Get ready for the next big tech disruption

By Sharon Ho | October 10, 2018 | Last updated on October 10, 2018
3 min read
Global Communication
© lixuyao / Thinkstock

Downloading a high-definition movie in seconds. Autonomous cars being able to communicate with one another. Those are just two of the promises from the next big technological disruption: 5G.

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5G—otherwise known as fifth-generation mobile networks—will bring extremely fast service with wide bandwidth and speedier load times (also known as low latency), said Craig Jerusalim, senior portfolio manager at CIBC Asset Management, during a late-August interview.

“A good analogy I like to use is to think about the 401 highway [in Toronto] being widened to a 12-lane highway with everybody driving Lamborghinis, and the low latency piece means there won’t be any accidents or interruptions,” said Jerusalim, who manages the Renaissance Canadian Dividend Fund. “The possibilities are immense.”

5G could be 100 times faster than 4G, the current network technology (also known as LTE, or long term evolution).

Economic growth from adopting 5G technology is forecasted to be $40 billion by 2026, said a June 2018 report from the Canadian Wireless Technology Association. The report predicted that constructing the 5G network would create 154,000 temporary, direct and indirect jobs between 2020 and 2026.

Canada will auction key wireless spectrum for 5G networks in 2020.

The allure of 5G is it “will unlock many possibilities for change” for communication among autonomous vehicles and smart devices, said Jerusalim.

The real excitement of 5G for will come from “consumer, industrial innovations that haven’t been even conceived by utilizing big data, artificial intelligence, virtual reality and augmented reality,” he said.

Challenges of 5G

Unlocking the potential of 5G will cost telecommunications and cable companies billions of dollars, Jerusalim said. The large cost means companies will likely enter into network-sharing agreements to “dampen that spend.”

Rogers Communications Inc. said in April it would start testing 5G networks in Toronto and Ottawa over the next year, in partnership with Ericsson.

Infrastructure poses another challenge for 5G implementation. 5G waves can’t travel as far or permeate through buildings as well as 4G waves, Jerusalim said. Many more small towers, otherwise known as small cells, will be needed to transmit 5G waves.

“There’s an need for up to as many as 10 times as many as these small cell sites to accommodate these specs,” Jerusalim said.

He expects to see a further blurring between wire-line and wireless as 5G will effectively be offering high-speed wireless. Companies who can’t offer high-quality connectivity everywhere will be disadvantaged, Jerusalim said.

“The dumb pipes offering this connectivity won’t seem so dumb when the communication providers [are] able to charge increasing amounts, since consumer utility will be so much greater and I believe customers will be willing to pay up for it,” the portfolio manager added.

The winners in the race to implement 5G will be the companies who have fibre infrastructure from their wire-line businesses and the scale and foresight to invest early. All three incumbents (Rogers, Telus and BCE) are well-positioned relative to their smaller peers, Jerusalim said.

“Telus’s free cash flow profile, balance sheet and small cell investments to date put them in a particularly strong position for continued long-term success,” he said.

This article is part of the AdvisorToGo program, powered by CIBC. It was written without input from the sponsor.

Sharon Ho