The first generation ‘1G’ wireless telecommunications standards began in the 1980s. Each subsequent “G” refers to a new decade of updated minimum industry standards. 2G was the 1990s, 3G was the 2000s, and so on. By the end of the current decade, we’ll be talking about 6G and the latest and greatest standards for the 2030’s. Since 5G is often in the news, we thought we’d cover it this week to add some clarity to the topic and what it means for investing, progress and innovation.
Historical context to date
We can’t see electromagnetic waves with the naked eye, but they are there. In 1864 James Clerk Maxwell theorized that we could produce and detect electromagnetic fields. Shortly after, in 1888 Heinrich Hertz demonstrated the existence of these waves. In his honor the “cycles per second” measurement of electromagnetic wave oscillations were named Hertz.
By 1895 Gugliemo Marconi became the first inventor to use this breakthrough electromagnetic frequency concept to transmit morse code messages over a distance of approximately half a mile. It was theorized at the time that radio waves could not travel beyond the half mile distance. Like many technology skeptics, that distance assumption was wildly incorrect. By 1908, transatlantic radio communication was in full operation and considered to be a major strategic military advantage. Once modern computing and semiconductors were discovered and refined, the floodgates opened for the development of mass communication devices. I mentioned these dates because it only took roughly a century to develop that technology to connect nearly every human on the planet.
Fast forward to the “Gs”
- 1G – 1981 – Analog wireless voice transmission. No encryption which means no privacy or security. Calls could be listened to via a scanner.
- 2G – 1991 – Full digital transmission opened the door for data communication. SMS texting is introduced. Transmissions are encrypted which allows for privacy.
- 3G – 2001 – Significantly increased bandwidth allows for the first wireless video calls, mobile internet access and multimedia messaging. Opened the door for the initial success of the Blackberry followed by the revolutionary rollout of the iPhone.
- 4G – 2011 – Increased bandwidth standards allowed for high-quality video streaming, online gaming, video conferencing and cloud computing. The Internet of Things becomes a reality as more devices are designed with wireless communications capabilities in mind. The rise of the app store coincided with better bandwidth and trillions of dollars of value is unlocked via creative mobile software innovation.
- 5G – 2021 – Gigabyte speeds and low latency are achieved over cellular networks. Nearly every piece of our wireless network needs to be upgraded in order to meet the new minimum standards. The iPhone 12 is the first and only iPhone to date capable of participating in the 5G network.
- 6G – 2031 – Possible Terabyte sized data transfer speeds and extremely low latencies for large numbers of devices at once. Artificial intelligence will likely play a key role in prioritizing, coordinating and controlling devices.
What will 5G enable?
5G is a communications revolution focused on flexibility. It’s a fundamental upgrade of an essential building block of modern computing and connectivity that will lead to an explosion in creative use cases. The low latency, continuous high bandwidth connectivity will allow for precision where precision is mandatory. Here are some of the new doors that 5G can open:
- Cars: remote operation, platooning (coordinating speed and braking between groups of vehicles), real time data collection on operations and environment, enhanced intelligent driverless capabilities like recognizing and communicating with stop signs, highway exits, etc.
- Medical: remote monitoring and data sharing for preventative care or recording and transmitting vital signs during emergency situations prior to arrival at ER.
- Drones: portable wireless networks built within drones that can be deployed in emergency situations where coverage is unavailable, automated and coordinated delivery of packages, immersive low latency production experiences with AR/VR connected drone broadcasting, etc.
- Factories: remote control of factory robotics, automated coordination of all factory activities including pickup and delivery, AR/VR monitoring of factory conditions and procedures, etc.
- Smart energy grids: Better data sharing between energy supply and demand nodes leads to better energy grid management. The opportunity to optimize energy usage and reduce energy waste is significant. STEM is one smart grid company that we are particularly excited about.
- Ubiquitous AR: Continuous high-quality augmented reality is estimated to need at least 2G/second download speeds. Augmented reality is still in the early stages, although Facebook has been actively investing billions into the future of AR and will likely emerge as a dominant leader.
How to invest in 5G
It’s relatively easy to predict the next generation of innovative technologies as they are often in development for years or decades prior to coming to market. It’s much harder to predict how these new technologies will be monetized. 5G-related investments have been around for a while now and fresh opportunities will continue to present themselves over the coming years.
Semiconductor design and manufacturing companies immediately come to mind as the top current contributors to the 5G rollout. Integrated circuits are the building blocks of the modern world and the 5G ecosystem. Companies like ASML, which we’ve mentioned many times in the past, are responsible for building the world’s best equipment for semiconductor manufacturing. Xilinx, Intel, NVDA, AMD, Texas Instruments and Achronix are some other leaders and innovators in 5G. The other major current 5G players are the telecom companies like Verizon or AT&T and the tower networks themselves like American Tower or SBA Communications.
Cloud security will be increasingly important throughout the 5G rollout. If we are going to scale our network exponentially and expect it to operate with perfection, we will need to adopt new sets of security standards. The Zero Trust framework is quickly becoming the default standard by introducing new security features like context-based verification and UEBA (User & Entity Based Analytics). Companies like Cloudflare, Crowdstrike, and many others are leading the way in implementing these standards.
Data warehousing and artificial intelligence software will be used extensively as the “brains” of the 5G network. Since 5G is still in its infancy, it’s worth being patient to see how emergent leaders identify themselves. Every major cloud company will surely be involved, like Microsoft, Google and Amazon. Newer cloud companies like Snowflake will likely play a major role as well. Given how the best companies can command the highest valuations, it’s important to be cautious about entry points. Patient investors will likely find many opportunities to successfully allocate to the wave of 5G innovation and its associated economic tailwinds over the coming years.
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