5G Overview: What It Is and How We're InvestingFeb 16, 2021
Over the last few years, talks of 5G technology have taken headlines across the globe as telecommunication companies and other technology companies look to prepare for the transition. Within the investing scope, many people have anticipated how this trend will play out and what it means for companies operating in this realm. But before we discuss what different 5G technologies we are investing in, let's discuss what 5G technology is, how the technology that came before it (4G) changed the broader industry for the better and how the future could mirror the past.
Like we mentioned above, let's talk about what 5G technology even is. 5G is the 5th generation mobile network. It is a new global wireless standard after 1G, 2G, 3G, and 4G networks. 5G enables a new kind of network that is designed to connect virtually everyone and everything together including machines, objects, and devices.5G wireless technology is meant to deliver higher multi-Gbps peak data speeds, ultra low latency, more reliability, massive network capacity, increased availability, and a more uniform user experience to more users. Higher performance and improved efficiency empower new user experiences and connects new industries.
So how is this different from 4G networks and why does it matter?
Before we answer this question, let's take a look at what 4G technology enabled and how it changed the world. From there we can dive into what 5G will do, now that we understand what it is and how it is advancing.
Advancement of telecommunication networks:
When 3G was rolled out, it allowed users of mobile phones to receive and send emails, get map and satellite directions, and download music and videos. When 4G was rolled out, it was able to do all of this but smarter and faster. This was a massive step forward for mobile technology. And this 4G technology led to the true "smartphone revolution". With a smarter and faster global network, mobile apps started to be built and dominate user interaction. With the rise of this speed, came new applications like Uber and Instagram. With faster networks, applications like Uber were able to (in real time) access a global network of drivers and connect them with passengers. In the case of Instagram, users could upload videos and photos remotely and connect with friends and famous individuals. All of these technologies would have not been possible if it were not for the 4G technology supporting it. Historically these applications were all web based (with wifi connections) but now with 4G these could all be supported wirelessly on our phones!
ow fast forward to today and let's discuss how 5G technology will lead the wave of these next new types of applications that were not possible with 4G. Now we can discuss how it is different from 4G and why it matters!
We want to preface this section with the fact that while there are two main types of 5G technology, they do both have limiting factors. Long story short however, they can both operate very fast, as in up to about 50 times faster than standard 4G. However certain uses of 5G, such as mmWave 5G are not able to operate at far distances from the receiver. In addition, while it’s possible to use this type of 5G inside certain locations, it is more often than not restricted to outdoor use as it can often be subject to network interference. As a result, coverage is very limited and the process of increasing that coverage is very slow.
Sub-6 5G, on the other hand, is very robust and capable of traveling long distances. One of the most interesting opportunities for this network is not just faster download speeds for our phones (think Netflix, Spotify, etc.) but for lower latency (Latency: The delay before a transfer of data begins following an instruction for its transfer) for applications we want to use but currently cannot. For example cloud based gaming, autonomous vehicles, remote surgeries, etc. have significant restrictions due to the speed in which these networks need to be able operate efficiently. It is theorized that with the rollout of this new infrastructure, the lowering of latencies will be able to enable technologies like this, that we have longed dream of! And while the applications of lower latency may not fully be understood today, in time it'll enable the next wave of technologies that we can only imagine.
Now that we understand what 5G is, what it does, how it differs from 4G and what it enables, let's discuss the companies out there making the biggest impact:
5G technology companies:
The big winners from 4G were not only the builders of network infrastructure, but instead the emerging technologies that leveraged 4G’s capabilities to build revolutionary hardware and services. Therefore while we've included network plays we've also included a company that we believe will fully leveraged 5G!
1) Casa Systems (CASA): For those of you who have been following us for a bit, you might remember that we've written about CASA before. While the last post did not mention 5G, CASA is definitely a play into the 5G investment theme! Casa Systems is pioneering advanced ultra-broadband 5G solutions for mobile, cable, fixed and converged service providers. Casa Systems has game-changing core and access solutions to transform any broadband network by delivering the service agility and network efficiency needed for the 5G future.
2) Google (GOOGL): While everyone knows Google for their search engine, Google is actually involved in a number of projects that would pan out nicely with the success of a 5G network. When looking at their portfolio, Google is invested in Waymo (self-driving), that needs to map out all of the roads on the US for their cars to react in real time. With the success of a 5G network, latency is reduced, making this technology more feasible and scalable. Additionally, Stadia (their cloud based gaming platform) would be able to leverage 5G networks to reduce latencies further and making cloud based gaming, a better experience. With this thought, AR/VR capabilities will be able to leverage better networks to create a more robust experience (Also think of companies like Facebook that own companies like Oculus that leverage this tech)! These may all take years to play out, but this is something Google stands to benefit from greatly!
3) American Tower Corp (AMT): American Tower owns and operates telecommunications real estate in the United States and internationally (19 countries total). They own and/or operate roughly 41,000 sites in the United States and 137,000 sites internationally. AMT generates revenue primarily by signing telecommunications providers to long-term non cancellable leases for vertical tower space. Tenants then utilize this space to install communications equipment. As discussed, 5G networks pass more data than any other network type that's ever existed. Increased tower infrastructure is imperative for companies to successfully deploy 5G networks. For this reason, it seems that AMT stands to benefit from this trend, as its tower real estate will be in higher demand. AMT stock also offers an attractive dividend of ~2.1%.
4) Crown Castle International (CCI): CCI is a REIT whose infrastructure portfolio consists of more than 40,000 cell towers. It's infrastructure network continues to grow daily, and is poised to benefit as the demand for data grows with the roll-out of 5G worldwide. CCI's management team has shown a continued commitment to continuing to make sizable investments into its infrastructure to meet emerging demand for real estate that's can support 5G networks. CCI offers a strong dividend of roughly 3.25%.
While there are many ways to invest in this trend, what should be obvious from this post is that 5G stands to revolutionize almost every industry! While this has been talked about for awhile, the infrastructure that needs to be built to support this takes a lot of time and money and will continue to be rolled out over the next several years. This is a long term play and will not materialize for some time to come!