The best 5G pure-play investment is in cellphone-tower operators

With 5G capacity already on the radar of investors around the world, revenue from 5G wireless network infrastructure is expected to reach $ 8.1 billion in 2020. This represents a 96% increase from 2019, according to research firm Gartner.

As COVID-19 continues its destructive path, many countries and regions around the world see 5G expansion as a path to economic recovery and development. As a result, governments, private industry and investors are ready to make the necessary investments to advance the infrastructure required for 5G.

What was once seen as a long-term sport, 5G is blooming in a period when it is most needed. The so-called “leading countries”, including the United States, Japan, South Korea and China, have already deployed the “first high-band 5G network” in select major cities, according to a 2020 McKinsey report. Meanwhile, Apple recently unveiled its inaugural 5G phone lineup.

For these reasons, we believe the time has come to take advantage of this increasingly underdeveloped trend. Across its supply chain, 5G is poised to make a significant impact, building a network to leverage its ability to scale up its product suites from infrastructure to equipment and retail service providers.

As the pace of 5G increases, here are several ways investors can now benefit from it:

Communication tower

Most of the current investment in 5G is focused on cellular communication towers. These macro towers are the most cost-effective way to deploy wireless spectrum and they are in short supply in many areas.

In the US, there are approximately 150,000 towers, of which approximately 95% are owned by private operators. In Europe, there are approximately 350,000 towers and just 20% are privately owned. According to Morgan Stanley, the number of towers in Europe is expected to increase to 450,000 by 2025. Many countries, however, are beginning with a very low base. According to JPMorgan’s research, Mexico has just 33,000 while Brazil has only 61,000.

We believe that cell towers are the most attractive pure play to take advantage of 5G. For one, 5G requires more towers to operate effectively, and given the cost and complexity of seating, building and upgrading towers and other infrastructure, barriers to entry are high. Once the infrastructure is in place, however, operating costs are relatively low, and towers have a long operating life. We also appreciate the potential flexibility of communications infrastructure, given its perceived lower correlation and volatility than some other asset classes.

Most private cell-tower operators are traded on the stock market, and have different ways of investing them. If you’re looking for more mature, US-based firms, then Crown Castle International CCI,
And American Tower AMT,
Generating strong dividends and steady growth with the American Tower providing international exposure.

Spain-headquartered Selnex Telecom CLNX, to play a high growth
+ 0.22%
Purchasing and consolidating the Tower portfolio continues in Europe, including recent acquisitions in Poland. Selnex has consistently outpaced the stock market over the past two years, and given the privatization opportunity in Europe, there is still room for growth.

Tool makers

Equipment operators and manufacturers are also poised to take advantage of the 5G boom, pushing past cell tower companies further down the supply chain. Semiconductors will be an integral part of the transition to 5G, and companies such as Broadcom AVGO
And Samsung Electronics 005930,
Make chips for cell phones and other mobile devices that stand to benefit as leading players in the space.

In addition to improving mobile and remote capabilities, offices and apartments and airports and public utilities such as mass transit will be built and / or rebuilt with the latest 5G capabilities. Equipment suppliers such as Nokia NOK,

One who has a strong foothold in the space should expand its market share.

Consumer plays

The biggest beneficiaries of 5G development will be service providers and device manufacturers who design and create the technologies we use as consumers every day. In recent years, consumers have been less motivated to buy the latest phone models due to their higher prices and limited progress, but will offer new models with 5G compatibility to companies such as Apple AAPL.
And Samsung Electronics – two of the world’s largest cell phone manufacturers – ample reason to woo existing customers in upgrading their devices.

At the same time, consumers will be inclined to purchase high-value data plans incorporating 5G. We are already seeing this trend in Asia, where service providers have increased their average revenue per unit by 30% for high data 5G plans.

In the US, three large US providers – Verizon VZ,
T-Mobile TMUS,
And AT&T,
– Running to secure the fastest and most reliable network.

We think T-Mobile is the most attractively priced and in the best position to gain market share. After its merger with Sprint, T-Mobile has a huge wireless spectrum and is ready for 5G networks.

now read: Here are five stocks for 5G network buildout

Josh Duitz is a Senior Portfolio Manager at Aberdeen Standard Investments and Co-Manager of Aberdeen Standard Global Infrastructure Interest Fund
In addition to his funds, he holds shares in Apple, Crown Castle International, Selnex Telecom, American Tower, Broadcom, Samsung Electronics, Nokia and T-Mobile.


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