Aug 15, 2019 Equities

5G – high-speed radio waves that can make your portfolio fly

The new 5G mobile connectivity standard will provide car drivers, doctors, homeowners and even cities with high-speed data transfer rates. The mobile network of the future has huge potential and should also interest investors.

  • 5G is a quantum leap in mobile communication technology.
  • Data transmission will become far faster and more stable, with greater capacity and lower response times.
  • As a result, new business models should emerge in many industries.
4 minutes to read

Waiting for content to load will be a thing of the past with superfast 5G, experts predict.

GSM, the first digital mobile phone standard, was ticking along quite happily 25 years ago. Back then, it would have taken two months to download the latest James Bond film to your mobile phone. With the current fastest LTE standard, it takes six minutes. But 5G can handle the download in just five seconds.

The new fifth-generation mobile network with ultra-high data transfer rates of up to 10 gigabytes per second is currently available in South Korea and certain US cities. It is to be made available in Germany’s five largest cities over the coming year. 5G is a quantum leap for the economy, which is why investors should be interested in this technology too. Many industries and service providers will be able to develop new business models using the new hyper-fast digital connectivity. High data transfer rates make split-second reaction times possible. Experts have good reason to say that 5G will do away with media buffering.

The 5G standard’s speed will also make it the central information highway for the Internet of Things, which connects millions of everyday smart devices with one another every year – from hair dryers and dog collars to cars and lawn mowers, bus shelters and light switches. “For the first time, communication between various objects, products, machines and servers will run reliably and smoothly with 5G, achieving a good user experience,” says Andre Köttner, fund manager at DWS. “This creates many ways to make money.”

Actions that took months in 1992 now take seconds – downloading a film, for example.

Graphic: Böttcher; Source: Tagesspiegel/dpa, DWS International GmbH, as of: 07/02/2019.

Network technologies offer promising investment opportunities

Global investment in the expansion of 5G is expected to reach USD 2.7 billion[1] by the year 2020, with around 500 billion of that in Europe alone. 5G radio cells are smaller than was previously standard. This means that 10,000 new radio masts will need to be installed in Germany to provide comprehensive coverage. At the same time, old and new antennae will be networked to higher-performance servers that can handle the enormous quantities of data. 

Large mobile communication providers that have already built networks for older generations of connectivity should benefit. Manufacturers of the faster chips and processors required for 5G could likewise see their sales soar. Consumers will also need 5G-enabled mobile phones, stimulating demand for smartphones.

The telematics and auto industry hope for new markets

Once networks are developed and data connections are stable and reliable, additional sectors are likely to come into play. Experts predict that companies in the mobility and logistics sectors industry will then greatly expand their concepts for assisted and autonomous driving, as well as fleet and traffic management.

A self-driving car sends around one gigabyte of data per second to cloud servers that extract and send back direct control signals for the vehicle. 5G’s fast response times solve some safety issues for the car industry. However, in future, traffic lights, traffic management and toll collection systems will also communicate closely with in-vehicle assistance functions. “Providers in the telematics, sensor technology and autonomous driving sectors, could discover new opportunities here, as could traditional car companies,” says DWS fund manager Köttner.

In Germany, the new mobile communication network is being set up in large metropolitan areas first. 5G is therefore also a key technology for networking the urban infrastructure of the future – so-called “smart cities”. In these cities, private and public transport will be coordinated by servers that communicate with bus and car fleets. Eventually, energy consumption will be optimised across districts, and almost all functions in houses and flats will be networked. This means manufacturers of smart home solutions – be they household devices, air conditioning, entertainment, safety or lightning – will be able to offer innovative services.

Industry 4.0 will be able to keep its promise

New markets are also expected to open up for manufacturers of networked industrial machinery, automated facilities and robots. For the first time, the 5G standard provides data connectivity for assembly lines, materials storage and supply chains that can be used to expedite and coordinate production, supply and maintenance processes in an optimal manner in “smart factories”. The previous standard offered data transfer rates of one gigabyte per second at best. But according to industry experts, transmission peaks of up to 20 gigabytes per second[2] are optimal for industrial machines, and a response time of just one millisecond is ideal if machines are to communicate wirelessly.

Germany alone needs around 10,000 new mobile phone antennae to provide comprehensive 5G coverage.

Response times of one millisecond are necessary for data communication between industrial machines.

And finally, 5G should also stimulate development of virtual reality simulations. Here too, the new high-capacity mobile communication standard provides data transfer speeds that allow high-resolution, real-time transmissions from other locations to be made wirelessly for the first time. This creates new opportunities for servicing machines and systems remotely. In medicine too, researchers are exploring the possibility of monitoring patients using a 5G connection and performing surgical procedures remotely. The VR applications sector could therefore also make 5G an attractive investment option.

Investors who want to profit from the 5G revolution can do so by investing in active funds or ETFs that hold promising companies in this technological sector.

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