Can 5G innovation turbocharge the Vodafone share price?

Adoption of the fifth generation of mobile connectivity (5G) has been slow, but the technology’s capabilities are gathering pace, and it is set to turbocharge the digital economy of the future. Vodafone is helping businesses to realise 5G’s potential.

– Vodafone is the 5G market leader in the UK, and its 5G coverage is available in 344 European cities.

– Despite macro headwinds, 5G is expected to help build the digital economy, enabling various applications, including autonomous vehicles and robotics.

– The Defiance Next Gen Connectivity ETF offers exposure to 77 companies engaged in the research, development and sale of 5G technologies.

Last weekend’s coronation of King Charles III was the first state event to be broadcast via upgraded 5G, after Vodafone [VOD.L] dedicated a slice of its public 5G standalone network to ITV [ITV.L]-owned ITN.

Put simply, 5G standalone is completely separate from 4G networks. Whereas 5G non-standalone is built on 4G networks, and has helped companies to launch 5G technology and establish a position in the market, 5G standalone is regarded as the future of low-latency connectivity.

Network slicing is a new capability made possible through 5G standalone. It allows multiple users to share the same network domain in a way that prevents network congestion and means the performance and quality of broadcasts aren’t impacted negatively.

According to Ericsson’s [ERIC-B.ST] website: “5G and network slicing has the possibility to radically change how broadcasters of all sizes transmit live content from remote locations. They will benefit from high speeds, smaller crews and the possibility to cover more for less.”

Research by the Swedish telecoms giant has projected that 25–30% of all 5G use cases in the future will require slicing in order to work reliably.

Vodafone leads the UK’s charge

The UK has set an ambitious target of opening access to 5G standalone networks to all populated areas by 2030, as laid out in the government’s Wireless Infrastructure Strategy, published in April.

Vodafone has been the first mover in the 5G standalone market. A trial of its 5G standalone network for mobile customers started back in January in London, Manchester, Liverpool, Bristol, Bath, Glasgow and Birmingham.

Then last month, the British telecoms giant opened the UK’s first 5G standalone media innovation lab at Coventry University. Businesses will be able to experiment with 5G to explore the capabilities of next-generation wireless cellular technology.

The company also launched its 5G standalone mobile private network (MPN) last month. MPNs are an ultra-secure network solution that can power Industry 4.0 applications and software in a range of business settings, such as factories, warehouses, ports and — possibly— autonomous mobiles.

In Spain, Ericsson has teamed up with Orange [ORA.PA] to launch a 5G standalone network in Madrid, Barcelona, Valencia and Seville.

Vodafone’s expanding 5G coverage

Vodafone continues to switch on its 5G across the UK and on the continent. The network had reached 344 cities across Europe by the end of September 2022, as the company reported in its results for the six-month period. This was up from 294 in the prior half-year and 244 before that.

The capabilities and possibilities of 5G standalone should mean new revenue opportunities and partnerships in the future, especially for companies in the media services industry which are broadcasting from isolated locations or large-scale, crowded events.

One such partnership that was announced in March is a multi-year deal with Glastonbury Festival. In 2022, Vodafone 5G-powered haptic suits helped to enhance the live music experience for fans who are deaf or hard of hearing. 

Headwinds slow adoption and roll-out

In the near term, 5G adoption is likely to be hampered as telecom providers come under pressure due to inflation. In January, Vodafone announced it would be cutting hundreds of jobs, most at its London headquarters, as part of a wider €1.1bn cost-cutting strategy. As well as rising wages, the industry has also been facing higher material prices, which has raised the cost of rolling out next-generation broadband.

Nevertheless, looking beyond the current macro environment, telecom operators are forecast to generate $625bn in revenue annually from 5G by 2027, up from an expected $310bn this year. According to Juniper Research, mobile subscriptions migrating to 5G networks will drive much of these gains.

5G mobile subscriptions numbered 1.7 billion at the end of last year and made up 18% of mobile subscriptions globally. According to research by GlobalData, 5G’s share of subscriptions could rise to 48% by 2027.

“Enterprises will increasingly look at wireless connectivity for branch offices in the more fluid hybrid work environment,” said Laura Petrone, principal analyst of thematic intelligence at GlobalData.

5G will power the digital economy

The full potential of 5G standalone networks to turbocharge global economies and become a building block of the future digital economy won’t be realised for a few years.

“Cloud gaming, augmented reality and virtual reality are among the areas likely to be mined for opportunities,” Petrone said of the GlobalData study. 5G standalone will enable a range of possibilities, including within artificial intelligence, autonomous vehicles, robotics and the Internet of Things.

While 5G adoption remains low for now, the first commercial deployments of the sixth generation of mobile connectivity (6G) are likely to come as early as the turn of the next decade.

“Next-generation telecom standards, including 5G and 6G, will play an increasingly dominant role in the ongoing battle for tech supremacy being waged between the US and China,” Petrone added. 

Defiance Next Gen Connectivity ETF

The main fund focused on the 5G theme is the Defiance Next Gen Connectivity ETF [FIVG], which offers exposure to 80 companies engaged in the research, development and sale of 5G technologies for all sorts of use cases. As of 31 March, the portfolio was weighted heavily in favour of US companies (77.43%), with the rest split between European firms (18.17%), Israel (0.74%) and Taiwan (0.71%).

Ericsson is FIVG’s seventh-biggest holding as of 9 May, with a weighting of 3.09%. Vodafone has been allocated 1.08%. The fund is down 4.6% in the past year and up 3.2% in the past six months.

Ericsson and Vodafone are also among the holdings of the First Trust Indxx NextG ETF [NXTG], which focuses 25.18% of its exposure on companies in the semiconductors sector, 20.58% on integrated telecommunications services, 10.32% on communications equipment, 9.89% on wireless telecommunication services and the remaining 44.35% on various related industries. The fund is up 2.4% in the past year and up 14.6% in the past six months.

Investors could also look at the iShares Future Cloud 5G and Tech ETF [IDAT], which holds Ericsson but not Vodafone and is 85.14% exposed to information technology. It’s down 0.8% in the past year and up 6.3% in the past six months.