Fifth-generation (5G) mobile communications, or 5G, is the next phase of the wireless revolution. Second-generation was designed for voice communication, third-generation for voice and data, and fourth-generation was designed for broadband video experiences. 5G was designed to improve upon these prior generations while delivering the lightning-fast connections needed to properly scale the Internet of Things (IoT).
Investors, consumers, and businesses alike have eagerly awaited 5G technology. However, major telecommunication companies Verizon (NYSE:VZ) and AT&T (NYSE:T) have moved slowly to build out their 5G networks, as they feel there's been little benefit to the $275 billion spent to implement the current 4G standard.
It appears 5G will kick into high gear in 2018. Verizon announced that subscribers in Sacramento, California will receive 5G technology later this year. Soon thereafter, AT&T announced it would roll out 5G to a dozen markets in 2018.
Two different approaches -- one better for IoT
According to The Wall Street Journal, Verizon is partnering with Samsung (OTC:SSNLF), which is providing the critical hardware -- network equipment needed to convert wireless signals to Wi-Fi. While the financial terms of the deal were not announced, Samsung's networks president Youngky Kim said "5G is a reality." However, the need for in-home network equipment (fixed wireless) limits 5G applications.
The key to 5G is near-ubiquitous access to lightning-fast speeds. Using fixed wireless technology to deliver 5G will result in limited service that defeats that purpose. It will be impossible for 5G technology to bring about self-driving cars, augmented-reality applications, and smart cities without a true, wide-scale 5G network. In fact, even Samsung notes 5G fixed wireless access should be a stepping stone to full-scale 5G deployment.
AT&T has been even more tight-lipped about its plans, but its 5G is potentially more promising. Earlier the company rolled out 5G Evolution, a pseudo-5G network, to 23 major metros. In an announcement, the company plans to roll out 5G technology to a dozen markets this year. Unlike Verizon, AT&T is rolling out true 5G, based on standards from 3GPP, the international wireless standards consortium.
The GOP tax bill appears to be a 5G catalyst
The Republican tax bill should lead to faster 5G adoption overall. Lowering the rate on one of the highest-taxed industries will immediately make telecommunications companies more profitable and allow lower break-even rates for projects. Verizon and AT&T have effective tax rates of 33.5% and 32.5%, respectively, nearly double the average effective rate of 18.6%. It's no wonder AT&T gave out one-time $1,000 bonuses in response to the bill's passage.
Equally important is the provision for immediate expensing of capital expenditures. For the next five years, short-lived capital expenditures on equipment like machinery can be immediately expensed, instead of capitalized (put on the balance sheet) and depreciated. As businesses prefer immediate expensing, this should result in "pull-forward" of 5G investment.
At this point, AT&T appears to be at the forefront of 5G. However, look for Verizon to continue to upgrade and densify its top-notch network to bring 5G to consumers. Most industry observers expect 5G to be widely available by 2020. The combination of lower taxes, demand for faster connections, and industry competition could make that a reality sooner.