Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 293

5G is coming: who wins and who loses?

It’s regarded as the future of mobile, but a recent research trip to the US drove home that 5G will be one of the biggest themes of 2019.

Telecommunications companies (‘telcos’) are particularly excited about the implications of 5G for fixed wireless. The offshore companies we spoke to gave useful insights into what we can expect from the big players in our region.

Big speeds, big capacity, big opportunities

Telecommunications giant Verizon plans to use 5G network’s capacity for fixed wireless. When fully operational, the company expects its new 5G network will be 10-20 times faster than with existing 4G technology and carry 10 times more data. It will also be 10-12 times cheaper (on a cost/byte basis) to run.

This speed and cost savings will significantly close the gap between fixed-line and mobile broadband services, and it is likely to result in many subscribers shifting to mobile-only services.

The decline of the fixed line

Verizon’s target is to move 30 million homes in the US (around 25% of its subscriber base) to fixed-wireless services. The company has already stopped investing in fixed-line access, as wireless is set to be more profitable than fixed-network customers. As customers make the switch, Verizon is projecting fixed lines to revert to negative growth within five years.

In Australia, Telstra, Optus and Vodafone (and until recently and now apparently cancelled, TPG Telecom) are building 5G networks.

We believe that Telstra, with around 50% share in both mobile and fixed broadband markets, is well placed to switch some customers from fixed to mobile. Like Verizon, this should be a driver of future earnings, with Telstra’s mobile business earning around 40% EBITDA margin versus a barely profitable NBN business.

Similarly, in New Zealand, Spark New Zealand is targeting approximately 25% of its subscriber base for fixed wireless. As incumbents shift customers onto more-profitable mobile products, competitors such as Optus and Vodafone will follow, with implications for fixed-line operators, such as NBN and Chorus New Zealand.

Cost savings from the cloud

The investments made by telcos into 5G will enable them to shift much of their legacy networks to the cloud, allowing automation of many of the manual processes in older legacy networks. This automation allows greater reliability, less human error and targeted cost reductions.

For example, Verizon is looking to reduce 47,000 positions (around 30% of the workforce) by next year. Telstra has also flagged a labour reduction, targeting 8,000 positions.

Unlike legacy networks, the greater automation employed by next-generation networks will allow telcos to evolve tiered pricing structures for corporate clients. Telcos will monetise the increasing demand for speed and connectivity, rather than becoming ‘dumb pipes’.

Connected to incremental revenue

With the rollout of 4G, smartphone penetration grew rapidly, driving the ‘app economy’. Similarly, the rollout and adoption of 5G, and the greater speed and capacity it offers, are likely to lead to more connected devices and new uses which are yet to be conceived. Think autonomous vehicles, augmented reality, surgery, wearable devices, gaming, smart homes etc.

This is all incremental revenue for a telco as it will leverage the existing infrastructure. Some investment will be required to capture this but, we believe, it will be within the current capex envelope (outside of the spectrum auctions).

The long-term picture

However, this will be a multi-year process. Most telcos will roll out a 5G network in line with customer demand, but customers will wait for 5G-enabled handsets to hit the market.

Samsung and some of the Chinese handset manufacturers are due to launch 5G-enabled devices in the first half of 2019. But it won’t be until Apple releases its 5G handset next year that we will see a consumer shift to 5G, given Apple has a 54% share of the handset market (according to Statista, market share of mobile devices in Australia, year to April 2018).

It is shaping to be a more positive environment for the communications sector over the next few years driven by new technology and new operating models.

 

Patrick Potts is a Research Analyst with Martin Currie Australia, a Legg Mason affiliate. Legg Mason is a sponsor of Cuffelinks. The information provided should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the security transactions discussed here were, or will prove to be, profitable. Please consider the appropriateness of this information, in light of your own objectives, financial situation or needs before making any decision.

For more articles and papers from Legg Mason, please click here.

 

6 Comments
Steve
February 17, 2019

Our wireless system at home is just fine. NBN is only just being rolled out in our area.

erko
February 17, 2019

Are there any research studies confirming that 5G technology is not HARMFUL to people and animals?

Rob
February 16, 2021

Get in your compact SUV, go down to Coles, and buy all the tinned food and toilet paper you can with the complete disregard for anyone else or common sense in general. I say this because you will inevitably come back with little bits of information you have picked up here and there which in turn leads to your eagerness to "educate me" on the importance of such topics. 

TomA
February 16, 2019

Chris, apply to Rudd and Conroy for implementing the NBN in the first place. They were warned then that fibre would be usurped by higher speed mobile but they knew better without any comms engineering nouse. Simply driven by the envious smaller retailers who wanted Telstra white anted. So it has come to pass that Telstra will regain its strength through 5G.

MIck McGuire
February 16, 2019

I live in outer environs of a rural community. We struggle with slow speeds. I am led to believe that 5G is worse in this situation in as far as distance from the tower.

Does anyone know?

Chris S
February 14, 2019

We won't be transferring to the NBN, which is now available in our area. Instead, we will let our ADSL die off and just use mobile 4G. We'll upgrade our devices to 5G (fixed and/or mobile) when that becomes available.

Where do i apply to get back the taxes I paid for Abbott & Turnbull's failed multi-technology NBN?

 

Leave a Comment:

     

RELATED ARTICLES

Who’ll win in our National Broadband Network future?

Are there profits from the 5G revolution?

Is 5G all hype or real investable opportunity?

banner

Most viewed in recent weeks

House prices surge but falls are common and coming

We tend to forget that house prices often fall. Direct lending controls are more effective than rate rises because macroprudential limits affect the volume of money for housing leaving business rates untouched.

Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

100 Aussies: five charts on who earns, pays and owns

Any policy decision needs to recognise who is affected by a change. It pays to check the data on who pays taxes, who owns assets and who earns the income to ensure an equitable and efficient outcome.

Three good comments from the pension asset test article

With articles on the pensions assets test read about 40,000 times, 3,500 survey responses and thousands of comments, there was a lot of great reader participation. A few comments added extra insights.

The sorry saga of housing affordability and ownership

It is hard to think of any area of widespread public concern where the same policies have been pursued for so long, in the face of such incontrovertible evidence that they have failed to achieve their objectives.

Two strong themes and companies that will benefit

There are reasons to believe inflation will stay under control, and although we may see a slowing in the global economy, two companies should benefit from the themes of 'Stable Compounders' and 'Structural Winners'.

Latest Updates

Retirement

Stop treating the family home as a retirement sacred cow

The way home ownership relates to retirement income is rated a 'D', as in Distortion, Decumulation and Denial. For many, their home is their largest asset but it's least likely to be used for retirement income.

Property

Hey boomer, first home buyers and all the fuss

What is APRA worried about? Most mortgagees can easily absorb increases in interest rates without posing a systemic threat to the banking system. Housing lending is a relatively risk-free activity for banks.

Property

Residential Property Survey Q3 2021

Housing market sentiment has eased from record highs and confidence has ticked down as house price rises slow. Construction costs overtook lack of development sites as the biggest impediment for new housing.

Investment strategies

Personal finance is 80% personal and 20% finance

Understanding your own biases and behaviours is even more important than learning about markets. Overcome four major cognitive biases that may be sabotaging your investing and recognise them in others.

Where do stockmarket returns come from over time?

Cash flow statements differ from income statements and balance sheets, and every company must balance payments to investors versus investing into the business. Cash flows drive the value of the business.

Fixed interest

How to invest in the ‘reopening of Australia’ in bonds

As Sydney and Melbourne emerge from lockdown, there are some reopening trades in the Australian credit market which 'sophisticated' investors should consider as part of their fixed income portfolios.

Shares

10 trends reshaping the future of emerging markets

Demand for air travel, China’s growing middle-class population, Brazil’s digital payments take-up, Indian IPOs, and increased urbanisation are just some of the trends being seen in emerging economies.

Sponsors

Alliances

© 2021 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.