REPOST from a Morgan Stanley Article.
More mobile users, more connected devices and more applications are driving demand for more robust wireless networks. But the opportunities of 5G also come with challenges.
However, if you ask telecom operators, reception on 5G is still somewhat patchy.
One of the big sticking points? How telecom operators can monetize their investments in 5G. Their stocks have underperformed this year, in part because of worries about capital spending increases related to 5G. The industry spent about $275 billion on 4G, and operators have yet to see significant returns on those investments.
This cycle may be different. “Service providers likely will not invest significantly in 5G ahead of a compelling business case,” says James Faucette, who covers the U.S. communications systems and is the lead author of a new Morgan Stanley Research report “Learning to Ride a 5G Cycle.”
Consequently, total spending on 5G may be less than 4G and the ramp up could take longer. Morgan Stanley estimates that the industry will spend $225 billion on 5G between 2019 and 2025, with the biggest outlays coming later. The first 5G enabled smartphones could come to market as early as 2020, but the real pick-up in spending will take years, even decades.
All that said, there is significant upside. 5G is likely to spur connected device growth and introduce new revenue sources for telecom operators. Cisco estimates that the Internet of Things could be a $19 trillion opportunity, most of which could come from automation and improved efficiencies. “If a fraction of those savings were spent on subscription for connecting incremental devices, it would allow carriers to build out their networks,” Faucette says. “There could be significant opportunities for equipment providers.”
Spend on 5G Could Continue for 20+ Years
The vision for 5G isn’t merely to make mobile connections faster or more reliable, but to provide uniform “fiber-like” broadband everywhere. In the near term, 5G has the potential to extend broadband to more people by replacing the costly last mile of fiber with wireless. Beyond that, better bandwidth will help support more devices and move new applications, such as augmented reality, into the mainstream.
“Unlike previous the generation, 5G will not be a stand-alone interface, but a portfolio of access and connectivity solutions incorporating 2G, 3G, LTE, WiFi and others,” says Faucette. “As a result, it will have dramatically more capacity for future use cases.”
Improvements from 5G include:
- Expanded system capacity and reliability: This is key given that the number of connected devices is expected to balloon from about 8 billion today to potentially hundreds of billions of machines.
- Higher data rates: 5G could offer up to 10Gbps at peak and 100Mpbs everywhere, a substantial improvement.
- Lower latency: Reducing end-to-end latency to 1 millisecond or less will make wireless feasible for new use cases, such as traffic safety, critical infrastructure and industry processes.
- Low energy consumption: In a not-so-distant future, battery lives could improve one-thousand-fold.
Taking the Long View
Rolling out 5G isn’t simply a matter of adding more towers. The network must be scalable and adaptable enough to support a wide range of applications and devices, from simple sensors to complex robots. And while 5G has the potential for higher capacity and lower latency, the tradeoff could be smaller coverage areas.
Meanwhile, the cost of small cells—critical for density—will need to come down 15% to 20% to justify the investment, Faucette notes, and there are still technology challenges, such as increased network complexity. Still, if those hurdles can be overcome , the potential for growth is substantial, particularly for fiber and small cell technologies.
Small Cell Technology Could See Aggressive Growth
Asia is apt to rollout 5G soonest, with China the likely leader for broad-scale deployments. Korea and Japan should follow since both countries will seek to expand their wireless capabilities ahead of two Olympic games. North America may follow a similar timeline as Asia, but operators will invest selectively, waiting for new use cases, such as IoT, to move from concept to reality.
“If we’re right, the best opportunities will be with technologies that enable more network flexibility, such as fiber,” Faucette says. “If 5G proves to have a faster ramp, however, companies with wireless infrastructure exposure may see the biggest improvements.”
For Morgan Stanley Research on the investment implications of 5G, ask your Morgan Stanley representative or Financial Advisor for the full report, “Learning to Ride a 5G Cycle.” (Oct. 15, 2017). Plus, more Ideas.
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