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This week, the National Spectrum Consortium—a group of nearly 400 U.S. companies and academic institutions working with government to solve pressing national issues regarding 5G, 5G-based technologies, and spectrum access—announced that it has received a five-year, $2.5 billion Spectrum Forward Other Transaction Agreement (OTA) from the U.S. Department of Defense.

Per an official announcement from NSC, the goal of the Spectrum Forward OTA is to facilitate partnership between the U.S. technology and industrial base and the U.S. Government, to development technologies across a range of advanced technologies that rely on electromagnetic spectrum. These applications span the areas of 5G, Internet of Things, Cloud Computing, Augmented Reality, Big Data, and others.

The OTA is designed to accelerate the development, adoption and deployment of next-generation battlefield technologies: more specifically those that are “dual-use”—for military and commercial applications—and that support American warfighters and American jobs.

“The United States has been the global leader in mobile technologies for decades,” NSC Chairman Sal D’Itri said on Wednesday. “Now, as 5G takes hold, we need to invest in the development of a new wave of capabilities that will once again redefine the technology landscape.”

As the U.S. nears the end of an unprecedented year that has demonstrated the transformational potential (and urgency) of technology to solve societal issues—and as the country prepares to transition to a new Presidential Administration that may (or may not) view 5G development through a different political lens—how best to separate facts from fog in 5G?

Straight to the source

Earlier this month, Investable Universe spoke with Allen Proithis, CEO of Capstone Partners, a strategic advisory for firm for clients (predominantly private equity and tech companies) in the mobile, IoT and emerging technology industries, including 5G applications and use cases. Proithis’s firm was part of a group of companies that was awarded a Pentagon 5G contract under the National Spectrum Consortium earlier this fall.

The following is his take on the likely outlook for 5G deployment in the coming years, what to expect for 5G rollouts post-covid, as well as under the Biden Presidency.

Investable Universe (IU): What does the media or investment community not get “right” about 5G? Granted, the technology hasn’t “arrived,” but it’s fair to say that much of the argument from 5G-watchers is that it’s really about U.S. long-term economic competitiveness and alliance preservation. Where do you come down on that?

Allen Proithis: History tells us that advanced technologies like 5G will create massive opportunities for existing and new participants in the mobile ecosystem.

First of all, do not pay too much attention to all of the consumer commercials, as 5G will have a much bigger impact for business than consumers. In fact, (leading mobile operator trade association) GSMA estimates that over 83 percent of 5G revenue will come from business and government users in the next two years. It also is 1000+ times more spectrally efficient, so mobile operators like it, as they can generate much more revenue from the same spectrum.

Connectivity fuels commerce and innovation, and low latency, secure, high-speed 5G technology becomes especially important with remote work.

IU: Can you talk about the Pentagon 5G contract that you and your consortium won this fall?

Allen Proithis: My firm, Capstone Partners, is part of a team led by Federated Wireless that was selected as part of the Pentagon’s interest in exploring the application of 5G networks and technologies.

In partnership with the National Spectrum Consortium, five military bases will see 5G networks deployed in 2021. Capstone is providing a number of Internet of Things and 5G applications for the Maine Corp Logistics Base in Albany, GA. These new networks will enable applications like advanced warehouse management, but also AI-driven hologram applications that my firm is delivering (with partner Ikin) thanks to the incredible connectivity.

IU: Do you see the rhetoric around 5G being less hawkish under the Biden administration?

Allen Proithis: I believe that the tone of the conversation will evolve, but the level of activity will continue to increase. Some of today’s rhetoric makes 5G feel like a reactive move to counter other countries, rather than a smart, proactive investment that increases U.S. competitiveness. Europe was initially far ahead of the US in mobile technology and applications for 2G and 3G. As soon cloud processing and applications became more important, the U.S. jumped ahead of the world. Since 5G enables an even larger new class of applications, especially around edge compute and AI, I expect that the U.S. will be a leader in applying the technology in the years ahead.

IU: How does the emergence or embrace of Open-RAN (Open Radio Access Network technologies) change the investment landscape around 5G? Does this enhance the appeal of telecom carriers and possibly diminish the case for Nokia-Ericsson-Samsung?

Allen Proithis: A parallel to the O-RAN market is the electric car market. In the beginning, incumbents may recognize that they will need to change at some point, but it is the new entrants that are highly motivated to innovate and invest in the new technology and as a result enjoy early success. O-RAN has been a story of new market players, and that is exactly its purpose. Established players are starting to embrace O-RAN more as they do not have a choice. Telcos will benefit long term from a better cost structure, but greenfield network rollouts will see more benefits in the short term, with legacy telcos benefiting more as the technology matures. Legacy network equipment providers (NEP) need to evolve or they will die. The segment has seen incredible consolidation over the past decade. Even Nokia’s new management team has just announced a much heavier focus on O-RAN.

IU: At what point does the “eternal long” trade in telecom towers become overstretched? Are we there yet?

Allen Proithis: Last year the FCC estimated that the U.S. will need at least 2 million addition antenna sites over the next few years for new network technologies and rollouts. Traditional tower companies will benefit from some of this spend, and we will also see a new class of real estate that will be utilized for the many small cells needed for 5G rollouts.

Depending on the spectrum, 5G can require a much higher density of sites to achieve coverage, and towers are just one part of solution. Many non-traditional players are winning spectrum in FCC auctions, and also plan to use generally available CBRS spectrum for coverage. Everyone needs sites. The tower companies will hold and even increase in value, but we should see many more players as well.

IU: How seriously should market watchers take the 5G rhetoric between the U.S. and China? Is China less advanced on the 5G development continuum than it would like the world to think?

Allen Proithis: The existing rhetoric is useful in motivating the U.S. to deploy 5G, but how do we measure success? Huawei and China are two sides of the same coin, and it is in their interest to develop their own 5G ecosystem and infrastructure. In a centrally controlled system like China, it is easy for them to mandate 5G deployments and technology. The result is that you have a colorful coverage map, but 5G is only a tool. The trick is using the technology to accelerate applications that drive economic growth. There is nothing stronger than the free market in applying new technologies, and in the long run it gives the US a big competitive advantage.

IU: Post-covid, how will states and municipalities be able to finance 5G buildouts? What challenges or opportunities do you see there?

Allen Proithis: While state and local government will be big users of 5G networks, it remains to be seen how this will happen. I suspect many of these networks will be offered as a managed service, as it is much less capital intensive. Tax revenues have taken a huge hit with the virus economy, while expenses have risen. I believe that offering 5G networks as a service will be a big revenue stream for many companies that are not telcos. Most customer organizations are not equipped to become a mini phone company and to run their own network. Just like cloud computing has won by being better, more secure and more capital efficient, the same trend will happen in 5G, especially in the next 3-5 years.

IU: Finally, is there a “big short” in 5G?

Allen Proithis: There are many new categories of companies that will win in 5G. Most at risk are incumbents such as Nokia and Ericsson, as they built their entire business on classic, proprietary hardware and software.

[But] The risk is not as big as you might think, as telcos will not risk everything on new suppliers overnight. They will experiment and transition over years. Frankly, the companies at most risk may be traditional telcos. The U.S. has opened up generally available spectrum (CBRS) that anyone can use to offer 4G and 5G. In addition, the FCC has auctioned a massive amount of new spectrum for 5G. While telcos have been large winners, many other companies will be offering 5G services or building localized networks for their own needs. Expect more competition across the board.

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