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5G Network Investment Opportunities Are Starting To Take Shape

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Includes: AMZN, ERIC, GOOG, GOOGL, MSFT, NOK, SSNLF
by: Robert Kientz
Summary

5G networks enable edge networks of various types that will not be defined by traditional labels.

Fixed wireless is a customer acquisition product that may also serve a simultaneous role as a connectivity hub with the global fiber network.

Services utilizing 5G's low latency and high data rates may provide higher rates of return, but also higher risk as enterprise and consumer preferences are not certain at this point.

I recently attended the Fierce Wireless Nexgen Wireless Networks Summit in Dallas. This is my second time attending and I was looking forward to more definition from the industry on the role of 5G, edge computing, and use cases for the new network architecture.

5G Global LayoutImage Source: Qualcomm

The traditional concepts of autonomous vehicles, industrial IoT, and low latency connections have been floated about industry publications in anticipation of the new network build-outs. Well, now that we are full-on into the 5G roll-outs by the network providers, it is time we start getting some answers to these questions.

I spoke with quite a few companies at the conference. While I won't be profiling any here in this space, the conversations indicated a lot of excitement and expectations for how the new architecture would change users' experience with wireless networks and all of the new edge services that are expected to benefit from them.

General Thoughts

I want to provide some general impressions and thoughts that I had from the conference before diving into particular areas of interest. There appears to be a lot of interest still in the promise of 5G in particular, which was the undeniable focus of the conference. Most of the sessions were related to 5G and the supporting technologies behind the new network architecture.

The conference seemed a significant bit smaller this year than last, and was in a different location this year. In addition, there were only about 5-6 companies in attendance in the vendor section, with most of the booths unattended during the majority of the conference.

It may be that as more is known about how these networks develop, less members of the public will attend and it will revert to an industry professional event. I did have the chance to speak with one company about their data intelligence product and I may decide to speak more on that in a future article.

We also had the benefit of listening to many company conversations and presentations with some quality Q&A sessions at the end of each. The conference is a good way to determine how companies are approaching the new networks and how they intend to capitalize on various opportunities. It is also interesting to see how much they do not want to give away to their competitors in their approach. Answers to certain strategic questions from the audience are often provided in very neutral terms leaving the observer much to ponder about.

Edge Networks - Use Cases

One area I focused a lot on last year had to do with edge networking and how that would actually manifest once the network pipes were being built. I felt last year as if marketing departments were issuing public-friendly statements about the potential of edge networks that provided little in terms of real-world use cases and context.

This year, the conversation around edge networks and what they would look like was much more realistic; probably because 5G networks are being implemented and attention has now turned to what enterprises would actually use them for. As is customary in the communications industry, networks are built on promises and dreams, while smart entrepreneurs come along to eventually figure out how to utilize the new connectivity model.

The industry has come to the realization that centralization and distribution of resources is a cyclical phenomenon. Early computers such as the mainframe centralized processing and distributed the data flow to terminals. Then the Internet distributed processing across vast spaces and into many different formats requiring an almost endless march of new standards, languages, and specifications.

The advent of leased data centers and even leased bandwidth providers tended to centralize both compute providers and the concentration of data storage and flows within the public networks. The cloud computing IaaS model has become mostly a three-horse game at the top with Microsoft (MSFT), Amazon (AMZN) and Google (GOOG) (NASDAQ:GOOGL) with service providers left to scramble for over the top revenues of the service market.

Now with 5G and edge computing, data storage and processing are once again being distributed frenetically to the network edge, closest to the users. The drivers of this trend are low latency applications and instant response services. The problem I always had with the approach to the network edge was how to do it efficiently when cloud computing taught us that centralization was cheaper.

The reality is there will not be a dominant model of edge computing in the early stages of 5G network rollout. Right now, we have separate models for implementing 5G networks, most of which are layered over the top of existing 4G LTE systems. True, stand-alone 5G will not begin to be implemented widely until 2020, and even then they must remain interoperable with 4G networks for the foreseeable future due to the amount of investment and dependencies built upon those existing network models.

Some use cases for 5G edge computing include processing at the radio terminal for applications in which lowest latency and highest accessibility to the user are desired. Other models include mini, cloud-enabled data centers being implemented at wireless distribution points throughout the network. And others have 5G as a relatively dumb pipe connecting various regional virtual cloud data hubs in a mesh network that is virtualized up and down the service stack.

Each use case has different pros and cons in which the final look and feel of 5G network computing won't be determined until the money flows from users is mapped out. It will be years before the structure of edge networks are determined and fully codified into new standards, protocols, and economic models.

Fixed Wireless

Fixed wireless is a highly interesting use case for 5G. On the one hand, it offers broadband speeds to people in suburban and rural areas where density does not dictate the financing of fiber to the location network build. On the other hand, the density of 5G network nodes required to run high speed networks with sufficient bandwidth proposes that eventually it will be cheaper to run more fiber anyway.

Several companies stated their desire to use a fixed wireless 5G product as a customer acquisition point in order to determine candidates for fiber to location builds. In the end, it was agreed that fixed wireless is neither the chicken nor the egg, but another 'tool' in the toolbox for service providers to increase market share cost-effectively while extending their network reach.

CBRS Role In 5G

A big topic of conversation is the recent decision by the FCC to allow Citizen's Band Radio Service (CBRS) spectrum in the 3550-3700 MHz band to be allocated to wireless companies. The spectrum is not millimeter wave that provides the highest data rates.

But it does communicate over relatively long distances and serves to augment higher frequencies in providing accessible wireless networking. All 5G networks will utilize low, medium, and high frequency ranges to accommodate various network data size and distance needs.

The spectrum is broken into several tranches, with priority access licenses allowing their purchasers exclusive use of segments within the CBRS spectrum. Some of the spectrum will be allocated for general use, but it is not expected to be a silver bullet solution to wireless providers hungry for more capacity.

Bandwidth Hogs

The average household today uses about 175 gigabits of data per month, and service providers expect a 15% YoY increase until we reach at least 300 gigabits monthly. The main drivers are multiple device usage, increased use of high definition video and 4K video, and increased IoT network systems such as video monitoring within the home.

Much of the bandwidth requirements come in the form of mobile device usage on 4G and 5G networks, which won't be able to handle the increases in bandwidth by themselves. Service providers plan on using several off-loads to wireline networks such as in-building Wi-Fi and hyper-local 5G to fiber communication infrastructure. All of this will require significant investment in not only the backbone networks, but in endpoint communications infrastructure management solutions.

Services On Top

The usual suspects of Nokia (NOK), Ericsson (ERIC), and Samsung (OTC:SSNLF) are often mentioned in providing the networking equipment necessary for nationwide 5G roll-outs. In addition, many other smaller players will provide hardware and software needed to build and connect new networks.

What we are now seeing are savvy service providers entering the 5G space with products designed to help service providers deploy the networks in a cost-efficient manner. As an example, I met with a company that provides location intelligence that combines billions of bits of data together to help providers understand location demographics and forecast optimal network positioning before deployment, saving potentially millions in manual infrastructure planning costs.

In addition, a lot of opportunity exists for companies to emerge that provide services that government, enterprises, and consumers will want in the new network model. Those services may come in the form of accessibility, cloud-enabled applications, shared-service management, and information processing as well as others.

It is too early to tell what the landscape of service providers may look like with the faster 5G network and its promised network node ubiquity. But I expect a flurry of financing in the service space starting in 2020 and continuing for years beyond.

These service opportunities may ultimately provide more rich capital returns for investors than the plain network build, but they may also come with more risk as the use cases will be defined along the way. The gas stations, hotels, and shops will pop up as the information highway is built, but nobody knows all of the prime locations or brands ahead of time.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.