Ahead of the Curve ™
Surveying the 5G Landscape: A Sector View of What’s to ComeJan 23 2017
Report by Colby Synesael, Timothy Arcuri, Bryan C. Bergin, CFA, Doug Creutz, CFA, Avishai Kantor, George Mihalos, Paul Silverstein & Robert W. Stone
One of the most exciting themes across TMT that is coming is the highly compelling yet unknown transformational impacts of 5G. In this report, we provide a framework for how to start thinking about 5G including key attributes, expected roll-outs, and potential use cases, as well as 19 detailed responses from companies across TMT to a 5G-focused questionnaire we administered late last year.
Easier to Pick Winners Than it Is Losers at this Point
At this early juncture, we believe the best way to play 5G is to invest in the companies that will help facilitate the network buildouts including the chip/equipment manufacturers and the tower/fiber providers. Current Outperform rated names within these industries include Acacia (ACIA, Silverstein), American Tower (AMT, Synesael), Ciena (CIEN, Silverstein), Crown Castle (CCI, Synesael), Oclaro (OCLR, Silverstein), Qualcomm (QCOM, Arcuri), SBA (SBAC, Synesael), and Zayo (ZAYO, Synesael). The losers are more broad, but are businesses that could get displaced as a result of the businesses/applications that are created as a result of what 5G makes possible. At this point, potential areas of disruption that have been identified are wireline broadband (i.e. cable), content distribution, and gaming consoles.
5G Will Require a New Network Topology
5G will require a lot more antennas/radios (nodes) in a lot more locations of which the majority will need to be connected with fiber. This serendipitously will provide an opportunity for AT&T/Verizon to again distance themselves from Sprint/T-Mobile in terms of network because they will be able/willing to make the sizable investment to build out this new topology. The build out of small cell/DAS networks that today utilize LTE but in the future will also utilize 5G has already begun, however the magnitude of buildouts will need to meaningfully accelerate over the coming years. New equipment will also be required including New Radios (NR) which are expected to be supported in 3GPP Release-15 in 2018 and will address fixed wireless while 3GPP Release-16 is expected in 2020 and will address mobile 5G and massive IoT.
5G is Being Designed From the Ground up for End-User Applications
Through our questionnaire, companies noted how the three primary 5G pillars (throughput, massive IoT, low latency) will not just push the performance of our handheld devices, but will unleash new TAMs, new services/products, and new demands unimagined. It is the first “G” designed with end-user applications as the focus. 5G will be about flexibility and versatility as the network will be software-based, scalable, sliceable, and “versioned” for different verticals/users. 5G will provide a new level of data coordination and help make sense of data as the Big Data industry takes on a much larger and more meaningful role in our lives. Key concerns revolve around spectrum policy, resolving key standards, infrastructure needs, ecosystem development, timing the market/demand, and security (especially with IoT).
Surveying the 5G Landscape; A Sector View of What’s to Come: CowenVision
Purpose of the Report
One of the most exciting themes across TMT that is coming is the highly compelling yet unknown transformational impacts of 5G wireless technology. 5G could be a permanent positive disruptor as we explore uncharted territory with game-changing applications similar to the benefits that we saw with the industrial and internet revolutions, but also similarly is likely to negatively disrupt businesses that cannot or do not change for this new reality. The positive aspects that 5G promises are precisely why former FCC Chairman Tom Wheeler had made 5G a national priority stating “we always underestimated the innovation” of wireless cycles. 5G will be transformational, 5G will create billion dollar industries, and 5G will bring another era of creative destruction.
However there is still a lot of noise around the topic as 5G is not fully understood, not yet truly defined (standards far from approved), deployment and mass adoption timing remains tenuous, and winners and losers are far from established. To that point, the following report serves as our first foray into the 5G conversation to provide helpful context and a framework for how to start thinking about 5G including key attributes, the standards roadmap, anticipated timing, potential use cases, and an update on current U.S. trials. A large part of the report includes 19 detailed responses from companies including wireless carriers, semiconductors, OEM vendors, comm. infra., fin-tech, IT services, emerging tech, and gaming, to a 5G-focused questionnaire we administered late last year on how they are currently thinking about 5G.
Surveying the 5G Landscape
Below is a summarized view of the company responses from our questionnaire:
What Will 5G Do For You? What Type of Impacts?
Companies noted how the three primary 5G pillars (throughput, massive IoT, low latency) will not just push the performance of our handset devices, but will unleash new TAMs, new services/products, and new demands unimagined. 5G will change the way we interact, unifying the connectivity fabric, with “connectivity and computing across every person and every thing”. We will see new devices and a convergence of devices. Many safety and business critical apps will go wireless. More fiber will be required to backhaul endpoints.
On the consumer level, 5G will revolutionize the way we capture and share content with new ways of expression. Households will view video via IP (no longer QAM/cable). The friction for mobile payments will be removed with an unprecedented user experience. Lastly, gaming will no longer be constrained by hardware and lowquality networks, unleashing latency-sensitive games such as multiplayer online battle arena (MOBA) and the ability to circumvent the app store for purchases (streaming games).
What Will be the Key Differentiator for 5G vs. Past Technologies?
On the topic of key differentiators, similar to above, many of our participants again referenced the three pillars and the multitude of use cases that these pillars will bring. 5G will have a much bigger impact than previous generations. It is the first “G” designed with end-user applications as the focus (rather than simply a speed or technology metric). 5G will be about flexibility and versatility as the network will be software-based, scalable, sliceable, and “versioned” for different verticals/users. The TCO to run networks and analyze data will decrease. It will bring a new wave of innovation that 4G could not do. In many cases, mobile will be an equal alternative to fixed solutions. 5G will provide a new level of data coordination and help make sense of data as the Big Data industry takes on a much larger and more meaningful role in our lives. With new use cases, new business models, new experiences, and new control of machines and automation, 5G will “radically change how we live, work and play.”
What are the Biggest Hindrances/Limiting Factors and Which Markets are at Risk?
There seemed to be a consensus concern around spectrum (regulatory, allocation, harmonization, mmWave propagation), network complexity, regulators (globally as each country has its own agenda), resolving key standards, infrastructure needs (small cell siting and fiber densification), ecosystem development, timing the market/demand, security (especially with IoT), a “pivot” to compliant commercial deployments (as AT&T/Verizon may launch ahead of standards), and disrupting business models. To that last point, market dislocation seems to be around cable as fixed wireless and/or the move to IP video distribution is a concern. The PC and gaming console markets may also suffer from dislocation like never before. www.cowen.com 7 Cowen and Company Equity Research January 23, 2017
When Will 5G Materialize?
In some ways, we are seeing impacts of 5G today as current 4G network/fiber densification is laying the groundwork, meanwhile Verizon is in the midst of launching hundreds of nodes for its pre-standards trial across 10 markets and commercial launch. Thus a residential fixed wireless solution could come as early as late-2017, though Verizon stated it is too early to forecast beyond the trials “but we will be first”. Others suggest the customer access portion of 5G will come as soon as technically feasible.
When speaking about a timeline, most companies relied on the standards roadmap, with Release 15 (fixed wireless, V2X) in June 2018 and Release 16 (true mobile 5G, IoT) completed by March 2020, thus the majority of the industry will embrace 5G in 2020. Much will depend on the readiness of the infrastructure (small cell nodes and supporting fiber backhaul), the readiness of the vendor/software ecosystem, and subsequent market demand. At a recent conference Qualcomm noted that “it’s a decathlon, not a single event”. Perhaps a “killer app” can accelerate demand (video, VR, something not yet imagined) to convince users to pay up for new state-of-the-art yet expensive devices/headsets. The gaming industry suggests 4-5 years, or 2 years after nationwide rollout as we need devices that can handle the performance and battery life.