5G is a catch-all term for the new generation of connectivity between devices.

It represents a quantum leap in capability for the connected economy, unlocking the potential of the Internet of Things as it connects everything from manufacturing machinery to domestic appliances with unprecedented speed and capacity. But what does this mean for how we do business? And what does it mean for the investment industry?

Karen Kharmandarian and Matthieu Rolin, Chief Investment Officer and Senior Portfolio Manager at Thematics Asset Management, discuss the many ways 5G is set to revolutionise the global economy – and our everyday lives.

Karen Kharmandarian

Chief Investment Officer
Thematics Asset Management

Matthieu Rolin

Senior Portfolio Manager
Thematics Asset Management

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.

~ Karen Kharmandarian
Chief Investment Officer


Can you introduce 5G as a concept for anyone who may not be familiar with the technology?


Matthieu Rolin
5G is the collective term for the new standards for broadband connectivity both mobile and otherwise.

It may not be a revolution in capability, but it represents a significant evolution in both bandwidth and latency. You could express this as a significant increase both the quantity of data that can be exchanged, and the speed it can be exchanged at.

With 5G, one will be able to connect almost an unlimited number of devices -, unlike with 4G, where capacity was more limited. There’ll be almost no limits compared to what has gone before. This means you will be able to connect almost any device to a network so it can both send and receive data – an idea known as the Internet of Things (IoT).

Karen Kharmandarian
We find the analogy with traffic is useful. With 5G, you can – figuratively speaking – have more cars on the road, and they can move faster.

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.

You mentioned 5G as an evolution of capabilities. Does it represent an equivalent leap to that between the previous generations?


Karen Kharmandarian
To know where we’re going, it’s critical to know where we’ve come from.

1G was the first analogue cellphones, with 2G marking the development to things like text messaging, picture messaging, and digital switching. 3G brought with it the internet, video calling, and was concurrent with the development of smartphones and their dramatically increased capabilities – this was when mobile phones became effectively highly portable personal computers. 4G was about upping the capacity, allowing mobile video streaming in high definition, higher- quality video calling and so on.

Matthieu Rolin
In the real world, 4G offers an experience that isn’t too far behind 5G. The low latency will be useful for gamers, where reaction time is obviously a factor, but for everyday phone usage the improvement won’t feel as dramatic as the day you realised you could easily watch video on your phone without a wifi-connection.

Manufacturing is often brought up in the 5G discussion. What role does 5G have to play?


Karen Kharmandarian
As we’ve mentioned, when combined with AI and robotics, 5G could empower manufacturers to a huge extent.

Going back to Henry Ford, the macro narrative for manufacturing has been finding greater and greater efficiencies in manufacturing processes. 5G will allow a manufacturer to create ‘connected factories’, with sensors recording data on everything from temperature and vibrations to the quantities used of this or that material at this or that stage in the process.

Initially, this will make managers better able to anticipate demand for spare parts, or to determine when to make a maintenance intervention. For a large factory making, say, cars, any downtime lost can represent millions of dollars of value, so there are clear efficiency savings on the table in the near-term future. Even something as simple as inventory management could be revolutionised.

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 operate in a virtuous cycle, 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.

Also, if we look slightly further down the line, a factory connected with 5G sensors will deliver data that will become legible to specialist software platforms that will allow AI optimization. These should create efficiencies and opportunities that could well surprise us in the future.

Where there’s any transfer of data, security enters the conversation. What is the state of play regarding making sure that 5G networks are secure from malicious actors?


Matthieu Rolin
As Karen said, we are talking about connecting millions of devices. This is an opportunity for stakeholders 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 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 modernisation, given the large step up in sophistication 5G represents. As we’ve discussed, we’ll be generating more and more data, and connecting more and more devices, so it won’t just be a matter of copying and pasting.

With regard to ID management, we’re likely to see companies deploying private 5G networks in the same way today you see private wi-fi networks in places like offices, factories and airports. These will be lower latency than existing wi-fi, but there’ll be a security trade-off unless ID management is strengthened beyond what is the norm today.

5G is increasingly present in debates around strategic technologies and competition between economic blocs. Why is that?


Matthieu 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 cyberattack. 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. The scale of the new infrastructure you’re deploying is enormous, and you’ll want both trust and reliability to be part of the package.

If we look further into the future, where can 5G take us?


Karen Kharmandarian
We’re strong believers that you can’t stop innovation.

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 for the pace of innovation. 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.

We’ve talked about efficiencies in manufacturing, but imagine those same efficiencies found in infrastructure, or supply chains, or almost any other field of economic activity. Add AI and robotics – which are on their own exponential curves of development – and it’s hard not to conclude that we are on the cusp of a period of transformational change.

Where do the risks to this narrative lie?


Matthieu Rolin
The two chief obstacles are consumer uptake and the upfront costs of deploying the infrastructure.

4G was driven by its nature as a highly consumer-facing technology – everyone was happy to pay a little more to stream football, to return to our earlier example.

5G is a little more nebulous in people’s day-to-day lives, and while a tipping point is likely over the next generation of smartphones, there hasn’t been the same consumer pull factor as 4G enjoyed.

This means you’re convincing companies to implement the technology in ways appropriate for their activities. This means you’re facing rational cost-benefit analyses, which are tough in the early days of a technology’s rollout as the network effects are not there yet. They look for incentives, and it’s like a chicken and egg debate – why spend millions if the applications aren’t there yet? You need the cashflows fast if you’re a private company. Also, the costs are higher as the range of 5G antennae is significantly shorter than 4G antennae. It’s a root and branch overhaul of infrastructure that won’t happen overnight.

However, 5G has been gathering momentum for some years now and the increasing level of private sector buy-in is highly unlikely to be reversed.

The obvious final question is: when can we expect to hear about 6G?


Karen Kharmandarian
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. The analyses, opinions, and certain of the investment themes and processes referenced herein represent the views of Thematics Asset Management. The views and opinions expressed may change based on market and other conditions. There can be no assurance that developments will transpire as forecast, and actual results may vary.

THEMATICS ASSET MANAGEMENT - An affiliate of Natixis Investment Managers. A French SAS (Société par Actions Simplifiée) with a share capital of €150 000. RCS Paris: 843 939 992. Regulated by the AMF (Autorité des Marchés Financiers), under no GP 19000027. 43, avenue Pierre Mendès France 75013 Paris, France.

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