The 5G revolution provides an opportunity for communication infrastructure operators and investors.

With data usage projected to increase over five-fold by 2025, communications infrastructure will require significant enhancement in order to support the data explosion.

In AMP Capital’s latest paper on communications infrastructure, Giuseppe Corona, Head of Global Listed Infrastructure, and Jason Aront, Portfolio Manager, focus on 5G, exploring the history of telecommunications networks from 0 to 5G, explaining the current wireless infrastructure landscape and the technology behind the new generation’s development, and identifying investment opportunities in the 5G rollout.

Revolutionary technologies continue to fundamentally change the way we live our lives, with the new revolution led by the internet of things, smart cities, artificial intelligence, autonomous vehicles, remote computing and virtual reality.

By 2020, the number of connected devices is expected to reach 50 billion according to Cisco, which is four times the number in 2010. Whilst 4G was a transformational step in mobile technology, it was never designed to handle so many devices and as a result the network has become slower and more congested. This situation is only getting worse as ever more devices are getting connected, and therefore 5G is slated to be the solution for many years to come.

In order to deliver a faster, denser and more reliable mobile network, 5G will utilise various technologies and communication techniques working together in a seamless way, meaning the transition from 4G won’t be instantaneous. Governments understand the imperative of facilitating the path to 5G and bringing together the relevant expertise to make it happen.

The move to 5G technology is expected to have a significant economic, social and environmental impact on our lives. Enabling improved mobile broadband, massive machine-type connectivity and very reliable and low latency communication, 5G technology will be embraced in areas as diverse as transportation, the home, healthcare and entertainment.

This paper focusses on the defining characteristics and technologies behind 5G and what makes the new generation of communications revolutionary in enabling the applications of the future. We also look at the infrastructure requirements for 5G and the need for macro cell sites, small cells and fibre to work seamlessly in an integrated network in order to deliver the full benefits of 5G.

The opportunities for infrastructure investors

Towers businesses: Mobile service carriers have historically owned their own communication infrastructure (specifically macro towers) and considered them strategic, as they enabled a true differentiation of network performance. But in recent years, an independent tower operator model has emerged. Under this model, a tower operator offers long-term leases to carriers, the price of which tends to increase annually by the rate of inflation. These tower companies host equipment from multiple carriers and therefore can provide coverage on a much more cost-effective basis than a carrier could; independent tower operators can have over four carriers on one tower, which compares to just one tenant for towers owned by carriers. Adding an additional tenant results in only a small marginal increase in operating costs and therefore this business model has very attractive operational leverage.

Whilst the US has led the way in terms of this model, the rest of the world is following as carriers around the world sell towers in order to reduce capex needs and improve their profitability and balance sheet by monetising these assets, which are much more valuable in an independent operator’s hands than their own. US tower companies, and now their European peers, are growing their independent tower operator business model internationally.

The 5G revolution provides an opportunity for communication infrastructure operators and investors, given the requirements of upgrading towers and densifying the network through fibre and small cells, to meet ever-growing demand for connectivity.

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