Many of the major wireless carriers are touting that the new era of 5G is here. But what does that mean? Will we really see any immediate effects? Epoch Co-CIO David Pearl rejoins Actively Speaking to break down this next generation wireless technology and discuss what impact it could have on consumers, cloud gaming, autonomous vehicles and the Internet of Things. (March 06, 2020)
Many of the major wireless carriers are touting that the new era of 5G is here. But what does that mean? Will we really see any immediate effects? Epoch Co-CIO David Pearl rejoins Actively Speaking to break down this next generation wireless technology and discuss what impact it could have on consumers, cloud gaming, autonomous vehicles and the Internet of Things. (March 06, 2020)
Hello and welcome to Actively Speaking. I'm your host, Steve b Weiberg. Join us each episode as we discuss current issues concerning capital markets and portfolio management from the perspective of an active manager. Hi everybody. My guest today is uh, David Pearl, who's a, a repeat guest. Uh, David is executive vice president and, uh, co-chief Investment Officer here at Epic. Welcome back, David. Nice to be here. Uh, today we are gonna talk about 5g. When you were here last time, uh, and we were talking about, um, what's going on with, you know, cable TV and streaming services, you made a reference to 5G and said, well, that's a whole other podcast in itself. So we, uh, we're taking you up on that and we're gonna devote this podcast just talking about 5g.
Speaker 2:Be careful what you wish. Sure.<laugh>.
Speaker 1:So for the, for the purposes of this podcast, pretend that I'm somebody who really doesn't know anything about this subject, which really isn't much of a stretch, uh, cuz that that pretty much sums it up. So, other than knowing that, you know, 5G clearly is, is 25% better than 4g, uh, cuz it's, you know, it's one additional, uh, g uh, on a base of four. Okay. That was a terrible joke. But why don't we start off, uh, for people like me who don't really either, uh, never knew or, uh, forgotten what all these different generations were. Do a quick review for us of what the different generations, uh, are. Okay. And what's, what's gonna be the change from 4G to 5g?
Speaker 2:Yeah. So modern, uh, cellular phones that actually use cell sites start in the 1980s and that was what we would call one G. These phones were analog signals and were voice only. So, uh, the thing about analog signal is when you have that signal, you have used the channel. There is only one person per channel. The breakthrough was using a cell site that could then dynamically switch you as you were moving from place to place. Um, you know, think of the movie Wall Street with, uh, Michael Douglass and Charlie Sheen. The phone was the size of, um, well bigger than a couple loaves of bread anyway, but, and much, much heavier. Then came two G in the 1990s, two G uh, was digital. So now you could multiplex, you could have multiple conversations over the same frequency because you were using ones and zeros and the computer could figure out which signal was from which phone, and you added text. So this was the beginning of texting, sms, uh, and that became a phenomenon around the world. Then we go to probably around 1998 or so when 3G came out, and this was the addition of data where you could finally use your phone the way people had been using their computer to browse the internet and to download things. And the phone became, in essence of computer, the big breakthrough came with the, uh, first iPhone, which really was a computer, uh, as a phone. But 3G lasted, uh, almost 10 years. Uh, and then in 2009 we moved to 4g, uh, which, uh, added a lot more, um, speed and capacity. And at this point, I'm gonna go over speed. Um, the signal in a one G phone was two kilobits a second, hard to describe what a kilobit is, but basically just enough to have a rotten voice call. Uh, then two G went to 50 kilobits a second. Uh, and that call quality was a heck of a lot better. When you did, uh, voice calls to do data with 3g, you got to 300 kilobits up to two megabits a second. So this was another large breakthrough. So in each case we have an order of magnitude of 10 x mm-hmm.<affirmative> and 4G continued this going from 10 to ultimately 50 megabits a second. So again, um, more than 10 x on average of 3g. And that was very important. Uh, particularly for more data like downloading and streaming videos. 4G is what made Netflix usable on a phone. And now we're about to enter the new era of 5G technology, which has technically already started on a couple of the carriers networks. But as I'm going to talk about it is much more, uh, complicated and more nuanced than just saying we're in the 5G era. And it's a combination of speed and capacity and latency another term. So we'll get into that and it enables new applications just as streaming was enabled at 4g. There will be things that people expect to use, uh, with 5G that couldn't have been used before, that will drive 5G usage and more devices. However, it's gonna be a little more complicated than that and I think we will try to break this up.
Speaker 1:Okay. Right. Yeah. So lemme just ask, uh, you know, a dumb question. You know, when you're in range of a wifi network, you can use wifi. So, uh, how does, you know, how do wifi speeds that we've had up to now, how do they compare to what you're gonna get on 5g? Right. Is are they really any different than 4g? Again, I, I don't really know the technical answers to
Speaker 2:These things. Right, right. So wifi is a methodology of delivering, um, data in particular over a relatively short distance. Usually computer to computer, although your computer may well be a TV with a Amazon fire or Roku box attached. Uh, but the, the speed is, um, ultimately limited by the amount of, uh, bandwidth coming into the router, which is supplying the wifi. And that comes from your cable company or your phone company if they have fiber optics. So it's really your home broadband is the term. Home broadband, um, has also progressed over the years. But to directly answer your question with 4g, the top speed of a 4G phone is about 50 me megabits per second. That is the low end of a home, um, broadband and wifi setup. So you could conceivably spend a little less money and get broadband at 20 to 40 megabits per second, but the vast majority of home users are getting a hundred plus megabits a second. So it's still faster than what you could do using your phone. And the other issue is that your phone, while it says it's unlimited, actually isn't unlimited, they will throttle you because you are using a very valuable bandwidth frequencies that they need for other cell phones. Not the same with wifi, because your home wifi only goes a few hundred feet and your neighbor's wifi uses basically the same frequencies so they can infinitely reuse those frequencies from home to home. Mm-hmm.<affirmative>, whereas cell phones, it really is a congestion issue. 5G will actually lessen that to some
Speaker 1:Degree. Right. So I guess, so the point of my question I guess is, you know, today, even with 4g, when people have access to wifi, like, oh, I'd rather use the wifi. Will 5G change that word? People say, well I don't, I don't need wifi, 5G is is better.
Speaker 2:So I didn't talk about the speed for 5g. Right? So 4G was 10 to 50 megabits a second. 5G is going to vary from a low of 30 megabits a second. So pretty much the same, but all the way up to two gigabits per second. So, uh, let's see in my, that's 40 x the capac, the speed of a 4G network, uh, and faster, or at least comparable to any home broadband. Mm-hmm.<affirmative>. So with 5g, your phone really would be as fast as your wifi at home with the priv proviso that your cell company will be unhappy if you try to stream every show from here to eternity over your phone's frequency, it would clog up everyone else's cell phone. So they would probably throttle you and charge you mm-hmm.<affirmative>. But yes, the speeds are comparable and we're gonna get into one of the big use cases. One of the big apps applications for 5G is to replace, uh, cable home broadband with wireless home broadband. Mm-hmm.
Speaker 1:<affirmative>. Okay. So you said three issues there, speed, capacity, and, uh, legacy. So let's start to capacity. Yeah.
Speaker 2:Yeah. So, you know, one of the problems with cell phones historically has been that the more users, the more cell towers and antennas you need because there are only so many frequencies. So the way to have more users is to divide up the spaces. You have the same frequency, but you use them twice as much if you have two towers dividing the population. So it's caused a lot of CapEx as this grew. Now 5G is much more efficient at, at splitting each frequency because again, every time you're using a phone, you have a signal between your phone and the tower. And that signal is limited. There's only so much spectrum. It is literally like owning land. They don't make any more and you have to, um, buy it. Uh, and each cell company has a limited supply. So these technologies have figured out impressively new ways to put more and more users on the same frequency at the same time to increase capacity. So 5G has something like a, a, again, more than a 10 x up to 40 x higher capacity. This is incredibly important. Not so much because we're gonna have many more cell phones per person, but because of the internet of things, when suddenly 40 devices in your home want to talk at the same time to some cloud computer and they have to have some connection active. Mm-hmm. So it can only been abled through 5g, 4G would be overwhelmed by this.
Speaker 1:Okay. Uh, and finally, latency. What does that
Speaker 2:Mean? So, uh, latency is the, the time it takes to send a signal back and forth. And it is an inherent issue, um, for all of these technologies. Uh, 4g, uh, has a 20 to 30 millisecond delay when you talk and it's faster going downstream to to you than upstream. 5G is essentially, uh, synchronous. It's, it's the same up and down and it can reduce from 20 to 30 down to 10 to as little as one millisecond. Now for most of us, we're never gonna notice this truthfully, when you're loading a webpage or doing a voice call. But think of an application like cloud gaming. You can now have the possibility of using your cell phone the way you'd use a console controller and the cloud will be your computer. And because the reaction time between you pressing your phone button and the um, screen and the player on the other side of the world playing you is less than one millisecond and it will actually look like you're in the same room. Mm-hmm.<affirmative>. And that was not possible with the 20 to 30 millisecond delay. So latency's very important. The other very important reason for this is autonomous vehicles that in order to have a car be autonomous, yes it will have to have a lot of processing on board. But for many of the things that a car will sense, it will be having to talk to computers all over the country, and particularly locally. There should in a longer term be computers in the light signal, the green and yellow light. Uh, also some traffic monitors that tell the car what to expect. And it has to be in constant contact with these and other computers to drive the car safely so that, uh, latency is only overcome using 5G technology.
Speaker 1:Got it. Before we recorded this, we were chatting a bit about this and uh, you were discussing some of the sort of technical issues, uh, that plague 5g that having to do with, uh, trade off between the frequency and power and the fact that the signal because of the frequency is and the wavelength faces certain physical obstacles.
Speaker 2:Truly well said. So to elaborate on what Steve said, it is a lot more complicated than most people think. There is a trade off, and this is just physics between the wavelength or frequency is the inverses wavelength and the amount of energy it carries and the distance that the signal will go. So it's a trade off between power and distance. In particular, the, the lower the frequency or the longer the wavelength, the further the signal will go and it will penetrate objects like buildings. So if you wanted to have the maximum coverage for cell signal, you would use low frequencies. And most of our carriers use these frequencies. They're around 600 megahertz to 800 megahertz. There's a mid band that goes from two gigahertz to four or six gigahertz, and then there's a high band that goes well above something like 10 gigahertz and above. And the issue is that to have very high speeds, you ultimately need the highest frequency, those 10 and above gigahertz. But those are the frequencies that go shorter distances as little as a mile and are interrupted by physical objects, even leaves and snow. And so the carriers have been working for years with the technology to get an optimal balance between speed and distance. So in other words, um, one of the carriers has said they already have a nationwide 5G network that is technically true, but it's using 600 megahertz, the very low frequency band. And so it goes a very long distance. That's why they can claim that nationwide coverage, but the average speed will only be 30 to 200 megabits a second. On average it'll be 25% faster than 4g distance to distance, but not so much that you're really going to care as a consumer. So 5G in that respect is a little more of a marketing gimmick. Yes, it's coverage and yes, it's 5g, but you won't have a heck of a lot of advantage over 4G to have that big speed. One to two gigabits a second. Something where, you know, again, you can do new things like gaming. Uh, autonomous vehicles will send a lot of data back and forth. You're gonna need a higher band. The problem with this is there's very little of this spectrum available to the cell phone carriers. In fact, they're still trying to get it back from things like the military. And this is still being worked on actively to basically reacquire these frequencies. So one of of them is working on 28 gigahertz and 39 gigahertz. It will be in the current generation of 5G phones and those will have very high speeds. But at the moment, that carrier, I will not name them, only has about 30 locations in the country. And again, the distance is only about a mile where you can get these kinds of speeds mm-hmm.<affirmative> and they would have to have a heck of a lot of towers given the one mile radius of this frequency. So, you know, that's the trade off we're gonna see. So for most practical purposes, a true 5G high speed network is still a few years out. Uh, not so much cuz of the technology, it's because of the lack of frequency and the amount of capital expenditure to build the amount of towers given the limitations of that
Speaker 1:Frequency. Um, okay. So you, you said before that, uh, the ultimate goal or or plan for this is to ultimate for it to replace cable internet service at home. Talk about that and, and you've got companies like Verizon who, you know, how does this trade off work for them? They, they're in both sides. They're on both sides of that trade.
Speaker 2:Right? So, so at least to finish off for consumers, I think the takeaway is 5G will be a nice to have on your cell phone for this year or next year, but really for most people will not be a huge difference in functionality. So I think it'll be a little more of a marketing gimmick initially. And over the next number of years when it does get to high speeds will then be an alternative for many people to even using uh, cable in their home because their phone may be as fast as any connection that they could get from a cable company or their phone company. Now the opportunity for the carriers and others now is to bring the speed specifically to home users and replace broadband that they've been paying, uh, from a cable company, which is a monopoly cuz they had to lay cable dig holes in the ground and spend billions of dollars to wire neighborhoods. And now with much less money, you can wirelessly deliver the same speed. So it would be a great benefit to consumers to have optionality and competition and to the carriers, um, to have the ability to go into places where they couldn't compete before. So with the Verizon example, if they're already in a neighborhood, well they wouldn't be wanting to compete with themselves, but if they had a new customer instead of having to then extend cable from the neighborhood, uh, they call it a head end to your home, which would still in, uh, require a lot of labor and money to dig holes and the install takes a number of hours, they would be able to replace that with one antenna placed strategically in the neighborhood and giving you an antenna that you place in your home. Uh, and that would save them time and money and make it a quicker and cheaper service. And where Verizon wasn't able to have this monopoly, say their competitor Comcast or Charter, they could go into another territory and compete with them as long as they had a fiber optic backbone, which they would have because of their cell towers in the neighborhood. So it will spur competition and have incremental, um, opportunity for revenue growth for a number of these companies if they're willing to do this. Now the only hitch yet again, has been that to get these high speeds you have to use the highest frequencies, which are very short range and very susceptible to interference from nature. And they have to be line of sight so that you have to aim the antenna in the neighborhood to your home. You have to do a particularly good job at this at the moment they have to do it for you, you can't do it yourself. So it has been in five trials from Verizon and the results have not been overwhelmingly positive. So they're still going back to the drawing board. Ultimately, um, pundits believe, actually I should say experts in pundits, that you're gonna need a mid band something between two and six gigahertz because that will go a maximum of 10 miles and is less susceptible to rain, snow and falling leaves than the ultra high millimeter wave 39 gigahertz band. So right now, the only carrier that has that wavelength in abundance is sprint, which was actually the main reason that T-Mobile wanted to take over Sprint to get that spectrum at, uh, at and t and Verizon are trying to buy this at an auction which is being reclaimed from the military. So that is, that is the state of home fixed wireless broadband, but that would be a huge incremental opportunity only available through the 5G technology.
Speaker 1:Right. Okay. So you're talking about these, you know, these ultra high frequency things and uh, are, are there health implications of having a device, uh, that's emitting that kind of, uh, high frequency radiation, you know, close to your head?
Speaker 2:You know, there is a folk wisdom that of course anything that emits radiation is going to be bad for you. And you know, personally, I'm not thrilled about putting something next to my skull that emits high frequency radiation, but you know, as a, uh, person of science, in fact I delved into this and this is the official, um, account from most scientists. Now all radiation is frequencies. Uh, it goes from infrared to radio waves and as the frequencies get higher visible light, then ultraviolet, then x-ray, then gare. Right. It's at the point of UV that the frequency gets high enough to do something called ionizing where it breaks chemical bonds. So that is the official frequency limit where that radiation harms you, just like ultraviolet can cause skin cancer. Mm-hmm.<affirmative> and X-rays can cause cancers. Those frequencies are dangerous in any high dosage. Radio waves are below light waves in frequency. So no matter how high they are, the official word is they're still harmless. Even though the real issue has been that people think of microwaves. Mm-hmm.<affirmative> and microwaves are radio waves and just like I told you that these millimeter waves, 39 gigahertz, um, 5G broadband e get stopped by objects like leaves and rain. That's the point of a microwave. They tuned a high frequency wave that gets stopped by water, it heats up the water mod molecules and that's what how a microwave oven works. Mm-hmm.<affirmative>. So it's the moisture in your food that gets heated up because those waves get stuck in them. Right. So everyone thinks that microwaves, oh my god, it's gonna fry my brain, but in reality these waves are not powerful enough. The frequencies are not high enough to ionize and basically break a chemical bond. Right. That's right. I they are officially safe, although I still would recommend using earphones.
Speaker 1:Okay. So we won't be able to cook our dinner using our phones. Yeah. Yeah. So I know we don't even, we're not even really up to 5G yet. It's still, as you say, yeah, they're still perfecting the technology. Is there thought out there somebody about what would a six G look like? And
Speaker 2:I'm sure it's being worked on, but to be fair, 5G really is an evolution of 4G technology. It's not as if they changed the algorithms. You know, the big breakthrough was really going to 3G and 4g, uh, where again, you had this signal, every connection would take up the whole signal and then they figured out how to multiplex how to put multiple conversations on the same frequency at the same time. One of them used time division, it would actually split up your call over every couple milliseconds, but you wouldn't notice it. Right. But then to get even more capacity, the way to do it was called code division multiplexing, which uses cryptography. And so both the phone and the antenna actually are decoding your signal and basically puts the puzzle back together against all the other signals. Mm-hmm.<affirmative> and what 4G and 5G are doing is refining this. And actually when you think of radio signal, the signal spans out almost 180 degrees over time. You don't really point it in a direction and it doesn't go straight in that direction. It fans out. So a lot of your signal is lost and these new technologies can reclaim the signal even if it bounces off objects. So they figured out ways to increase capacity using those signals. But again, 5G is an evolution of 4g. Mm-hmm.<affirmative> and six G, unless there is some new technology Right. Would be an evolution. So that's many years out 5g, you know, in general these have lasted about 10 years. Right. And in this case, like I say, while 5G technically is available today, it probably won't hit its stride for two years or more. So, you know, even getting 5G to work the way people think it should will be a long, a multi-year cycle.
Speaker 1:Okay. So as you say, no reason to necessarily rush out and buy that 5G phone quite yet,
Speaker 2:Although they're gonna look really great.
Speaker 1:Yes. Well, particularly if you live in Seattle or other rainy cities. Yeah. Okay. Well I've certainly learned a lot today. Uh, Dave, thanks for, thanks for joining us.
Speaker 2:Thank you very much,<laugh>. It's
Speaker 1:A pleasure. Uh, and we'll talk to you again soon. Yeah, thanks. Remember to subscribe to actively speaking on Apple Podcast, Spotify or Google Play. You can find all of our previous episodes and additional content on our website, www.eipny.com.
Speaker 3:The information contained in this podcast is distributed for informational purposes only and should not be considered investment advice or recommendation of any particular security strategy or investment. Product. Information contained herein has been obtained from sources believed to be reliable but not guaranteed. The information contained in this podcast is accurate as of the date submitted, but is subject to change any performance information. Reference in this podcast represents past performance and is not indicative of future returns. Any projections, targets, or estimates in this podcast are forward-looking statements and are based on epic's research, analysis and assumptions made by Epic. There can be no assurances that such projections, targets or estimates will occur and the actual results may materially be different. Other events which were not taken into account in formulating such projections, targets or estimates may occur and may significantly affect the returned or performance of any accounts and or funds managed by Epic. To the extent this podcast contains information about specific companies or securities, including whether they are profitable or not, they are being provided as a means of illustrating our investment thesis. Past references to specific companies or securities are not a complete list of securities selected for clients and not all securities selected for clients in the past year were profitable.
Speaker 4:Stop audio.