5G is the latest cellular network technology to be introduced to the world. It is engineered to greatly increase the speed and responsiveness of wireless networks. The technology was rolled into South Africa in March 2020. Its introduction coincided with the COVID-19 pandemic, consequently attracting numerous conspiracy theories.
However, the long and short of it is that 5G is the new big thing in South Africa. Investors and traders are watching it closely, particularly to see how they can take advantage of influence into the Johannesburg Stock Market listed companies.
Just imagine downloading an entire high definition (HD) movie to your phone in seconds without Wi-Fi. Yes, that is exactly what 5G can do, it is more than 100 times faster than 4G. However, 5G will probably impact way more than your downloading and viewing habits, it will likely affect your investment portfolio. Like most new technologies, 5G has the potential to transform businesses and impact financial markets.
While it will be years before 5G coverage is established throughout South Africa, investors may want to start thinking about its future implications now. While past performance does not guarantee future results, every new generation of wireless technology has led to new products, companies, and investment opportunities.
Remember what happened when South Africa switched from 2G to 3G in the 2000s? Before 3G, most cell phones were primarily used for calls, texts, and MMS. But 3G’s increased bandwidth changed the capabilities of mobile phones for years to come.
An early example of this was Apple’s iPhone 3G. Released in 2008, the 3G introduced new mobile features like faster web browsing, turn-by-turn GPS, location-based services, and video on demand. It set the standard for all future smartphones and created an ecosystem of parts suppliers, retailers, and businesses reliant on the mobile experience.
Fast forward to 2019. 5G promises significant improvements, which has the potential to enable instantaneous and live communication between all connected devices.
Just imagine yourself in a driverless car where every vehicle is connected to each other, the road, and traffic management systems. You may not be thinking that far considering all the political and economic challenges South Africa is facing. Nonetheless, with 5G technology, driverless cars are about to be a reality in South Africa.
If you have used the WAZE App on an Android or Apple phone for directions before, think about it, your google maps now recognize a hazard on the road and tell a cloud-based server about the danger in the blink of an eye.
This is just one of many use-cases that could lead to exciting innovation. Although 5G is still in its infancy, there are a few ways to think about investing in new technology.
First, you can look at JSE or internationally listed companies that sell 5G compatible devices. For example, the new technology could lead people to upgrade their phones, which could benefit smartphone manufacturers, chipmakers, and parts suppliers.
But it goes beyond phones. 5G could also support The Internet of Things, or I-o-T, which is the concept of an interconnected network of wearables, machines, buildings, automobiles, and other devices.
Investors can look at specific companies within this ecosystem, or diversify across a larger group by finding ETFs focused on I-o-T.
Second, investors can focus on the companies and areas of the economy that will build the infrastructure for 5G. For example, delivery of 5G service will require wireless carriers to invest in more cell towers, nearly doubling the current amount of towers and cell sites. This could potentially drive revenue growth for cell tower REITs.
REIT stands for Real Estate Investment Trust, which is a type of company that owns or finances income-producing real estate. If these cell phone tower sites generate more revenue than expected or greatly expand, it could potentially lead to future gains for certain REITs.
However, investments in REITs and other real estate securities are subject to the same risks as direct investments in real estate, including loss of principal. And lastly, investors should keep their eye on businesses that could be disrupted by 5G.
The most obvious is internet service providers. 5G’s speed will rival Wi-Fi and may be powerful enough to provide the internet for your entire household. Just as people have cut their cable cord, internet service might be next. However, there are always risks for investors.
Even though 5G will be a game-changing technology, companies involved in 5G aren’t guaranteed to be successful. Warren Buffett used the auto industry as an example of the low probability of success.
Buffett noted there have been thousands of car makers, but only three survived from the early days: Ford, General Motors, and Chrysler.
He went on to say, “When you saw what was going to happen with the auto in 1905 you should have gone short horses..it’s easy to figure out the losers. The winner was the auto overall. But 2,000 companies just about failed.”
Market timing is another risk for investors. Not to mention, 3G took nearly a decade to become widely adopted. In short, it’s hard to tell which, if any, specific companies will ultimately profit from the rise of 5G.
But 5G is coming. Standards have been agreed upon by government agencies, and many are actively pushing for implementation sooner rather than later.
Telecom carriers, including but not limited to MTN, Vodacom and Patrice Motsepe’s Rain are laying the necessary infrastructure. Device makers in China are designing 5G capable devices. And somewhere, a wide-eyed entrepreneur is sitting in a garage inventing the next big thing.
Investors hoping to capitalize on new technology like 5G should learn from the lessons of the past, and start their investment due diligence today.