The faster than expected
development of the 5G network caught me by surprise. Just last month (July’18),
Singtel and Ericsson announced that they will be launching a 5G pilot network
test by the fourth quarter of 2018 to support drone and self-driving car tests
in the one-north district. Also, Optus (Singtel’s Australian subsidiary) and
Globe (Singtel’s Philippine Associate Company) have announced plans for the
rolling out of commercial 5G services next year. I have done up some technical
readings and post it here on the 5G technology characteristics so as to analyze
the potential implication on Netlink Trust, which is supposed to be the
backbone of our Smart Nation initiative.
Technical Characteristics of 5G
5G builds upon today’s 4G
mobile network technology. It refers to fifth-generation mobile technology
which is expected to open up industry and consumer applications with promise of
super-fast wireless connection speeds and lesser latency (lag time). 5G higher
connection speeds will be possible due to advances in current radio
technologies, increased allocations of radio spectrum, and by using many more
antenna sites or base stations than today’s networks. Each mobile antenna will
thus serve a smaller area or cell.
The one major difference
between a fixed fiber network and 5G mobile network is that the latter’s
connection speed decreases as the number of users increases. This is due to the
contention effect. If 5G network has successfully been deployed at Marina Bay
Float, Singaporeans attending the National Day Parade who are surfing the
internet to upload photos or watch video will find the less than satisfactory
connection speed. All 5G mobile devices in a vicinity connect to the local base
station and will always share its data capacity. This will not affect
users using a fixed broadband network.
5G base stations will
always need a backhaul to connect to the internet. This will likely be in the
form of optical fiber network. Hence this could be further monetize by our current
Broadband Network Operator, Netlink Trust. The problem is that while Netlink
Trust can theoretically earn some money from this, the bigger issue will be the
loss of monthly fixed line connection fees from customers of Singtel, Starhub,
M1 and TPG, that will switch to the 5G network. I will elaborate more on this
aspect in later paragraph on this scary scenario.
Will 5G Replace Cable
Broadband?
Similar to Netlink Trust
Singapore, Australia also have their own Company operating National Broadband
Network (NBN). It is interesting to note that the Australian NBN CEO thinks
that there will be damaging and intense competition from the up and coming 5G
network technology. This is a stark contrast to a study done by the Media Asia
Partners (commissioned by Netlink Trust Singapore) which gives the following
reasons on why our NBN will not face any threat from 5G:
(i)
Slower
speed of the wireless mobile network;
(ii)
Latency
issue- average time for pockets of data to travel between 2 points tend to be
slower relative to fixed broadband network;
(iii)
Mobile
networks suffer from network congestion and
(iv)
Data
limit suppression by current telco- there is no unlimited data plans on offer
in Singapore yet.
Lightning Speed Development of Latest 5G
Technology
5G provides for speeds up
to 20Gbps in theory. Current trials are still ongoing worldwide. But getting
1Gbps will not pose a challenge within the next 5 years or probably even
faster. This will definitely rival fixed broadband network.
Latency issue for 5G has vastly
improve to 1 millisecond relative to up to 20millisecond for 4G. This is
amazing as it paves the way live TV programme streaming using a mobile wireless
network.
Also once the 5G base
stations deployment begin, this will eventually cover the entire country. In a
small country like Singapore, this can definitely be achieved within 5 years. If
we take into consideration the permission clearance to access private or
commercial buildings, I reckon another 2-3 years on top of the 5 years for the
network infrastructure to be widespread and ready. Singapore has always
embraced new technologies.
Another point to add is that
in Taiwan, there are already telcos offering unlimited data plans. Fixed Broadband
operators such as Asian Pay TV have reported losing their broadband customers
to mobile broadband. Such a development will definitely happen in Singapore
with the widespread build up of the 5G infrastructure.
5G Impact on Netlink Trust
I
was very much surprised at the availability of a technology in the near term that
pose a significant threat to Netlink Trust. Initially, I thought that such
technology is at least a decade away from full deployment and mass market adoption.
From my personal perspective, this is a major threat to Netlink Trust.
The
issue of whether Netlink Trust will be commissioned to build up the 5G network
or being left to individual telcos has not been addressed. Even if appointed, Netlink
Trust will need to incur significant capital expenditure before it can monetize
the new wireless network. This will lead to inevitable reduction in cashflow available
for dividend pay out to shareholders.
The most likely scenario will
be that telcos will be investing heavily in the 5G infrastructure. While not
all subscribers will switch to wireless broadband, I envisage a strong take up rate
once the infrastructure gets build up and 5G permeate through every part of the
country. This will lead to loss of revenue and profitability despite perhaps
some upsides from the backhaul support of 5G base stations.
As alluded to the above
points, I am adopting a rather pessimistic and conservative outlook on the
future of Netlink Trust in view of the upcoming pressure on its cashflow due to
the competition from 5G. I will thus be paring down my shares in Netlink Trust
and re-deploying the capital into other businesses.
Various articles are taking different standpoints
with regard to 5G technology impact on fixed broadband network. Fellow
investors, please feel free to help share your thoughts on the outlook of 5G on Netlink
Trust.
