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5G: UK telcos race to keep up

The UK government plans to roll out the fifth generation mobile network in the UK by 2020, but is this realistic?
June 23, 2017

We have all experienced the dreaded 'loading' sign on a mobile phone. Minutes of misery as the little circle rotates - ruining the film you were watching, disrupting your sat nav, or interrupting your video chat.

When we are on the move, our phones rely on a complex network of band waves to connect to the internet. The frequency of those waves and the number of people trying to use the waves at the same time impacts on how effective they are at delivering the internet to our phones.

In the not-too-distant future it is not just our mobile phones that are going to rely on this network, but our cars, homes and even whole cities. The 'Internet of Things' (IoT) - whereby inanimate objects are able to communicate with each other via the internet - is fast approaching. Apple (US:AAPL) already has its smart watch, Google owner Alphabet (US:GOOGL) and Tesla (US:TSLA) are currently testing driverless cars, and smart metering systems can automatically calculate and process energy bills.

This rise in the number of day-to-day activities that rely on the internet adds weight to the problem of slow connectivity. Imagine your driverless car suffering similar loading problems to those currently suffered by your phone: your car could just stop suddenly, it could crash, or it could get hopelessly lost. In the future, the repercussions of slow mobile internet could be significantly worse than not being able to download a film on the move.

That's why telecoms companies are busy working on 5G, the fifth generation mobile network, which is expected to offer speeds up to 10 times faster than 4G, the current fastest network.

  

 

 

Like its predecessors, 5G will rely on a spectrum of wave bands to send data. What's different about 5G is it will use higher frequency wave bands which have the capacity to deliver significantly more information at much higher speeds.

But these high-speed wave bands have a problem: they can't send information very far. Lower frequency bands - particularly those under 1GHz - are much more effective at transporting virtual information over longer distances or through buildings. High speed wave bands require a line of sight between the user's device and the telecoms mast, therefore for 5G to become effective, telecoms companies must build more access points. The UK government is also hoping to free up some of the lower-frequency spectrum, previously used to transmit digital television, so telecoms companies can fill the gaps in the hig-frequency wave bands with the more easily transmittable low-frequency wave bands.

 

How do you develop a virtual network?

5G is not going to appear as the gold standard mobile network overnight. In the US and China, operators have targeted a 2019 rollout, and the UK aims to be not far behind. That may seem like a long wait, but it is still an ambitious timeline - 5G brings with it the need for new antennas, telecoms masts and a whole host of hardware.

In fact, regulators are yet to decide exactly what 5G will be. The technical standards for the new network are still being discussed by telecoms regulators, although in Europe it is expected that the spectrum will cover band waves from 3GHz to 30GHz.

In the UK, Ofcom is due to put some of the UK's spectrum of mobile networks up for sale later this year. As per the 4G rollout, the UK's telecoms companies will have the opportunity to bid for the spectrum at auction. At present, BT (BT.A) and its EE network own 45 per cent of the country's usable spectrum between them, compared with 28 per cent for Vodafone (VOD), 15 per cent for O2 and 12 per cent for Three. The latter two - which were involved in failed merger talks last year - have expressed concerns about the dominance of the former two companies. O2, owned by Spanish group Telefónica (TDE), has proposed limiting the maximum spectrum allowance for each operator at 35 per cent, to ensure fair competition.

BT/EE and Vodafone - the UK's two telecoms giants - have both already pledged their interest in 5G and have revealed plans to upgrade their enormous UK-wide infrastructures. Vodafone has partnered with global technology companies Huawei, Nokia, Ericsson, Intel and Qualcomm "to research 5G technologies and prepare its networks for a transition towards the new mobile standard". Meanwhile, it is expected that EE - which was the first network to launch 4G in the UK - will be keen to retain its pioneer position and be first to launch 5G. Ofcom has, however, proposed to ban the company from bidding for spectrum in the 2.3GHz wave band, which could be used to immediately bolster its 4G coverage. The 5G spectrum, at present, remains up for grabs.

Much of the early progress on 5G is being made outside of these shores. The rollout requires extensive testing: US group Verizon recently announced it would conduct testing in 11 US cities before the end of 2017. Meanwhile, network testing company Viavi said that 25 Asian mobile operators had already conducted 5G lab testing with 12 having progressed those trials into the field. In Europe, Nokia is one of the first companies to test its 5G capabilities in the lab using technology provider Spirent Communication's (SPT) new 'Lab as a Service' testing platform. And communications technology specialist Cobham's (COB) wireless division has recently developed a 'user testing' platform which it will use to demonstrate how 5G can be used to deliver the IoT.

There is also a growing need for chipmakers to develop the hardware needed to utilise the new high speed network. At the Mobile World Congress in March, Intel excited the market with a demonstration of 5G in use for autonomous cars and virtual reality. Apple (US:AAPL) is working on next generation chips which will ensure future iPhones can host 5G. And in the UK, chipmakers including IQE (IQE) and Toumaz (TMZ) are well placed to develop the host of new chips that will be required to enable the IoT.

 

IC VIEW:

Investing in the potential for 5G currently seems like a long shot. In the telecoms space, development and rollout is likely to absorb significant investment, although being the first company to deploy the network would certainly help attract new customers. Here, we favour Vodafone, which looks to be well on its way to recovery, particularly given the upcoming merger of its struggling Indian subsidiary. We also recently turned more bullish on TalkTalk (TALK) and Telecom Plus (TEP), but consider these two minor players to be on the back foot when it comes to 5G deployment.

BT's challenges remain extensive. The upgrade of its broadband division, Openreach, is likely to absorb significant capital in the coming months and problems are ongoing in its Italian subsidiary. Whether these problems will have an impact on the group's 5G rollout remains to be seen.

Chipmakers whose products may be drafted in to help telecoms companies roll out 5G could be well placed to benefit. That said, Imagination Technologies (IMG) recently demonstrated the risks of being a chip provider to a large technology company. While there is a lot to be gained from investing in the early-stage development of 5G, its elusiveness - particularly in the UK - makes it a high-risk investment at present.