Market Analysis

5G, OMG?

An introduction to 5G wireless technology and what it might mean for the economy and stocks.

The tech world is abuzz with exciting news about 5G—a pending upgrade to wireless capabilities many hope will leave today’s mobile tech in the dust. Italy just auctioned off a big chunk of 5G wireless spectrum to phone companies operating there.[i] A major US phone company just started rolling out limited 5G capabilities in four cities.[ii] But those who aren’t steeped in this field may wonder: What is 5G technology—and what are its possible implications for the economy and stocks?

First, the basics. The “G” in 5G stands for “Generation,” while the number refers to successive generations, differentiated by capability. Each “G” introduces new minimum performance standards—such as speed and responsiveness—and (more importantly) relies on new technologies incompatible with devices built around the previous generation. The transition from 1G (analog cellular—powerful enough to transmit voice but not much else), to 2G (digital cellular—voice and text), to vastly superior 3G (digital voice, text and data), to 4G (way more data) took several decades. Along the way, these advancements spurred many previously unfathomable innovations and transformed how people around the world live and work. The party continues with 5G, which is expected to increase speed, reduce data transfer delays and enable “smart” technology that brings a much more functional Internet of Things with far broader capabilities closer to an everyday reality.

The 5G hype stems from three main ways it improves on 4G. First, it is faster. Lower-end projections for 5G are for download speeds 4 times faster than 4G, with higher-end estimates reaching 100 times. The latter would permit downloads of full-length HD movies in mere seconds. More complicated but equally impressive, 5G could allow phones to offload their most data- and memory-intensive computing tasks to the network—thus allowing phones to house only the minimal hardware necessary to complete simple tasks.

The second 5G advantage is its superior responsiveness. One of 5G’s most promising features is its low “latency”—a measure of how long it takes data to travel between two points on a network. While this sounds like the same thing as “speed,” it isn’t. Speed is about how rapidly a network can transmit data once it has received a request from a phone, computer or other connected device. Latency is about how long it takes for the network to process requests to send and receive that data. One way you experience latency is when trying to video chat on a slow connection. Slicing or eliminating it could usher in a new era of genuine real-time communication between devices.

The resulting advancements sound futuristic—but they may yet prove feasible. Zero-latency technology could permit things like remote medical care, in which a doctor in Chicago uses up-to-the-millisecond HD video feeds and advanced robotic surgical instruments to remotely carry out an invasive procedure on a patient in Sydney. Potential no-latency improvements also include fully automated “smart factories,” autonomously operating heavy machinery and driverless car “smart cities.” In the latter, self-driving cars would communicate with and respond to each other millisecond-to-millisecond, improving traffic flow and reducing accidents. To get a sense of how this works, picture an autonomous car traveling at 75 mph. If connected to a network with a 100-millisecond delay (or latency), it would move forward an additional 10 feet as the computer sends a signal to engage the brakes. That 10 feet could be the difference between a successful stop and a collision. With 5G, this delay might be less than one millisecond—about an inch.

The last advantage 5G has over 4G is better connectivity. Beyond simply upgrading existing 4G cell towers, 5G networks will rely on an abundance of inconspicuous low-power cell towers, which could take the form of small metal boxes on rooftops or attached to streetlight poles. With all these newfangled towers around, far more devices could connect simultaneously without compromising speed or reliability. Beyond phones and computers, these dense, ultra-responsive networks could support the wifi-enabled devices that comprise the Internet of Things. This could pave the way for smart homes, smart power grids and water systems, connected wearables monitoring patients’ health and much more. 

While the possibilities are many and exciting, patience is key. Although 5G lays the groundwork for disruptive innovations, there is a long way to go. Building out 5G networks will require vast amounts of complex communications hardware and software. The requisite investment (see Italy) is large. Estimates vary widely, but projections for US wireless providers’ 5G capex alone are around $275 billion. European providers probably face similar costs. Further, the buildout is likely time-intensive. Hence, wireless companies are rolling out 5G capabilities gradually, in phases. During this time, it is reasonable to expect faster download speeds and improved connectivity. However, it will likely take many years for 5G to fully supplant existing networks and go global, making things like smart cities and power grids possible. Moreover, few existing devices support 5G—so most users will stick to still-improving 4G tech during the ramp-up period. Ultimately, 5G may have global reach around 2025—but given this is a long-range forecast, it probably isn’t hugely reliable.

While 5G’s advent is a clear economic positive, the implications for investors are murky. Forecasting the winners is tough, and obvious candidates such as wireless network providers aren’t guaranteed to be among them—at least not at first, as recouping large up-front investments will probably take time.[iii] If history is a guide, the beneficiaries are more likely companies or industries who exploit 5G technology in unforeseen ways to raise productivity or capitalize on new sources of consumer demand. 5G is an example of the problem-solving innovations that gradually boost living standards and open up new profit opportunities for tomorrow’s entrepreneurs and today’s established players alike. You can participate in this dazzling parade of human progress by owning stocks for the long term. 

[i] “Italy Fetches About $7.5 Billion in 5G Airwaves Auction,” Daniele Lepido, Bloomberg, 10/3/2018.

[ii] “Verizon customers in four cities are officially getting 5G-based Internet service today,” Brian Fung, The Washington Post, 10/1/2018.

[iii] This is not a long-range forecast for wireless network providers to fare poorly or do anything else. 

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.