What is 5G, And How Can Investors Jump On This Emergent Technology?

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We’ve been hearing about this new 5G technology for years and how it is going to revolutionize our lives, make autonomous vehicles, the Internet of Things possible, and reduce cholesterol levels. Ok, maybe not that last one, but it has been touted as being a Very Big Deal. So just what is 5G?

  • 5G refers to the 5th generation mobile network. It is a set of technology standards that drive very low latency with a very large number of simultaneous connections allowing for data transmission at very high speed. Say that five times fast.
  • It also tends to be used as a shorthand method for referring to a series of spectrum bands.
  • It is also referred to in use cases, such as with the aforementioned driverless cars.
  • It is also used to distinguish a certain class of devices from others. For example, while Apple’s next-generation iPhone will be the iPhone 12, its being commonly referenced as Apple’s 5G iPhone.

How does it work?

5G signals run over new radio frequencies, which means that cell tower equipment needs to be upgraded. To understand the various flavors of 5G, it is important to understand a little bit about radio waves. All radio waves travel at the speed of light, but not all react with the environment in the same way. It is the wavelength of a frequency that directly impacts the speed and the distance of its transmission. Wavelength is inversely proportional to frequency, which means the higher the frequency, the shorter the wavelength.

When a wavelength is really short, such as at the higher end of the frequency spectrum, the waveform is so tiny that it can be easily distorted – not good for sending data. Bandwidth refers to the difference between the highest and the lowest frequency of a signal.

The higher you go up the radio spectrum frequency, the greater the range of frequencies, which means bigger bandwidth and faster download speeds, but higher bands are also absorbed more easily by gases in the air, trees, cars, and buildings. Higher bands are useful in densely packed networks, such as a bunch of fans in a sports stadium, but aren’t good for carrying data long distance as they are likely to run into something that blocks the signal.

What this means is that there isn’t just one type of 5G network, but rather there are three main types, depending on the frequency bands the wireless carrier uses. Low-frequency bandwidth networks are able to cover large areas, making them useful in rural communities. But to do so, they have to compromise on speed, making them only about 20% faster than 4G. On the other end of the spectrum, high-frequency bandwidth provides blazing fast speeds, but low coverage area, so those work well in densely populated urban settings. The third version uses mid-range frequencies that offer a better balance between speed and coverage.

Who's on the playing field?

T-Mobile’s (TMUS) network is the furthest along in terms of coverage and is getting fairly close to being ubiquitous, but because it is 5G deployed on a block of low-frequency bands (600MHz) and 2.5GHz, the data speed is at the lower end of the 5G potential. Sprint’s network for 5G has 800MHz, 1.9GHz, and 2.5GHz, some of which is being repurposed into T-Mobile’s network since the two have merged.

Verizon (VZhas a 5G Ultra Wideband network, which means it is using high-frequency bands, millimeter waves at 28GHz and 39GHz, which allow for extremely high speeds, but the coverage is limited as we’ve discussed earlier concerning how high-frequency waves can get absorbed more easily than low frequency.

AT&T (T) uses high-frequency millimeter-wave for densely populated areas and mid to low-spectrum frequency for more rural or suburban areas.

Bandwidth is purchased through auctions held by the FCC, which just last year held its first-ever auctions of millimeter-wave (mmWave) spectrum licenses. The first auction, Auction 101, was of 28GHz and generated about $700 million in total winning bids. The second auction was of 24GHz licenses and generated around $2 billion in winning bids. In March 2020, the FCC announced that it netted $4.5 billion in sales of upper 37GHz, 39GHz, and 47GHz spectrum.

So just what kinds of speeds can 5G deliver?

According to the Consumer Technology Association, speed could reach up to 10Gbps, which would make it possible to download a two-hour movie in less than four seconds versus six minutes on 4G. Qualcomm (QCOM) predicts speeds could be 500 times faster than 4G LTE, but getting to that speed is complicated.

Real-world conditions are very different than the lab environment.

We’ve just discussed how frequency affects speed and range, but there is even more to it. The higher frequencies that make such speeds possible also enable directional radio waves that can be targeted. The 5G antennas, which will be able to handle more users and more data, beam out over shorter distances, which means we will need more of them. Extra repeaters will need to be installed across cities. We could see modems and WiFi routers being replaced in the future with 5G small cells to bring those 5G connections into homes and businesses, which could end up doing away with WiFi or wired connections entirely in homes and offices.

Building out the 5G network comes with a hefty price tag, according to the Heavy Reading Mobile Operator 5G Capex report, spending on 5G globally will rise from $16 billion this year to $59 billion by 2022 and $88 billion by 2023. The industry trade group GSMA estimates that by 2025, about half of mobile phone connections will be 5G, with the rest older tech such as 4G and 3G.

According to Qualcomm, 5G’s full economic effect will likely be realized across the globe by 2035 and will potentially enable up to $13.2 trillion worth of goods and services. The 5G value chain, which includes OEMs, operators, content creators, app developers, and consumers could support up to 22.3 million jobs, and over time, the total contribution of 5G to global GDP is expected to be roughly equivalent to a country the size of Italy, which has the eighth largest economy in the world.

How will 5G be used?

Aside from the joy of being able to download movies and music at ludicrous speeds, 5G will make immersive experiences such as virtual reality (VR) and augmented reality (AR) possible with more uniform data speeds, lower latency, and lower data costs. 5G will make remote control of mission-critical infrastructure or vehicles possible. It will also allow for a massive number of embedded sensors to be in nearly everything, providing seemingly endless opportunities to improve our lives.

In order to enjoy the benefits of 5G, users will need 5G-enabled devices. Lenovo Group’s (LNVGY) Motorola, Huawei (002502.SZ), LG, Oneplus, and Samsung (SSNGY) have already released 5G phones. As we mentioned above, Apple (AAPL) is expected to release one later this year. Some organizations, such as sports and entertainment arenas, are working with carriers to install personal 5G networks now, so they don’t have to wait for the full national rollout

Finally, with all that 5G will make possible, expect that there will be more government control and regulation involved beyond just permitting and zoning for the physical infrastructure. Given some of the applications it will enable, such as smart hospitals, expanded telemedicine, and autonomous cars, the security of 5G will become much more of a priority than was the case with prior generations.

This likely means countries will be more cautious concerning where the hardware that makes 5G possible is designed and built – UK Prime Minster Boris Johnson has already ordered the removal of Huawei equipment from British 5G networks by the end of 2027. When a network is powering driverless cars and allowing for remote control of critical infrastructure, its security goes way beyond listening in on conversations or stealing data. This means that as much as 5G will drive Tematica’s Digital Lifestyle and Disruptive Innovation investment themes, it will also have a pronounced impact on our Cybersecurity and Data Privacy theme as well.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Chris Versace

Christopher (Chris) Versace is the Chief Investment Officer and thematic strategist at Tematica Research. The proprietary thematic investing framework that he’s developed over the last decade leverages changing economic, demographic, psychographic and technology landscapes to identify pronounced, multi-year structural changes. This framework sits at the heart of Tematica’s investment themes and indices and builds on his more than 25 years analyzing industries, companies and their business models as well as financial statements. Versace is the co-author of “Cocktail Investing: Distilling Everyday Noise into Clear Investing Signals” and hosts the Thematic Signals podcast. He is also an Assistant Professor at NJCU School of Business, where he developed the NJCU New Jersey 50 Index.

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Lenore Elle Hawkins

Lenore Elle Hawkins has, for over a decade, served as a founding partner of Calit Advisors, a boutique advisory firm specializing in mergers and acquisitions, private capital raise, and corporate finance with offices in Italy, Ireland, and California. She has previously served as the Chief Macro Strategist for Tematica Research, which primarily develops indices for Exchange Traded Products, co-authored the book Cocktail Investing, and is a regular guest on a variety of national and international investing-oriented television programs. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.

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Mark Abssy

Mark Abssy is Head of Indexing at Tematica Research focused on index and Exchange Traded Product development. He has product development and management experience with Indexes, ETFs, ETNs, Mutual Funds and listed derivatives. In his 25 year career he has held product development and management positions at NYSE|ICE, ISE ETF Ventures, Morgan Stanley, Fidelity Investments and Loomis Sayles. He received a BSBA from Northeastern University with a focus in Finance and International Business.

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