Could 5G be a beneficiary of COVID-19 stimulus and could these small cap telcos benefit?
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Governments around the world are keen to minimise the damage of COVID-19 on the economy and companies involved in building 5G technology could potentially benefit.
Bloomberg Intelligence believes China will ramp up its 5G network roll out and finish 2020 having quadrupled the pace from 130,000 base stations built to 550,000.
“China’s early, widespread 5G deployment could entitle it to the spoils of first-mover advantage, including an edge in developing business and industry applications. An aggressive network build-out should fuel demand for telecom site resources and equipment,” analyst Denise Wong says.
Before COVID-19 hit, Australia’s telcos were already planning to ramp up the roll out of 5G technology. While it already exists in Australia, Telstra (ASX:TLS) will launch the first “millimetre wave” customer trial in the middle of the year.
While early 5G networks in Australia have similar wireless frequencies to 3G and 4G this “millimetre wave” technology helps it reach its full potential.
Ordinary citizens may not notice anything different other than faster internet — 5G reportedly works 20 times better than 4G, according to the Internet of Things World Congress. But many things will change for companies
For example they will be able to execute software directly from the cloud rather than storing information (through installed apps), have more interconnected devices and control machinery remotely.
It will also make it easier for people to continue to work from home, a trend that is predicted to hang around even once the virus is over.
But to make it possible there will be a need for greater investment in infrastructure both physical and digital to bring them up to speed.
For example, Bloomberg predicts 5G needs 30 to 50 per cent more base stations than predecessor networks because of the smaller-radius cells demanded by 5G’s high frequency radio waves.
More radio transmitters, or small cells, will also be needed to deliver quality indoor coverage because higher-frequency signals are less capable of passing through physical structures.
One company playing a part in the roll out of 5G technology is 5G Networks (ASX:5GN), which is building data storage centres.
“The future mode of operating for both government and business will now change,” managing director Joe Demase told Stockhead.
“COVID-19 has meant more demand for service flexibility, control and service agility will be required in the future.
“Our expectation is therefore biased towards significant demand for both cloud and cloud infrastructure as a result of both the virus and 5G technology adoption.”
All these technologies were possible for businesses before COVID-19, but Demase believes this crisis, which struck suddenly, is the wake up call for businesses to invest in their digital infrastructure.
“This has shone the light on the absolute need for housing, managing and accessing critical data, its infrastructure and associated platforms,” he said.
“The data centre is the unsung hero in all of this activity and 5G Networks are excited to be progressing the opportunity of supporting Australian business today with our data centre services in addition to helping to build the road to economic recovery.
“Every data centre is very important to the Australian economy and investors have recognised this.”
5G also represents an opportunity for investors in a number of ASX small caps in the telecommunications sector.
They have not escaped the full brunt of the bear market, although in the last week the sector is up 5 per cent.
The most recognisable names on the list are the big telcos including Telstra. But there are a handful of smaller telcos and other communications businesses as well.
The biggest winner in the last 12 months is former small cap gone big Megaport (ASX:MP1), which is up nearly 150 per cent in that time. Megaport is a cloud communications provider
Another winner is voice-over-internet (VOIP) provider MNF Group (ASX:MNF).
The company is still a small cap, but has grown its service offerings through an aggressive acquisition strategy.
There are also a handful of small caps that are building data centres, including 5GN.