Wednesday 8 August 2018

Upcoming 5G Network Technology and Imminent Threat to Netlink Trust Business

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. 


  1. I think it is unrealistic for everyone to use only 5G broadband. I mean total replacement of home fiber broadband, that is not cost effective.

    For current unlimited data plan, telco will throttle traffic once certain threshold is meet.

    From cyber-security point of view, wireless traffic is more vulnerable to interfere and interception.

    Fixed line also compliments 5G wireless as redundancy for each other.

    And telco need fiber optic to connect all the base stations.

  2. Agreed with the author because I was skeptical that SingTel was willing to sell part of NLT if it is something so good and secure to provide them with stable recurring income. Retail pay a premium for IPO and still get at least 5% yield, so for SingTel their yield may be double (at cost). I did not apply for the IPO nor buy when the share price plunged recently (which also means something to me).

    1. I thought the regulators forced singtel to divest from nlt?

    2. IMDA forced Singtel to divest because its seen as a monopoly. Please get your facts right before jumping into conclusions.

  3. 1. Does not make sense for an individual to subscribe only to wireless because of the amount of data consumed in household. We have at least 5 devices connected to the broadband. It will be too expensive to go full wireless.

    2. 5G makes sense in Australia and may be a threat for their NBN because of the structural difficulties in rolling out fibre to each household given the size of the country.

    3. NLT will participate in the roll-out of 5G no matter what because of its extensive fibre infrastructure nationwide.. The telcos have to use NLT's fibre in residential areas because it just makes more economic sense.

    4. Cash-flow is not a key risk to NLT.... NLT is guaranteed a pre-tax WACC of 7% from IMDA under the Regulated Asset Base model (RAB).The prices that NLT charges is mandated under the interconnection offer (ICO)

    KEY RISK to NLT is the change of regulatory regime. The next review is 2022.

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