As Asian governments seek a speedy roll-out of 5G, the benefits will be delivered across the new economy

With the arrival of next-generation mobile networks, new services like remote surgery will suddenly be feasible. More immediately, expect a boom in video traffic and augmented reality content

John Woods

Published: 3:00am, 12 Dec 2019

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Many Asian economies will take major steps forward in internet connectivity in 2020. This will give a meaningful boost to sectors of the new economy, representing an important theme for investors.

Between government support and end-user demand (which is expected to be strong even early in the introductory phase), there should be a speedy commercial roll-out of 5G, or fifth-generation mobile networks, and a fast adoption rate. This will accelerate consumption and delivery of mobile services, which is likely to lead to a rise in demand for cloud-computing capacity. Firms connected with the buildout of 5G networks and delivery of electronic content and services will see higher demand for their products.

The introduction of 5G comes against the backdrop of a multi-year shift in consumer activity online, and within that space, a shift toward mobile connectivity. Where 5G differs from its predecessors is its use of radio waves of a significantly higher frequency, which translates into data transfer rates up to 100 times higher and far less delay.

This, in turn, could make a range of new products and services suddenly feasible. More ambitious ones include self-driving cars and remote surgery. The artificial intelligence that propels autonomous vehicles will require high-speed communication not just to retrieve information on locations and traffic conditions, but also to share information with other vehicles in the vicinity. Remote surgery will require a seamless transfer of instructions from the surgeon and feedback from the operating theatre.

While these “moonshots” are still some years away, there are viable applications of 5G in the near term. South Korea launched the world’s first commercial 5G network in April and has seen data transfer rates rise from 50 megabits per second to over 700 Mbps. This enables the delivery of augmented reality, virtual reality and AI-enhanced real-time sports content.

In South Korea, hunger for greater speed and higher bandwidth has translated into 3.5 million 5G subscribers in less than six months, surpassing the adoption rate of 4G at the same stage. A total of 5 million subscriptions are expected by the end of the year.

Recognising the potential efficiency gains in the long term, governments in Asia are looking to roll out commercial 5G networks. China had launched commercial 5G services in 50 cities as of November 1; Beijing, Shanghai, Shenzhen and Guangzhou expect full 5G coverage by the end of 2020. Singapore, meanwhile, is planning to roll out 5G mobile networks from 2020 and to have half the island covered by 2022.

Given that 5G will accelerate consumption and delivery of services across many sectors, cloud computing will be a key complementary service for many businesses. Increased user participation and a higher prevalence of machine-to-machine communication will generate huge amounts of data that need to be stored and managed in the cloud.

Here, China stands out, given that its commercial 5G roll-out appears to be the most aggressively front-loaded in Asia. However, China has been spending only around 2 per cent of GDP on technology and will probably need to play catch-up.

China’s cloud-computing market already reflects increasing demand, with cloud infrastructure services experiencing year-on-year growth of 86 per cent in 2018 compared to 45 per cent for the global market.

Currently, China’s cloud computing market is roughly 8 per cent of the US market, according to the State Council. However, China’s public and private cloud markets could represent 25 per cent of the global market by 2023, from around 12 per cent at present, according to technology research company IDC.

It is also worth noting that the government’s 13th five-year plan, for 2016 to 2020, listed cloud computing as a key pillar of a policy aimed at moving industries up the value chain.

At the outset, video content delivery will probably be the main beneficiary of 5G adoption. Telecoms network equipment maker Ericsson expects video traffic in mobile networks to rise 34 per cent yearly until 2024; by then, video traffic may account for 75 per cent per cent of mobile data traffic, up from 60 per cent in 2018.

Beyond that, augmented reality services currently delivered over 4G – like real-time navigation and translation assistance – will be improved significantly. There are likely to be spillover effects for e-commerce and health care.

The positive impact will be felt not only by producers of consumer content, but also across the entire supply chain of 5G equipment, from network equipment manufacturers, to handset makers and everyone in between.

The benefits of Asia’s move to 5G are likely to manifest themselves at different stages of the process, over a number of years.

John Woods is chief investment officer for Asia-Pacific at Credit Suisse

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