The onward march of 5G: will small caps benefit?
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5G in Australia: where are we at?
Telstra (ASX:TLS) has rolled it out in major CBD areas, some airports, Gold Coast and Toowomba, and has a coverage map on its website, while Optus has committed to turning on 1,200 5G sites by March next year.
So it remains “early days” for 5G in this country, according to Morgans analyst Nick Harris.
His view in June was that the Australian government’s blocking of Chinese telco Huawei, as well as the ACCC’s vetoing the merger between Vodafone — half-owned by Hutchinson Telecom (ASX:HTA) — and TPG Telecom (ASX:TPM), would “slow 5G rollout plans of Telstra competitors Optus and Vodafone who rely on Huawei and expand Telstra’s competitive lead”.
“We have a long way to go before it becomes a commercial outcome,” he tells Stockhead now. He is also of the view that good old fixed line services are having their moment in the sun.
“The advancements in fixed line have exceeded mobile,” he says. “You can fit way more traffic over fixed line versus mobile services.”
Pricing for NBN and fixed line plans have been increasing, which Harris has said would benefit telco margins.
Nonetheless, recent EY analysis suggests 5G will play a critical role in the era of internet connectivity, and the technology could benefit more than just telcos at the top end of town — it has ramifications across several tech sectors, from telecommunications to Internet-of-Things.
“There is an opportunity for smaller companies to help with the rollout of 5G, providing services to the big end,” Harris says. However, he points out that the investment required to enter the 5G market could be cost-prohibitive.
“If you already have assets like towers then it may make economic sense to invest in 5G, but if you’re starting from zero you’d be better off rolling out fibre,” he says.
Overall, Harris predicts that for the foreseeable future, we will likely continue to see an Australia utilising a range of networks — 5G where available and working, 4G as a fallback, 3G as a fallback if 4G fails, the NBN and fixed line services.
The confusion over the state of the 5G rollout in Australia is reflected in the share price performance of telco players.
In the past six months, the sector is up 34 per cent, but that is largely thanks to Uniti Wireless (ASX:UWL), a provider that listed earlier this year and has enjoyed a 714 per cent gain.
With the exception of Uniti, the sector is up just 3 per cent on average.
Telstra has gained 12 per cent in that time, while cloud communications provider Megaport (ASX:MP1) has graduated to big cap status with a 116 per cent gain.
So will small cap investors benefit from the rollout of 5G? Likely, if they’re also holding some of the big caps. Maybe, if they have shares in small cap companies providing peripheral services to the 5G rollout. But, also, maybe not.
Here’s a table of ASX-listed telco stocks and their share price performance over the past year:
Scroll or swipe to reveal table. Click headings to sort