New Technologies Give U.S. Telecom More Reasons To Grow

The need to remain connected is essentially human. An era of digitization and technology is built on this need. It is here that telecommunications come to the fore as a utility. Rising demand for technologically superior products has been a silver lining for the telecom space in an otherwise tough environment. With the global telecom industry constantly evolving, companies in the league are fighting it out to stay competitive.

Upcoming 5G Wireless Technology

According to a study commissioned by Qualcomm (NASDAQ:QCOM), fifth-generation (5G) wireless technology could result in real global economic growth by $3 trillion cumulatively from 2020 to 2035. Several industry researchers hold that 5G network will provide a download speed of 1 Gbps (gigabit per second), which is 200 times the throughput of the currently available standard 4G LTE network. The latency period of data delivery will be in single milliseconds. Further, 5G technology is designed to be more power efficient than any other standard wireless network available at the moment. Naturally, 5G-enabled mobile devices are likely to last much longer than their 3G or 4G counterparts.

In Jul 2016, in a landmark voting, the FCC unanimously decided to make available high-frequency radio spectrums (above 24 GHz) for the use of the upcoming 5G wireless network. With this, the U.S. becomes the first country in the world to identify and open up a significant amount of spectrum suitable for the ultra-fast 5G mobile standard. At present, all four major national wireless operators, namely, Verizon Communications Inc (NYSE:VZ). (VZ), AT&T Inc (NYSE:T). (T), Sprint Corp. (S) and T-Mobile US Inc. (TMUS) are conducting trial runs for 5G wireless standards. Except AT&T, each stock currently carries a Zacks Rank #3 (Hold).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Internet of Things (IoT): The Next Growth Driver

IoT, which enables any physical electronic device with a valid IP-address to transfer data seamlessly over a wireless network, is fast gaining market traction and bringing about fundamental changes in business models. Next-generation superfast wireless networks (4G LTE, LTE-A, upcoming 5G) will provide the primary impetus to the telecom industry. In this context, IoT holds the potential to be the top factor in driving growth in the space.

IoT is a network of physical objects embedded with electronics, software, sensors and connectivity that facilitates it to achieve greater value and service by exchanging data with other connected devices. Superfast 5G mobile networks will be of utmost importance in the management of exponential growth in IoT.

DOCSIS 3.1: Cable MSOs Answer to High-Speed Network

DOCSIS (Data Over Cable Service Interface Specification) is a communications protocol that allows cable MSOs (multi-service operators) to provide high-speed broadband connections. This technology was specifically designed to be the cable TV industry’s answer to high-speed wireless and fiber-based wireline networks of telecom operators. The old-generation DOCSIS 3.0 technology has helped cable TV operators compete in the race for the fastest internet speed available in the market.

The next-generation DOCSIS 3.1 standard is an improved formulation of the existing DOCSIS 3.0. Theoretically, while DOCSIS 3.0 supports 152 Mbps download and 108 Mbps upload speeds, DOCSIS 3.1 offers as high as 10 Gbps downstream and up to 1 Gbps upstream network capabilities. Additionally, DOCSIS 3.1 comes with several operational benefits.

The technology is also backward compatible, allowing the present hybrid fiber-coaxial cable lines to allow such high internet speed by simply switching to a DOCSIS 3.1 compatible modem. Although FTTH has the advantage of providing unlimited bandwidth, backward compatibility is a major advantage of DOCSIS 3.1. This allows cable MSOs to provide high-speed Gigabit broadband to customers, without having to incur additional digging or other cable-laying costs, unlike FTTH providers. This is sure to boost margins of cable MSOs.

Opportunities

The telecommunications industry as a whole offers a number of positives that are difficult to disregard from the standpoint of investors.

• Immune to External Disturbances: A major characteristic of the telecommunications industry is that it is immune to any international geo-political disturbance even when it leads to economic fluctuations. Thus, the ongoing sovereign debt crisis in Europe, the slowdown in China or other non-U.S. economic volatility may not have any immediate impact on the industry.
• 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. Furthermore, 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 expenditure, which very 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 growths over the next five years.

The Hottest Tech Mega-Trend of All

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaries," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>