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Singapore is Rolling Out 5G by 2020. Should the Telcos be Worried?

The Info-communications Media Development Authority (IMDA) announced in a press release on 7 May 2019 that they have launched a public consultation to seek views from industry and the public on the appropriate regulatory frameworks and policies to implement a 5G network in Singapore.

A key proposal made by IMDA would be to facilitate “sustainable competition”, with at least two nationwide 5G networks at the outset, while encouraging telecommunication companies (telcos) to build out the infrastructure. The four telcos in Singapore include Singapore Telecommunications Limited (SGX: Z74), M1 Limited, StarHub Limited (SGX: CC3) and TPG Telecom Ltd (ASX: TPM), with the onus on them to commit to constructing appropriate infrastructure to support IMDA’s planned initiatives. But should shareholders in the listed telcos be worried? Let’s have a closer look.

What is 5G and why does it matter?

5G networks are being billed as the next big leap forward in mobile and wireless communications. Mobile broadband speeds can hit up to 20 gigabits per second (Gbps), which is around 20 times faster than the peak speed of existing 4G networks. It also promises the ability to connect to up to 1,000 times more devices than what can currently link up (to existing 4G networks).

When fully operational, 5G networks will enable new technologies like cloud gaming, smart appliances and autonomous vehicles to become a reality, and will fulfill Singapore’s vision of being a “smart city”. With a proper and functioning 5G network, “The Internet of Things” should also open up, which will connect all manner of devices to one another.

What role do telcos play?

Currently, three mobile network operators; Singtel, StarHub and M1, have been testing 5G applications over the past few months. Singapore aims to install 5G networks built on standalone infrastructure, as these can support many more devices per square kilometre compared to 4G networks. Such networks also provide ultra-reliable low latency communications, resulting in very low levels of delay.

The downside is that such networks are much more costly to build as telcos have to deploy a new network core, rather than simply overlaying the 5G network atop the existing 4G infrastructure. This implies that telcos may have to cough up significant levels of capital expenditure just to be able to build up the required infrastructure.

Implications for investors

Investors who rely on SingTel and StarHub for regular dividends may wish to monitor news relating to the 5G network implementation. This is to assess the amount of capital expenditure which each telco should bear and how it would impact their free cash flow generation ability. At this point in time, with limited additional information, I would conclude that there is ample reason for telcos to worry. But until investors receive more concrete information on how telcos should proceed and how much should be committed, it’s best not to be too concerned.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.