5G: A multi-faceted opportunity
When investors consider the impending “fifth
generation” (5G) wireless transition, they frequently focus on 5G’s direct impact
on telecommunications companies (telcos), network equipment vendors and
smartphone makers. While true, this is an incomplete assessment. We expect 5G
to drive change and opportunity across many diverse industries in the upcoming
decade, not just in communication services. In this blog, we provide historical
context on how prior wireless technology transitions impacted various
industries and where 5G’s greatest opportunities may lie.
A historical perspective on wireless technology
The story of wireless technology begins in the late
1970s. Starting in 1979 and extending through the 1980s, 1G established analog
wireless voice communication technology. In the early 1990s, 2G supplanted 1G
by introducing digital voice and low speed data transmission capabilities.
While both 1G and 2G developed critical pieces of technology, neither
transformed the world.
3G networks, introduced in 1998, further increased
data speeds and made mobile internet access practical. At first, 3G networks
were simply faster. It wasn’t until 2007 when Apple’s iPhone was unveiled that
the revolutionary power of 3G was unleashed. The iPhone and the new mobile
economy that smartphones launched became the “killer app” (the term for an
invaluable application) 4G, introduced in the US in 2011, built upon the 3G revolution
with even faster speeds and greater network capacity.
Despite the surge in 4G-related economic activity,
US telco revenue barely grew during the 4G era (see Figure 1). Unlike prior
wireless technology transitions, incremental value creation mostly bypassed the
telcos; instead, it was accrued largely to new technology companies. Some
businesses, such as WhatsApp and Viber, destroyed the telcos’ lucrative
international voice and text message revenue streams by providing free or
ad-supported “Voice over Internet Protocol” (VoIP) and instant messaging services.
Other businesses, such as Uber (peer-to-peer ridesharing) and Spotify (mobile
music streaming), while not directly attacking telco revenue pools, would not
be possible without pervasive 4G networks. Cleverly, these companies built
mobile data-centric businesses by leveraging the networks that the telcos had
built, without bearing the upfront spectrum investments, initial capital
expenditures and ongoing maintenance costs.
Figure 1: US wireless industry revenue and year-over-year growth
performance is not a guarantee of future results. There can be no guarantee that estimated
forecasts will come to pass.
The 5G opportunity
With 5G network rollouts just beginning around the
world, it’s still early days in terms of monetization opportunities. While
certain infrastructure suppliers, such as tower, network equipment and
semiconductor companies, have already benefitted from 5G network build-out activity,
5G “killer apps” are still under development.
In comparison to 4G, 5G networks promise speed
enhancements (10 to 20 times faster than 4G), latency improvements (a 90%
reduction in transmission delay) and capacity expansion (100 times more traffic
capacity per square meter).1 5G is expected to enable ubiquitous
connectivity and exponential growth in data transmission. Previously uncaptured
data will be stored and analyzed. The companies able to harness this data and
use it to build new businesses stand to benefit enormously. Similar to the 3G
and 4G eras, we believe that much of the economic value will accrue to the
companies best able to exploit the deluge of new data to gain unique insights
and build previously unimagined businesses, not to the companies solely
involved in data transmission.
On the consumer side, the initial 5G telco-supplied
use cases of 5G wireless service and fixed wireless service appear incremental.
While 5G wireless service will be faster than 4G, it’s unlikely to meaningfully
enhance the typical consumer mobile internet experience. Bandwidth-heavy
activities, such as watching videos, already work sufficiently well on existing
4G networks. As for fixed wireless service, that technology is expected to be
on par with cable broadband, a service already available to most US consumers.
By analogy, we view these initial 5G consumer use cases akin to digital wallets
in the US. Like 5G mobile wireless and fixed wireless service, digital wallets are
nice to have, but they’re somewhat of a “solution in search of a problem” since
the physical credit cards that digital wallets aim to replace already work well
and are easy to use.
Future 5G applications that lie outside of core
communication services are far more exciting and have the potential to be
revolutionary. Vehicle-to-everything communication seeks to usher in
self-driving cars for fully autonomous transportation. Within healthcare, 5G hopes
to enable better health outcomes through remote robotic surgery, continuous
health tracking and medical implants that adjust drug delivery in real time. The
data captured by the transportation and health care industries should interest
insurance companies, which can potentially use it to adjust customers’
premiums. In digital gaming, 5G aims to untether gamers from their consoles and
PCs, and stream graphic-intensive and multi-player games directly to consumers’
phones. On the enterprise side, widespread sensors connected to 5G networks are
expected to enable “smart” cities, factories and agriculture. The list of
potential applications goes on and on.
Figure 2: Possible 5G-enabled applications
Source: International Telecommunication Union, “Setting
the Scene for 5G: Opportunities and Challenges.” IMT = internet marketing
technology. For illustrative purposes only.
While many of the aforementioned technologies and applications
are not expected to be commercialized for at least several more years, some
companies are investing heavily now in order to position themselves for the
future. Unsurprisingly, major technology companies such as Alphabet, Amazon,
Microsoft and Facebook are taking the lead. These companies already run massive
data-centric businesses and are at the forefront of information collection and processing.
Advancements in machine learning algorithms are enabling these companies to
speed up and increasingly automate their data analysis, driving a virtuous
cycle of innovation and possibly extending their dominant market share
positions and resource advantages. Undoubtedly, innovative companies from other
industries and future startups will also participate in this new economy.
Talk to your
advisor: Invesco Unit Trusts
Interested in the growth opportunities that the transition to 5G wireless technology can provide? Talk to your financial advisor and explore the American Innovation Leaders Portfolio, Global Technology Leaders Portfolio and Digital Gaming Portfolio from Invesco Unit Trusts.
1 Source: International Telecommunication Union, “Setting
the Scene for 5G: Opportunities and Challenges”
Blog header image: Guido Mieth / Digital Vision / Getty Images
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