Wireless networks will be key to the future of the overall telecom industry. Given that wireless networks run on radio frequency, spectrums (airwaves) have become the most sought-after commodity in the industry. Additionally, U.S. telecom operators are increasingly implementing fiber network to install more small cells to help their wireless networks.
Upcoming 5G Wireless Technology
Fifth-generation (5G) superfast wireless networks will provide the primary impetus to the telecom industry. In September 2017, Moody's Investors Service stated in a report that the evolution towards 5G wireless networks will result in higher capital spending for U.S. wireless carriers.
In this context, the Internet-of-Things (IoT) has the potential of becoming the #1 factor in driving growth in the space. Upcoming 5G mobile networks will be of utmost importance in the management of exponential growth in IoT.
Presently, all the four major national wireless operators, namely, Verizon Communications Inc. (VZ - Free Report) , AT&T Inc. (T - Free Report) , Sprint Corp. (S - Free Report) and T-Mobile US Inc. (TMUS - Free Report) are conducting trial runs for 5G wireless standards. All four stock currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Massive Spectrum Deployment by Carriers
T-Mobile US has aggressively started deploying 600 MHz low-band airwaves. In 2018, AT&T will deploy 60 MHz of fallow spectrum and 600 MHz low-band spectrum coupled with its ongoing network densification project.
Furthermore, AT&T will also install its FirstNet project to build and manage the first nationwide broadband network dedicated to America's police, firefighters and emergency medical services. As part of the 25-year contract, FirstNet will provide AT&T with a swath of 20 MHz of spectrum in the 700 MHz frequency band for the entire duration.The company is expected to spend around $40 billion over the life of the contract to build, deploy, operate and maintain the network.
The market for U.S. public safety network for first responders and civil protection services is becoming intensely competitive. In August 2017, Verizon announced plans of dedicating network capacity to emergency services providers.The company will make Band 14 devices available and ensure full interoperability with any Band 14 radio access networks (RANs) deployed by FirstNet. Band 14 is the 700MHz LTE band allocated for the public-safety network.
Additionally,major U.S. telecom operators are currently exploring ways to commercialize the usage of 3.5 GHz unlicensed wireless spectrum. Notably, the 3.5 GHz radio frequency is being considered in many parts of the world for the upcoming 5G wireless standard, thus increasing its chances of providing spectrum globally.
The FCC (Federal Communications Commission) at its next open meeting on Nov. 16 will discuss on the proposal of making available 1,700 MHz of high-frequency spectrum for flexible terrestrial wireless use and providing 4 GHz for core satellite use.
Growing Demand for Fiber Optic Network
Fiber optic cable is a vital infrastructure in order to meet the surging need for cloud-based business data, along with more video-streaming services by individuals. Moreover, fiber-optic cable network is vital for backhaul and last mile local loop, which are needed by wireless service providers for their upcoming 5G network.
Dark fiber provides abundant bandwidth which is of utmost necessity for the smooth functioning of super-fast wireless networks such as 4G and 5G. Dark fiber based wireless backhaul provides scalability and efficiency to bandwidth management. This will eventually lead the company to significantly reduce its backhaul costs.
Fiber networks are essential for the growing deployment of small cells. The increase in adoption of small cells is because of the inconvenience in installing large towers in inaccessible areas.
Verizon stated that small cells would be used to augment its existing 4G LTE and upcoming 5G network and will primarily concentrate on high traffic locations like a business district or shopping mall. Small cells will increase voice capacity and data speeds as well as complement wireless service providers LTE infrastructure.
The telecommunications industry as a whole offers a number of positives that are difficult to disregard from the standpoint of investors.
• Rapid Technological Advancement: Telecommunications is a vital industry witnessing rapid technological improvement even during recession. Unprecedented growth in high-speed mobile Internet traffic, particularly with respect to wireless data and video, has transformed this industry into the most evolving, inventive and keenly contested space.
• Barrier to Entry: Lack of public airwaves (spectrum) in the telecommunications industry creates a high barrier to entry. The U.S. telecom market is controlled by just four national players, as regional low-cost operators are not eligible to compete with large carriers. Moreover, it is not easy for a new telecom carrier to establish itself in the market, as it requires government approval to transmit voice, data, and video on public airwaves. Spectrum licenses are limited and therefore quite expensive. Moreover, the deployment of network infrastructure requires significant capital expenditures, which only a few entities can afford. Thus, this barrier protects the profits of incumbents in the telecom space.
• Strong Demand: A recovering economy drives demand for real-time voice, data and video manifold. This escalation in demand has encouraged telecom service providers to undertake large network extensions, while upgrading plans. Moreover, the FCC projects 25 - 50 folds mobile data demand growth over the next five years.
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