Investors betting on 5G should temper their expectations. The rollout will be more evolution than revolution.
For years to come, 5G networks will coexist with the current 4G LTE networks. And the speeds could be limited as the complex networks are built.
But this new technology will eventually allow you to download a movie in seconds, virtual and augmented reality on the go, and remote surgeries, all while connecting millions of devices that could create smart cities, factories, and transportation networks.
To find 5G beneficiaries, investors will have to think outside the box.
Here are two places to look…
5G sectors to watch #1: 5G Network Infrastructure
A report recently released by Gartner expects the global 5G network infrastructure market’s revenue to almost double in 2020 and reach $8.1 billion.
And China will lead the investment rush.
Kosei Takiishi, senior research director at Gartner said,
“Investment in wireless infrastructure continues to gain momentum, as a growing number of [telcos] are prioritising 5G projects by reusing current assets including radio spectrum bandwidths, base stations, core network and transport network, and transitioning LTE/4G spend to maintenance mode.”
In 2019, 5G took a 10.4% share of investment in network infrastructure. This figure will more than DOUBLE to reach 21.3% in 2020.
And by 2023, Gartner predicts that telcos in Greater China – China, Taiwan and Hong Kong – as well as Asia/Pacific, North America and Japan will reach 5G coverage across 95% of national populations.
The biggest beneficiaries in the 5G network infrastructure space will be Nokia, Ericsson, Samsung and Huawei.
These companies will supply the next-generation antennas and base stations that power 5G networks.
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5G Sector to Watch #2: 5G Tower REITS
While the carriers compete over customers, the companies that lease antenna space on cell towers can benefit from the industrywide shift to 5G without having to pick sides.
The publicly traded cell tower firms have all converted to real estate investment trusts in recent years, and they’ve been remarkable outperformers, with the big stock gains.
You see, they’re enviable businesses: Profit margins are wide, recurring revenue is high, and future visibility is clear, given long-term contracts with annual escalations.
What’s more, increasing demand for connectivity and data usage have required more antennas on more towers in more places — frequently with multiple carriers all renting space on the same tower.
The largest players in this space is American Tower, with a market value of $102 billion and nearly 180,000 sites in 19 countries.
But the 5G tower opportunity goes well beyond those tall, unsightly structures on the side of the highway.
New 5G signals will travel across higher frequencies than those used for 4G.
Those spectrum bands can carry more information than lower-frequency bands, but the signals don’t spread as far from antennas.
To keep 5G signals going, carriers are building a dense network of small cells, or individual antennas, to blanket urban areas.
And the best player to watch in the small cell space is Crown Castle. The company has 40,000 macro towers, plus 80,000 miles of fibre optic cable reaching a network of small cells.
As they fill in their 5G networks, 5G carriers’ spending will likely to flow toward small cells.
That’s all for today. Next week, we’ll discuss a few other 5G sectors investors must keep an eye out on.
See you next week.
Managing Editor, The South African Investor