per second which is necessary for driverless vehicles. 3) Augmented (AR) and Virtual Reality (VR). Widespread adoption of 5G with its speed and latency improvements in addition to the dramatic increase in the number of connections, increased data traffic capabilities and bandwidth enhancements will be required for AR and VR. 4) Telemedicine and remote diagnosis and surgery will be possible once 5G implementation becomes ubiquitous. There will be numerous other advancements in manufacturing, media, entertainment, transportation, healthcare, and of course, technology which will become possible with 5G.
The investment opportunities made possible with the rollout, implementation and maturation of 5G networks will be vast and occur over a period of time. Early beneficiaries will be telecom equipment companies, cell tower companies, and semiconductor companies that make many of the sensors required for 5G networks and products that take advantage of 5G. Smart phone manufacturers, computer makers and cellular network providers will be subsequent beneficiaries. In addition, the massive additional data transmitted across the network will require substantial increases in cloud and data storage.
Clients of Covenant Asset Management should expect a growing portion of their U.S. equity allocation to be invested in direct and indirect 5G beneficiaries in the coming months and years. Our approach will be to identify companies at attractive prices and eventually build a diversified basket of 5G innovators and leaders.