Discover more from Drawing Capital Research
5G: The Revolution Begins
Weekly updates on the innovation economy.
Drawing Capital Newsletter
November 20, 2020
The world today has progressed largely because of communications, the speed of which has increased exponentially over the last 40 years. Approximately every 10 years, we have seen a 20-50x improvement in data transmission speeds. In 2019, 5G began to surface as companies like Qualcomm, Apple, Verizon, and T-Mobile began discussions on and debuting products with 5G capabilities. 5G is the fifth generation of broadband cellular networks, the evolution of which is shown in the table below.
Consider the sheer amount of data that is produced and collected every day across the world. If anyone has experienced throttling issues or slowness in their 4G data plans, then it is clear that we need faster data transmission speeds across dense areas of the U.S. such as New York, Washington D.C., Los Angeles, etc. The key value-add with 5G over 4G is the ability for devices to connect and talk to one another to create a connected computing environment across platforms, devices, and sensors.
Looking abroad, Seoul, Korea is the best example of what a 5G society will look like.
5G users in Seoul grew from almost 3 million subscribers in 2019 to 7.86 million in July 2020.
5G subscribers accounted for 11.3% of the 69.8 million mobile subscriptions in South Korea.
115,000 5G base stations have been installed with more continuing to be built.
A key takeaway from the chart above is the accelerating adoption rate of next generation cellular technologies. 5G is expected to outpace 4G’s adoption which outpaced 3G’s adoption.
This chart also shows the accelerating adoption rate of various technologies over time. Said differently, it takes US households fewer years to become familiar with new technologies over time.
From farming equipment, to telemedical procedures via surgical robots, to drone deliveries, to the internet of things, bandwidths need to grow to account for the increased rate of data transmission. As our world becomes more reliant on a stable internet for day to day tasks, the need for 5G will grow. The cost of throttling a network tower would result in lag, timeouts, instability, and inefficiency in data transmission which could result in problems such as:
lost communication between users on a video call
drones and other autonomous vehicles disasters due to failed communication
surgical robots glitching on unstable connections during a remote procedure
farming equipment mishandling agriculture, resulting in lost crop
buffering or pixilation of video streaming and cloud gaming
Another use case of 5G is to replace fiber optics (e.g. Verizon Fios) with an above-ground solution for last-mile delivery of data. 5G and fiber optics will work together to overcome various terrains and offer more internet options to the residential and commercial public.
In order to understand the problem with 5G infrastructure, we need to understand the difference between 4G and 5G waves. Below is an illustration of how low frequency 4G signals can have larger coverage at the cost of more interference (think of a flashlight), whereas high frequency 5G signals are more precise but cover less area (think of a laser pointer).
The issue with 5G is the network range. Higher frequency waves dissipate faster than lower frequency waves. Thus, 5G only reaches ~1,000 feet, meaning every square mile needs at least ~9 base stations for full coverage (which can get expensive). In Manhattan and assuming no buildings, that equates to about 1 tower per 4 blocks. With buildings, we may be looking at 1 tower on every block as 5G waves don’t travel well through solid mediums like walls and multi-pane windows. As a result, 5G infrastructure is expected to cost ~$1 trillion as users have complained about 5G’s limited range and spotty coverage so far.
The solution is two fold.
First, adding repeaters everywhere can help re-amplify the 5G signal, propagate it further than 1,000 feet, and route mmWave signals through and around windows and walls.
Second, we can create the illusion of 5G using lower frequency bands. T-Mobile’s merger with Sprint allows them to use mmWave technology for urban areas like Manhattan, mid-band frequencies for the metro areas like Brooklyn, and low-band frequencies for everywhere else. Verizon, AT&T, and others will use similar strategies to offer a seamless 5G experience, but users may not be happy with lower than expected speeds in rural and suburban areas. In various cases, 5G performed no better than 4G.
Apple (ticker: AAPL) and other phone makers are producing 5G enabled devices in preparation for the oncoming revolution.
T-Mobile (ticker: TMUS) will likely have the best 5G coverage compared to other telecom companies due to their merger with Sprint which gave them ownership of low, medium, and high (mmWave) frequency bands.
Qualcomm (ticker: QCOM) creates wireless chipsets that aggregate low, medium, and high frequency bands to improve coverage across areas with different signal availabilities. The chips will use low-frequency bands in rural areas while using all 3 bands in urban areas.
Defiance Next Gen Connectivity ETF (ticker: FIVG) invests in companies tied to the development of 5G networks and related technologies.
Global X Internet of Things ETF (ticker: SNSR) invests in companies focused on 5G, WiFi, fiber optics, sensor technologies, and the internet of things.
We remain optimistic about 5G’s adoption and believe the issues faced today are temporary yet significant. The world has continued to surprise us with doing the impossible, and we think that trend will continue.
After another decade, the idea of 6G will spread. Everything will become even more wireless, frictionless, seamless, and integrated. There could be less physical on-premise storage of data (i.e. portable hard drives) and more cloud storage. More companies may continue to shift toward a work-from-anywhere environment with improved internet coverage and stability. Perhaps, smartphones will stream data to a personalized AI assistant in the cloud that constantly trains on new data every second rather than every week. Maybe drones will carry 6G repeaters and base stations through the air to provide coverage everywhere.
Whatever happens, we think a future of an internet that works for everyone is definitely exciting to think about.
"Performance of Wireless Networks: Mobile Networks - High ...." https://hpbn.co/mobile-networks/. Accessed 15 Nov. 2020.
"What are the differences between 1G, 2G, 3G, 4G and 5G?." http://net-informations.com/q/diff/generations.html. Accessed 15 Nov. 2020.
"Comparison of 2G 3G 4G 5G - RantCell." https://www.rantcell.com/comparison-of-2g-3g-4g-5g.html. Accessed 15 Nov. 2020.
"South Korea reaches 8 million 5G subscribers at end-July." 3 Sep. 2020, https://www.rcrwireless.com/20200903/wireless/south-korea-reaches-8-million-5g-s. Accessed 15 Nov. 2020.
"Podcast: The Current State of 5G Deployment, Challenges ...." https://www.counterpointresearch.com/podcast-the-current-state-of-5g-deployment-challenges-and-more/. Accessed 15 Nov. 2020.
"Internet - Our World in Data." https://ourworldindata.org/internet. Accessed 18 Nov. 2020.
"Why a 5G rollout requires $2.7T investment by 2020 ...." 25 Feb. 2019, https://www.techrepublic.com/article/why-a-5g-rollout-requires-2-7t-investment-by-2020/. Accessed 19 Nov. 2020.
"T-Mobile, Sprint Merger Likely To Bolster US ... - Forbes." 13 Feb. 2020, https://www.forbes.com/sites/bobodonnell/2020/02/13/t-mobile-sprint-merger-likely-to-bolster-us-competitiveness-for-5g/. Accessed 18 Nov. 2020.
"Pivotal Starts Shipping 5G Repeater to Verizon | Light Reading." https://www.lightreading.com/mobile/5g/pivotal-starts-shipping-5g-repeater-to-verizon/d/d-id/756809. Accessed 18 Nov. 2020.
"The truth about 5G: the network of the future is still slow - The ...." 8 Sep. 2020, https://www.washingtonpost.com/technology/2020/09/08/5g-speed/. Accessed 18 Nov. 2020.
"Qualcomm Press Event: What's Next in 5G? (Full ... - YouTube." 25 Feb. 2020, Accessed 18 Nov. 2020.
This letter may not be reproduced in whole or in part without the express consent of Drawing Capital Group, LLC (“Drawing Capital”). This letter is not an offer to sell securities of any investment fund or a solicitation of offers to buy any such securities. An investment in any strategy, including the strategy described herein, involves a high degree of risk. Past performance of these strategies is not necessarily indicative of future results. There is the possibility of loss and all investment involves risk including the loss of principal.
The information in this letter was prepared by Drawing Capital and is believed by Drawing Capital to be reliable and has been obtained from sources believed to be reliable. Drawing Capital makes no representation as to the accuracy or completeness of such information. Opinions, estimates and projections in this letter constitute the current judgment of Drawing Capital and are subject to change without notice.
Any projections, forecasts and estimates contained in this document are necessarily speculative in nature and are based upon certain assumptions. In addition, matters they describe are subject to known (and unknown) risks, uncertainties and other unpredictable factors, many of which are beyond Drawing Capital’s control. No representations or warranties are made as to the accuracy of such forward-looking statements. It can be expected that some or all of such forward-looking assumptions will not materialize or will vary significantly from actual results. Drawing Capital has no obligation to update, modify or amend this letter or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.