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5G communications networks: Enabling next-generation technology

Sep 15, 2020 | Dan Smith, CFA


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The 5G rollout should lead to a meaningful increase in communications equipment sales growth and more widespread adoption of cutting-edge technology.

This report is part of the “New normal, new opportunities” series, in which we examine secular trends in a post-COVID-19 world. The series will cover a range of themes that are emerging as a result of social distancing, the work-from-home imperative, health care developments, corporate implications, and broader societal change. We believe identifying these trends and understanding their investment implications will be critical to navigating the road ahead.

Stated simply, 5G technology is the fifth generation of wireless mobile networks. Each successive generation of wireless networks has added speed, capacity, capabilities, and reliability to wireless services. The first two generations enabled, then accelerated voice communications. The third generation (3G) was notable, as it made the exchange of mobile data sufficiently practical for widespread use. The fourth generation (4G) brought broadband speeds to the mobile data network, speeding functionalities like wireless video delivery and closer connection to the wireline network.

5G technology can provide higher data speeds with less delay than 4G, sometimes referred to as 4G LTE. According to the Federal Communications Commission (FCC), some 5G services will provide coverage areas with data speeds up to 100 times faster than 4G and almost instantaneous response time. For example, it can take almost six minutes to download a feature-length movie with 4G. With 5G, the same movie can be downloaded in as little as 15 seconds. Technically speaking, current 4G speeds are approximately 12–36 megabytes per second (Mbps), while 5G services are expected to support speeds of up to 300 Mbps or greater.

The speed and connectivity enhancements provided by 5G networks, currently in the early stages of deployment, will bring a widespread presence of connected devices, objects, and machines, joining humans, smartphones, and computers, all of which will freely communicate with one another. This is a watershed event by which many previously unavailable or infeasible technologies will be equipped to become reality.

The building blocks of 5G

Every system is built from a series of components, and for 5G networks, the root components are next-generation communications semiconductors. They are combined with additional communications components and manufactured into devices that receive, analyze, and transmit incoming and outgoing data. These devices are chained together to build 5G communications systems, and these systems are deployed into networks that include small cell antennas, wireless tower equipment, data processing equipment, and relay equipment that connects the wireless network to the wireline network.

Throughout the world there are multiple semiconductor companies, smartphone producers, network equipment developers, systems integrators, wireless tower providers, and communications network vendors that sell the products and services that make wireless communications a reality. For many, if not most, of these vendors, we expect spending on 5G systems, which began in earnest in 2020, will serve to increase their sales growth from pre-2020 levels.

5G is a key enabling technology

With 5G in its early stages of deployment, it is impossible to state with precision the added capabilities it will unlock, but some of them are becoming apparent. By providing previously unavailable data transfer volume and speed, the deployment of 5G wireless communications networks helps to enable so many of the productivity-enhancing, entertainment, and communications technologies covered in the “New normal, new opportunities” series. As a result, beneficiaries of 5G technology extend beyond the direct 5G enablers discussed above. Here are some specific examples of technologies made possible or enhanced by 5G:

  • Artificial intelligence (AI): To gain widespread acceptance and functionality, AI systems need three elements, according to RBC Capital Markets: computing power, distribution capacity, and storage. 5G networks are the enabling technology that provides the distribution capacity in that equation.
  • Virtual reality: The convergence of advancements in processing power, display technology, movement detection, and 5G-enabled speed and bandwidth is in the early stages of providing virtual and enhanced reality applications that further blur the lines between information, entertainment, and communication, making all of them more personalized and interactive. Content providers become capable of delivering their services on-demand, available everywhere, and shareable with whomever users want.
  • Internet of Things (IoT): The technology to put radio frequency identification (RFID) chips onto or into just about any object in order to track it has existed for over a couple of decades, but during that time, RFID technology has been slow to deploy, owing to the cost of bandwidth in today’s wireless network, making it uneconomical for many applications. Once 5G networks are more widely deployed, we expect more widespread use of RFID tracking systems as more functions become economical.
  • “Big data”: Taking the lead of internet search engines, social networks, and advertising platforms, businesses of all stripes are waking up to the value of the data their customers and vendors provide on a constant basis. The IoT exponentially increases the amount of data produced, and AI-enabled systems can evaluate that data in ways previously unavailable. So, 5G is a vital piece of the big data puzzle, as it is an enabling technology to its key components.
  • Cybersecurity: The advent of a greater volume of data collected from an increasing number of devices will necessitate an added level of data security vigilance on the part of businesses and consumers. Accordingly, cybersecurity technology will need to evolve along with the 5G network, providing opportunities for cybersecurity vendors that are adept at responding to the changing landscape.
  • Next-generation automation: According to RBC Capital Markets, 37 percent of IoT spending is currently done by the Industrials sector. In a manufacturing setting, tracking-enabled equipment and inventories offer the opportunity to increase output and lower costs by automating tasks such as monitoring the manufacturing process, identifying maintenance issues before they become problems, and re-ordering raw materials and parts.

As illustrated in the examples above, the capabilities unlocked by 5G technology make enhancements to goods and services accessible to businesses of any size, in most cases at a reasonable price. We believe that the competitive advantages unlocked by spending on such technology will prove vital to most efforts to improve a company’s offerings and cost structure. In some instances, adoption of these enhancements may prove necessary for companies to remain competitive.

As a result, we expect that much of the upcoming spending on 5G-enabled technologies such as those above will be viewed as mandatory by companies in a wide range of industries. For consumers, 5G will make entertainment and communication services that were in the realm of science fiction 20 years ago widely available and sufficiently inexpensive. Accordingly, we believe spending on 5G technology and the enhancements it unlocks will propel business and consumer spending for many years to come.

This article was originally published on September 14, 2020.

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