Karen Kharmandarian and Matthieu Rolin, Chief Investment Officer and Senior Portfolio Manager at Thematics Asset Management, break down what the next generation of connectivity means for the global economy.
Gentlemen, can you introduce 5G as a concept for anyone who may not be familiar with the technology?
Rolin: 5G is the collective term for the new standards for broadband connectivity for any device that can be connected to a network. It represents a significant evolution in both bandwidth and latency. You could express this as a significant increase in both the quantity of data that can be exchanged and the speed it can be exchanged at.
Kharmandarian: 5G is in a category known as general-purpose technologies. This means it is set to unlock value in a huge range of already-existing industries, rather than create an industry surrounding itself. When combined with artificial intelligence and robotics, they together become a formidable package that will deliver abilities and insights that were until recently the stuff of science fiction.
The most significant opportunities include improvements to voice assistants, given their ‘learning’ is based on the quantity of data they gather. Autonomous vehicles require low-latency connections to operate safely, so 5G is clearly going to be a factor in the speed of their rollout. There is great potential in expanding the scope and sophistication of telepresence in medicine and medical training – something which has obviously increased in importance over the last year.
Manufacturing is often brought up in the 5G discussion. What role does 5G have to play?
As we turn more and more toward automation, 5G will empower autonomous machines to react to their environment quicker, learn from others in the network faster, and respond with more detail and speed to central commands.
5G, AI and robotics will work operate in a virtuous cycle, with innovation in one area spurring innovation in the others. If we consider a network with a million or more nodes and consider the mathematical elements of network theory – where the more members there are in a social network, the more it grows in value – the chances for exponential growth in both capabilities and economic output are enormous.
What is the state of play regarding ensuring that 5G networks are secure from malicious actors?
Rolin: 5G is an opportunity to create value, but this degree of connectivity will also create opportunities for more cynical use of the networks – unless network operators and their partners in the industry are vigilant.
There will be a need for robust security policies to make sure that networks and the devices they connect to are safe. Encryption and identity management are going to be even more important than they already are. Existing platforms and protocols will require significant updating and modernization, given the large step up in sophistication 5G represents.
5G is increasingly present in debates around strategic technologies and competition between economic blocs. Why is that?
Rolin: It’s about the capabilities it unlocks. When 4G arrived, you were then able to stream video on your phone. Watching a football match on the bus is great, but it’s not something that really translates into macro capabilities for a whole economy.
Let’s say 5G allows you to plug the entire electricity grid of New York into a single network for monitoring and control, which you couldn’t do with 4G. This would open up clear potential vulnerabilities for cyberattacks. If you can’t watch the Super Bowl on your phone, that’s inconvenient, but if your entire city doesn’t have electricity, that’s a lot more impactful.
This is obviously an extreme example, but if you factor in the opportunities for countries that are geopolitical competitors ‘baking in’ espionage capabilities – ie. the unsanctioned gathering and sharing of data – the risks multiply.
If we look further into the future, where can 5G take us?
Kharmandarian: It’s important to keep thinking in terms of generations – this allows for the idea of exponential change. If we look at the shift between 1G and 2G, it wasn’t that dramatic. But then with each new generation, the transitions have been more and consequential, with 5G representing a new peak.
Remember, 1G was barely a few decades ago – there will be first and second-order effects from 5G that are an order of magnitude greater thanks to the logic of exponential growth.
The obvious final question is: when can we expect to hear about 6G?
It’s already in development around the world – but it’s still very much in the lab. That’s a conversation for the 2030s.
All investing involves risk, including the risk of capital loss. This material is provided for informational purposes only and should not be construed as investment advice, or a recommendation or an offer to buy or to sell any security, or an offer of services. Investors should consider the investment objectives, risks and expenses of any investment carefully before investing. The views and opinions expressed are as of the date indicated and may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted. In Switzerland: This material is provided by Natixis Investment Managers, Switzerland Sàrl, Rue du Vieux Collège 10, 1204 Geneva, Switzerland or its representative office in Zurich, Schweizergasse 6, 8001 Zürich. Thematics Asset Management an affiliate of Natixis Investment Managers, is a French SAS (Société par Actions Simplifiée) with a share capital of €150 000 – 843 939 992 RCS Paris – Regulated by the AMF (Autorité des Marchés Financiers), under no GP 19000027. 43, avenue Pierre Mendès France 75013 Paris.
