It might not quite feel like it yet, but 5G is set to change everything. The latest of the generational upgrades of telecoms protocols that come along roughly once a decade, it’s a new set of technologies and standards, from high frequency millimetre waves to ultra powerful antennas, that promise to make the internet a whole lot faster and more reliable. With that come a wide range of new use cases, in areas from automation to healthcare to autonomous vehicles, affecting the investment landscape in any number of ways.
In Asia, South Korea, Taiwan and Singapore are the current leaders in 5G speed, already delivering a 10-fold improvement over 4G; the technology allows that to potentially rise to 20-fold. In addition to increased speed, 5G also offers lower latency—as little as a millisecond—as well as far greater reliability than notoriously spotty 4G WiFi. It also allows more devices to work simultaneously on the same network, by a factor of thousands, with major implications for the internet of things.
South Korea was also a leader in launching 5G services, and more than 15 per cent of its mobile subscribers have now signed up for the technology. But China has caught up fast, with more than 200 million 5G subscribers already.
According to figures from Susquehanna Financial, 60 per cent of all new smartphones sold in the second quarter of 2021 were 5G-enabled. People, after all, have been staying at home a lot more recently, so upgrading one of their main ways of connecting to the rest of the world will have seemed like a good idea to many. As Diana Robinson, Asia head of investments and advice for JP Morgan, puts it, “Mainstream consumer adoption of 5G is already here.” 5G-enabled phones, she adds, are predicted to pass the one billion mark in 2022.
However, according to Eva Lee, head of Hong Kong equities for UBS’s Global Wealth Management Chief Investment Office, when it comes to 5G, “The killer app is not consumer-related.”
Instead, it’s the myriad of potential commercial applications that have investors sitting up and taking notice most. A number of the most interesting are in the area of manufacturing automation, robotics and the industrial internet of things. Taylor Lam, vice chairman and technology, media and telecommunications industry leader for Deloitte China, says that private 5G networks are becoming increasingly common in some sectors in mainland China, giving the examples of port operators and mining companies, who are able to streamline their operations and remove humans from tasks that involve dangerous or inaccessible locations.
Lee adds that China has quickly become the global leader in the industrial internet of things. “There’s a tendency post-Covid to upgrade networks to 5G. During Covid, people realised that the less you rely on human labour and the more on AI, the less disrupted you are by mobility restrictions.”
In addition to that, there are applications in health tech and remote medicine, autonomous vehicles smart city systems, virtual and augmented reality, and gaming. Comments Robinson: “When we look at what the world will look like in five and 10 years from now, we are encouraged by the ability of 5G to enable transformations such as productivity gains from remote working, carbon transition from IOT, autonomous driving, and improved healthcare from telemedicine and potentially remote surgery.
“The speed and latency which this technology delivers is allowing the rapid deployment of many new technologies. One example is driverless cars. We see very rapid advances in this area, many different companies competing to gain the lead and many different ways to invest in this growth.”
Sectors that could benefit, then, include obvious ones such as wireless carriers, device makers, chipmakers, and network equipment and infrastructure makers, but also less predictable ones such as real estate companies, driven by an increased requirement for everything from base stations to data centres.
“Given the transformational nature of 5G, we identify a broad array of investment opportunities,” says Robinson. “While chipmakers and wireless carriers are most directly involved in the deployment, and we do recommend some stocks among these, we find the indirect investments more interesting. As an example, real estate will be impacted by a wide range of changes from the demand for digital infrastructure through to the life cycle of design, building, management and decommissioning of physical structures. These changes create both dislocations and growth, and hence investment opportunities.
“A 5G related investment could be anything from an income producing asset such as infrastructure or a carrier through to a service delivery model such as telemedicine through to longer duration assets such as AI.”
Although more than 160 service providers have launched commercial 5G services, according to the 2021 Ericsson Mobility Report, they still represent a potential stumbling block for 5G adoption. A combination of consumer resistance and, in many places, government regulation has made it hard for operators to charge more for 5G services than their predecessors, so they need to find other ways of recouping their costs. And unlike previous generational upgrades, most of the exciting applications of 5G are commercial rather than consumer, all of which has led to some scepticism about its potential short term profitability.
“4G is already fast enough for a lot of consumer uses,” says Lam. “That’s why a lot of people complain about 5G: they can’t see what extra it offers. How to monetise use cases—that part is certainly in the early stage, for networks operators and equipment providers. The operators lost out with 4G. Most of the benefit went not to the operators but to internet companies like Alibaba and Tencent. Operators cannot afford to lose this battle again.”
All the big three telecoms companies in mainland China, China Telecom, China Unicom and China Mobile, are building their own 5G ecosystems, he adds. Indeed, according to UBS’s report The China 5G Opportunity, the country’s telcos will spend at least US$130bn on 5G over the next five years, representing almost a third of global capital expenditures on the technology. It’s a pretty powerful vote of confidence.