5G Impact: Sector & Stock Watchlist

5G is a much talked about upcoming technology. At Ace Equity Investor, we continue to bring you the latest industry trends via free for life newsletter service, AI Post. A few weeks back, we wrote a primer article on 5G in which we familiarized you with what and how of 5G in a simple language. Before you continue on today’s article, it is recommended to go through our earlier post by clicking here.

5G will change the way we communicate with technology and it will usher in many new business applications. Needless to say, this will have a profound impact on our day to day life. 5G is not just one network but a network of networks. In today’s article, we will explore various scenarios where 5G can benefit human beings. These scenarios are being explored at various places across the world by technology companies (like AT&T, Docomo, Qualcomm, etc). We skimmed through various research reports from Siemens, PWC, Huawei, Accenture, etc & white papers from Mobile Congress, 5GPP Europe, TechUK, Research Gate, etc to understand and summarize probable impact on sectors & stocks in Indian context. Some of the illustrations have been borrowed from them to simplify the context.

Please be patient as it is going to be a bit lengthy article but it will not bore you as the language is kept simple. Let’s find out more details about it.

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5G Digital Ecosystem

There are two main features of 5G which will enable multiple business applications: 1) High Speed Data Transfer & 2) Connected Devices.

Mobile phones have already become smart but in 5G roll out, apart from just mobile phones, there will be other devices which will become smart, like your car, fridge, Air conditioner, etc. Together these devices will automate and digitize our lifestyle. As per world mobile congress white paper, these devices are also supposed to act as repeaters, so that the device in your basement also gets adequate data coverage without being able to reach to your broadband router located on the second floor. Also these interconnected devices will help to make network more resilient in the event of a device failure since other devices can act as repeaters.

The possibility of a number of applications are limitless in 5G. At industry level, there are 5 main business verticals that are being explored at the moment by various companies. Below table summarizes these business use cases. We discuss each of these business use cases as well.

Industry VerticalIdentified Business Use Cases
AutomobileAutomated Driving
Road Safety
Traffic Management Services
HealthcareAsset & Equipment Management
Remote Assisted Surgery
Robotic Surgery
Patient Healthcare Management
Smart Medication
EnergyGrid Access Management
Grid Backhaul
Grid Backbone
Media & EntertainmentUltra High Definition Media
Immersive Mobility Experience
Augmented Reality Games
Live Event Experience
Manufacturing (Factory)Automated Manufacturing
Process Optimization for time-critical
& non time critical applications
Remote Maintenance & Control
Connected Goods & Products

Automobile

This will be the first retail industry where we should see realizable benefits coming out of it. As cars become smart, they will be communicating with various entities all at once. Below are various types of car communications:

  • With other cars on the road: To avoid collision
  • With Traffic controller: To follow traffic guidance from the controller
  • With Manufacturer: To send real time data about car performance. Predict any potential defects in future.
  • With other third party providers: For other value added services like in-car entertainment, etc

As per Accenture report published in 2016, it is expected that by 2025, all cars will be connected while their capabilities may vary as per models. With internet of vehicles (IoV), it can reduce the number of accidents and causalities. With machine on wheel, the accidents caused by human mistakes shall get minimized. In most of the developed countries, population is ageing and with that, drivers are also ageing. IoV can avoid the impact of this demographic change on road accidents. Countries like South Korea & Singapore are planning to deploy Vehicle to Everything (V2X) modules for information exchange with vehicles & infrastructure. IoV is capable of streamlining traffic which should result in lesser traffic jams. As per analysis, it can increase traffic capacity of existing highway by 2-3 times from current capacity. As per McKinsey report, it will allow humans to save up to one billion hours. This can boost productivity for humans.

Healthcare

Traditionally healthcare industry has not been very digital savvy as most patients prefers human interactions and more manual methods of treatment. This is good till the time doctor to patient ratio remains healthy. It is not the case in many developing countries and with growing population, the pressure on healthcare system will be tremendous. Either by choice or by force, this industry will have to embrace digital healthcare services in the near future to cope with ageing population. There are various innovations in healthcare that being explored within the gamut of 5G as depicted in the below image.

  • Remote Surgery: Using video and augmented reality combined with advanced robotics.
  • Wearable: Devices to track and alert patients & doctors.
  • Medical Asset Management: Using wireless connectivity to manage medical equipments, especially the critical equipments which need to be managed with extreme care.
  • Remote OPD: Using various medical technologies for examining a patient at pre-set appointment within the comforts of home.
  • Smart Medicine Administration: Using specialized sensors to control & regulate patients who need constant medication. Based on their health, medication can be increased or decreased without waiting for doctor’s appointment.

Out of all the above areas, remote surgery is going to be very complicated and would need extreme care. There is no room for latency and error in precision. However, this will be a game changer as there are only limited number of surgeons and patients have to often travel vast distances to avail their services.

Energy

Current challenges in energy management revolves broadly on large number of offline energy users and distribution system making it impossible for energy companies to accurately anticipate or plan energy consumption in near or distant future. Since energy & power grid requires significant heavy machinery & infrastructure, planning is must to ensure right mobilization of capital & infrastructure so that energy companies are always a step ahead of the future consumption. There are basically five key stages in any energy grid, i.e., Power Generation, Transmission, Transformation, Distribution and Consumption. At present, there are gaps in energy demand-supply across different states within India. A few state are power surplus, a few are deficit. Application of 5G in smart grid tries to solve this problem by efficient management & utilization of power assets coupled with better future financial planning.

Above picture depicts various stages of power grid and how smart grid communication can connect various components for efficient management & planning purposes. Below can be various applications of 5G in a smart power grid system.

  • Smart Management of Energy Demand & Supply: With 5G, it is possible to integrate power generation capacities from various sources like wind, water or coal to allow efficient capacity utilization of power generations based on demand. It can help to manage intermittent energy supply & unbalanced peak loads by allowing bi-directional energy transmission. A bi-directional energy transmission is when an energy consumer also supplied power to the grid. Like a household having solar power panels, can earn on units of energy supplied back to the grid.
  • Improvement in Asset Management: Since 5G aims to connect various distribution devices like transformers and other power devices, these devices can be monitored real time without any need for manual inspection. Such a system will be equipped to issue alarms in case of devices going beyond their threshold capacities. Based on load factors, new machines can be installed to cater to peak energy demands in a particular region.
  • Intelligent Energy Distribution: Online real time monitoring can also help to balance energy distribution in a real time without manual intervention. This can prevent grid blackouts and improve power availability to the users.
  • Smart Metering: Household meters can become smart and connected to distribution company systems all the time. This will help to collect & analyze power consumption patterns. This can also help to prevent power theft which is much prevalent in India.

Media & Entertainment

Media and Entertainment industry will be most positively impacted with the arrival of 5G. There can be various business use cases which will evolve with it.

  • Ultra High Definition Media: With ultra high data transfer speeds going into Gbps, a lot of media or content on channels like youtube will switch to ultra high definition. Low definition or VGA media will become junk or obsolete. The viewing experience will enhance with better frame rates, videos will look more natural & live.
  • Immersive Virtual Reality experience: Virtual Reality (VR) experience will go up a level as low latency network will ensure more engaging VR contents. Online gaming industry will benefit a lot from this. At present, due to bandwidth constraints, innovations in VR have a limited scope. With 5G, bandwidth limitations will be gone, allowing games to be more engaging with multicast & multiplayer experiences.
  • Rise of Augmented Reality: Augmented Reality (AR) is a little different from virtual reality in the sense AR deals with real world. For an example, using a smart glass, you can see an avatar of yourself walking down ahead of you. This avatar can tackle the landscapes & complexities of the real world. One of the major application can be in sport or events. There are efforts being made to use AR into live sports event, enabling viewer a never before experience.

Manufacturing

Manufacturing industry which is already witnessing manpower reduction due to automation and robotics may see even more manpower reduction as they become cyber connected. In factories of future, devices will be interconnected and physical process will be streamlined to improve efficiency. Various machinery will be able to share key data such as design, manufacturing specifications and order status. Information about machinery will be available for efficient asset management & utilization removing bottlenecks in the process.

  • Automated Manufacturing: With 5G, it will be possible to automate entire manufacturing right from customer order to shipping. Inventories can be managed using sensors, even dispatch can be tracked by machines themselves. There is a possibility of inter site connectivity whereby in case of fault in a factory, adjacent factory can take that load without wasting any time.
  • Process Optimization: Using technology, manufacturing process can be optimized to manufacture more time critical or high priority goods over non time critical goods. In typical factories, they work in assembly lines and all goods are manufactured in the same time as machines can not be programmed during the operation since they are not fully automated.
  • Remote Maintenance & Control: It will be possible to remotely track & manage machines as there will be no need for physical inspections all the time. This will allow manufacturing companies to reduce on-site maintenance staff & keep dedicated command centers at a central location.

Stocks Watchlist

If you have not got bored & read till here, you must have got a good sense of how 5G can impact different industries. The scope is pretty wide. Instead of being a stock specific impact, we believe 5G will impact all companies as they need to adapt to new 5G way of doing business to remain competitive. However, the enabler of 5G which will be arguably technology companies. They will benefit the most from it. During initial stages of 5G roll-out, optical fiber companies like Sterlite & Aksh Optifiber will enjoy the benefits. Post fiberization, the telecom operators like Airtel & Jio will benefit however their benefit will depend on industry rivalry as well. Companies dealing with embedded technologies like Sasken & Persistent could do well at this stage. Finally the companies from Automobile or Healthcare industries which are going to adopt 5G at an early stage will get the early mover advantage as well. Hence there is no specific stock watchlist (apart from optical fiber manufacturers & technology stocks) at the moment. There is a strong possibility of new foreign players entering Indian marketplace with advanced technology to exploit 5G productivity gains in India.

As 5G evolves further and gets deployed in our market, more clarity will emerge. As of now, we will keep an eye on the situation. There can be potentially many beneficiaries from communication stocks to battery manufacturers etc. We have already recommended two stocks which are actively involved in the development of 5G. As and when we see a new opportunity, rest assured it will be recommended by us as part of our stock recommendation service like Tiny CAPS (TC) & MultiCAP Multibagger (MM).

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