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Knowledge level: Beginner Reading time: 5-7 minutes
The transition to 5G has created no shortage of headlines – less for the potential it offers, more for the question as to ‘who builds the network’. The two are intrinsically linked though.
To understand why the Australian government, along with others, refused Chinese company Huawei permission to build the 5G network, one needs to understand why 5G is important and therefore, why it appeals from an investment perspective.
What is 5G?
Fifth generation wireless (5G) is a technology infrastructure system allowing communications and data access on-the-go, much in the same way that previous generations including the current 4G offer. Each generation of wireless network has offered distinct improvements on the old, opening new possibilities.
In the case of 5G, rate speeds are significantly faster, touted as up to 10-times greater. Meanwhile, latency, which is the time it takes for a device to communicate across the network, is set to drop by a similar amount. 5G can also support 10-times the number of devices, up to 1 million devices per square kilometre, and is expected to improve network energy efficiency by a similar magnitude.
What 5G will mean for the world is largely speculative at this stage, but it is anticipated to transform the ‘internet of things’. This refers to the nature with which devices can be interconnected to make our lives easier from a personal to industrial level.
From a personal level, the benefits of 5G may seem relatively obvious, such as ease of downloads or having home automation like Google or Alexa connected to everything from the garage door to your fridge. However, the broader usage of 5G may be even more transformative for how we live. 5G is described as the force for the fourth industrial revolution.
The fourth industrial revolution
The fourth industrial revolution refers to how cyber physical systems are expected to drive the next era of industrial reform and change, bringing new efficiencies and opportunities to how we live and work.
Superfast wireless connectivity can allow for autonomous vehicles with the ability to make split-decision data-based decisions. It also facilitates smart-city applications such as cloud-based traffic control, fully automated warehouse systems or even the ability for surgeons to operate on patients in another location. In fact, telesurgery was recently trialled in Italy with a surgeon testing 5G and robotic surgery on a cadaver patient 15km away.
Enhanced remote control via 5G has become even more of a priority in the COVID-era.
From a healthcare perspective, it’s the ability to successfully provide care for patients while maintaining quarantine and isolation procedures.
From a supply chain perspective, it’s the ability to continue to offer online grocery and shopping services to customers, with more employees operating remotely rather than from warehouses.
Why invest in 5G?
Post COVID, many businesses will be keen to retain their contingencies to avoid any future disruption. This is where better automation and artificial intelligence fuelled by 5G will have a key role.
Given the potential of 5G and the role it may play across critical infrastructure, such as hospitals, or business operations from banking to industrial activity, companies involved in the development of the 5G network have a significant competitive advantage. They also effectively have the power to disrupt such infrastructure or access data.
This led to the media controversy surrounding Huawei, namely, how comfortable are various countries with the idea that a foreign state might have potential control and access to their data via the 5G network? In the case of Australia, the US and UK, Huawei’s involvement was declined on concerns around the level of access the Chinese government might have to such data.
In turn, local telecommunications providers were required to find alternative sources for infrastructure and equipment. For example, Telstra and Optus partnered with Ericsson.
All the while, telecommunications company Verizon anticipates that “by 2035, 5G will enable $12.3 trillion of global economic output and support 22 million jobs worldwide”.
While looking at 5G as a growth theme for the future is one perspective, it is also worth seeing it for what it will become. Wireless networks are integrated into our lives and 5G sees that dependency increase further in the immediate future. It is already here in its early stages.
Even though 5G was anticipated to arrive in due course anyways, the COVID pandemic may see some companies accelerate plans to access 5G-enabled technology, particularly automation, both as a safeguard against future lockdowns or simply to allow them to continue basic operations in the current environment.
How to gain exposure to 5G in your portfolio
For many investors, investing in telecommunications companies may be first to mind for access to 5G, however, looking deeper into the 5G supply chain may be valuable. Given the nature of 5G, it is unsurprising that the 5G supply chain is heavily dominated by tech, robotics, automation and AI companies.
Naturally, the supply chain features underlying technology suppliers and producers, including companies like Qualcomm or National Instruments which create specialised chips and semi-conductors used in devices to provide access to 5G. It also extends to companies like Ocado or Daifuku that create technology and software for industrial automation, robotics and artificial intelligence, which will advance substantially from the use of 5G.
Given the vast array of companies set to create for and benefit from 5G, investing in 5G technology using an ETF like ETFS ROBO Global Robotics and Automation ETF (ASX: ROBO) can provide broad exposure to the transformative growth of fifth generation wireless. This ETF provides access to the companies that are building for the 5G future, as well as those companies looking to connect with this change before it even happens.
For more information on investing in 5G and ETFS ROBO Global Robotics and Automation ETF (ASX: ROBO), please contact ETF Securities directly using the details below.
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Information current as at 22 July 2020