Understanding the impact of market-altering technology is a fundamental challenge. The worldwide rollout of 5G is one such technology, the full impact of which is likely to transform society over the coming decades. So far, Asia has led the way, helping us to understand the service's implications and importance for consumers and businesses alike. The region's experience also points to the vast opportunities 5G technology could bring.
Connectivity lies at the heart of the transformative effect that 5G will have on the marketplace. Themes that have been widely discussed in the media, such as smart cities, smart homes and the internet of things (IoT), could all be realized with the benefit of the considerable scalability offered by 5G. However, these new-age developments hinge on the promise of 5G – that the latest iteration in the “G” series will be unrecognizable from its predecessors in terms of speed, latency and bandwidth. Although uncertainty remains, what seemed like lofty initial predictions of 5G's capabilities, such as 10 to 100 times faster speeds or the supporting of far more traffic, appear to be moving towards reality.
To make these predictions become part of our daily lives, many operational challenges must be navigated. These challenges include the need for complex multi-layered networks, a considerable amount of cleared spectrum, and significant capital injections to fund the growth phase. At present, much of the 5G rollout has been built on top of the existing 4G infrastructure, which will remain the default network until fully integrated and stand-alone 5G networks are complete.
A completed 5G system will ultimately comprise three separate physical networks, each aiming to achieve different goals. Working together, these will provide high-speed bandwidth, guarantee low latency (i.e., limit the delay between an instruction and a transfer of data) and consume less power than 4G. Beyond a multi-layered network, 5G will also make full use of the entire cellular communication spectrum, which is necessary for vastly increasing bandwidth. Finally, the introduction of 5G requires substantial amounts of capital both to construct and maintain these advanced networks.
Indeed, when considering the changes, cost looms large. The amount of money needed is critical, especially when considering the differences across Asia, given the varying stages of economic development from market to market. Time to market will vary and will depend on how the service is introduced in each territory.
Asia leads the world
South Korea was the first country in the world to launch 5G services, and the country now boasts approximately 11 million subscribers, representing more than 15% of its mobile subscription base. In terms of coverage, it is a world-leader, benefiting from its spectrum auctions in 2018. By contrast, many other countries have yet to put up the necessary spectrum for auction. The successful implementation of 5G services, according to our analysis, depends on government support, an area where South Korea has clearly benefited.
Similarly, in 2021, the Chinese government pledged to speed up its 5G programme, starting with major cities. The country already boasts over 200 million 5G subscribers, with Huawei estimating that 5G users could account for 20% of China's mobile subscriber base by June of this year.
Although no definitive answer can be given as to when the full potential of 5G will be felt across global markets, East Asia will be one of the first regions of the world to realize 5G’s potential.
Driving global growth
Without a full-scale rollout, it is impossible to forecast every application 5G will facilitate. Yet, some opportunities in both the consumer and enterprise spaces have either already emerged or appear close to the horizon.
Consumers in South Korea are already benefiting from improved speed – more than 30% of total data traffic is now over 5G networks, allowing people to enjoy enhanced gaming solutions and more effective smart-home devices.
For enterprises, the main benefits revolve around the IoT. In particular, 5G is expected to play a pivotal role in the healthcare and auto sectors. A specific example here is 5G for autonomous cars, which is likely to consume more than one terabyte of data per month by 2025, up from 30GB for the advanced vehicles available in 2018. Moreover, according to an economic study by IHS Markit for Qualcomm, 5G could enable as much as US$13.2 trillion of gross economic output and create 22.3 million new jobs globally by 2035.
Importantly, beyond being an inherent driver of economic growth, 5G will also serve as a catalyst for improving other technologies such as artificial intelligence (AI) that rely on a huge amount of data to enhance the effectiveness and efficiency of processes and machines in many industries.
A successful build-up of 5G across the globe will transform markets. The final shape of this change is still unclear, but we continue to believe high-quality companies remain best placed to take advantage of this secular growth trend, and we encourage investors to capitalize on 5G’s significant sustainable growth potential in their portfolios.
Michael Solecki is chief investment officer for Fundamental Growth and Core Equity at State Street Global Advisors