Diving Into 5G: The Future Of Network Connectivity

Diving into 5G: The Future of Network Connectivity

5G is a game-changing proposition for the communication services industry. People are demanding faster and faster network speeds, and 5G offers a combination of that speed, as well as “capacity, reliability, and ultra-low latency required for mission critical services and the growth of massive IoT.” 5G surrounds the idea of connecting devices and creating smart cities with applications to healthcare, retail, and utilities among others

Verizon (NYSE:VZ) was the “first” service provider in the US to truly tap the 5G market. 5G is currently a $21.5B market, and is expected to reach $85B by the end of 2023, increasing at a CAGR of 31.9%. Verizon has strong growth prospects if they can realize this growth, and are currently undervalued according to my calculations.

The ability to get into 5G is currently hindered by a lack of devices and lack of infrastructure able to support it. Even though Apple (NASDAQ:AAPL) has patched things up with Qualcomm (NASDAQ:QCOM), they aren’t expected to offer a 5G iPhone until halfway through 2020. Samsung (OTC:SSNLF), Huawei, and LG (OTC:LGEAF) are all set to release their 5G devices, which will help Verizon continue to expand out their 5G network. However, due to the time lag, 5G benefits won’t be realized until 2021.

However, the world infrastructure, despite people’s demands, really isn’t ready for 5G. The faster data speeds, quicker response times, and increased connectivity are all benefits, but applying the technology across different industries will require time and effort. Building out the number of cell sites, as well as the cost investment in the spectrum are both hindrances to streamlined development of 5G.

Crown Castle International (NYSE:CCI) is on the front lines of infrastructure development, and has promising growth prospects as the wireless carriers, like Verizon, look for fiber-fed small cell sites to fuel the 5G evolution. The company has strong revenue growth, and stands to benefit greatly from building out new communication sites.

Source: Business Wire

The Nuances Of The Technology: What Is 5G?

However, the Utilities Technology Council is warning that rolling out the 5G network without ensuring that the underlying electronic grid can handle the technology will be harmful. Right now, there isn’t a 5G government policy. And there are a host of issues with the technology, including the aforementioned lack of infrastructure of spectrum provision for both utilities and communications, and health concerns due to the increased frequency of the microwave bands.

Source: Financial Times

There are also issues of backhaul, or connecting cell towers to a core network, which will make the 5G cells more expensive due to the sheer number of them. Finding space for the sites is problematic, and the cost of maintaining power sources to provide electricity is high. Obtaining local permits to actually build the base stations is expensive both in terms of dollar cost and time cost. Considering that local and muni governments have zoning authority over both cell towers and base stations, the carriers might have a hard time getting the necessary infrastructure built out for 5G.

Source: UTC

There is also an inherent trade-off in 5G. You cannot have both high capacity and high coverage. 5G operates throughout the entire radio spectrum, and requires access to all of the available bands. 700MHz is required for the more rural areas, as it can travel well over terrain and other obstructions. 3.4-3.8 GHz is mid-range, can carry a higher amount of traffic and serve smartphones and smartwatches. High-band, 24.25-27.5 GHz require several small cells in a localized area to work, as they are easily blocked by obstructions and do not travel far.

Source: UTC

Verizon relies exclusively on high-band mmWave technology. That puts them at a key disadvantage compared to T-Mobile (NASDAQ:TMUS), which uses all spectrum bands. However, T-Mobile, is relying on Sprint (NYSE:S) to access the mid-band spectrum, and the likelihood of that merger getting approved is low.

Also, T-Mobile delayed their launch until at least Q3 2019 because the phones that are currently available can only use mmWave technology and can’t fully support all of the airwaves that T-Mobile is using. Sprint is planning to launch their 5G service this year, under Google Fi (NASDAQ:GOOG) (NASDAQ:GOOGL). But Sprint does not own licenses to wireless airwaves, so they can’t market millimeter wave coverage. Instead, they are operating on the mid-band spectrum, which is faster than 4G LTE, but really isn’t much to get excited about. AT&T (NYSE:T) has only provided 5G to businesses, compared to Verizon’s regular consumer reach.

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Disclaimer: These views are not investment advice, and should not be interpreted as such. These views are my own, and do not represent my employer. Trading has risk. Big risk. Make sure that you can ...

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