What’s all the buzz about 5G? Will it really change our lives?
5G—or the fifth generation of mobile Internet connectivity—is making a lot of news these days. Why does 5G merit so much attention?
If you are uncertain about what 5G is, and why it’s important, you’re not alone. According to some reports, even the elites at Davos didn’t understand what it’s all about.
What’s going to improve? 5G basics
5G is the next evolution in wireless networks. 2G permitted voice transmission. 3G ushered in the “app” revolution by enabling an advanced level of mobile Internet and data connectivity. And 4G dramatically improved speed to serve the massive increase in mobile data traffic.
Now comes 5G with its hugely faster speed, improved reliability and energy efficiency. Here’s a closer look at the improvements it will bring.
Speed: 5G will allow for 10X faster speed than 4G. That means moving from 10 megabits per second to 100 megabits per second! You’ll be able to download a movie on your phone in seconds rather than minutes. And the connection will be stable—you and your phone can be moving quickly, but the data flowing to your phone will continue to come through.
Real-time communication: 5G is expected to reduce latency—the time it takes for two devices to communicate—from 50-100 milliseconds (ms) currently to 20 ms and, depending on network configuration, to even as low as 5 ms or 1 ms. In the healthcare field, for example, this will allow a doctor to remotely guide robotic probes to perform surgery.
Connection density: 5G allows for many more connected devices per square kilometre—1 million compared to just 2,000 for 4G. This means it’s unlikely the Internet will ever become congested.
But that density comes with a trade-off. The spectrum used for 5G has a direct impact on how far signals will travel and the type of coverage provided. Because of the way 5G works, more cellular base stations will be needed. These are likely to be small units of receivers and transmitters attached to utility poles. Another drawback is that physical objects can block 5G waves more easily; even tree leaves can block them, according to a report by the Wall Street Journal.
The industry is reported to be finding ways to overcome this issue. One of these technologies is known as beamforming—it directs signals to individual devices, instead of beaming out waves in all directions (which is how current 3G and 4G technology work).
Energy efficiency: Your phone’s battery should live for over 10 years compared with two or three years currently. As well, once the 5G network is fully implemented, most of the computing will be done on the network, not your phone, which means your phone’s battery won’t need to be recharged as often. In fact, according to Verizon’s CEO, Lowell McAdam, the battery charge could last for a month! The network’s energy efficiency allows it to transmit more data without using more resources, lowering operational costs.
One important feature of 5G that hasn’t received a lot of attention is network virtualization. Currently, all connected devices receive the same priority when accessing the network, often creating bottlenecks at peak times. By contrast, 5G enables the creation of virtual networks, meaning that different tiers of service (latency, bandwidth, security) can be deployed on the same physical network infrastructure. This is one of the potentially most disruptive aspects of 5G because it will allow telecommunications companies to charge different rates for different levels of service.
How will 5G change the economy?
5G technology has the potential to transform our society. As more devices—such as phones, vehicles, drones and other objects—are connected to the Internet, they will be able “talk” to each other, that is, share information and take actions.
Imagine some of the possibilities.
Autonomous vehicles will rely on vast amounts of data to maintain safety. Systems in a car will transmit data, allowing the vehicle to be monitored and maintained remotely. The car’s cameras will collect data about its surroundings—people, animals, other cars, traffic lights and other infrastructure like on-ramps and curbs to avoid accidents. Global Positioning System (GPS) technology will inform the vehicle’s navigation system of where it is and what traffic issues are coming up on its journey. Autonomous and electric vehicles using 5G networks have the potential to revolutionize the way people use their car. One study estimates that services like Uber using driverless electric cars will be up to 10 times cheaper than owning a car. This could lead to an important decrease in car ownership rates in the next 20 years, and may have repercussions for the automotive, insurance and oil industries.
By relying on 5G, the Industrial Internet of Things will permit manufacturers to use more robots and machines communicating in real time to produce more efficiently—as much as an 82% increase, according to the 2014 Manufacturing Outlook Survey by the American Society for Quality—due to less idle time for machines and workers, fewer errors and less waste.
As robots and machines take over more of the routine manufacturing tasks, traditional manufacturing jobs in advanced economies are expected to decline, as has been the case since the 1970s. Tech-savvy, creative workers will be needed to deliver more services related to manufactured goods.
In the mining, oil and gas sector, robots are likely to do more of the remote location work. Cameras and sensors will monitor oil pipelines, and by using data and advanced analytics, companies will be able to predict when a crack could happen and deploy robots to prevent a major leak, reducing labour costs and accidents.
The logistics industry has already undergone dramatic changes with the rise of e-commerce and with 5G that transformation will continue. With 5G allowing for real-time control of drones, inventories could be restocked and packages delivered to remote locations, saving time and reducing costs. This could have implications for the shipping and trucking industries.
Smart cities will be better able to manage public health and safety. For example, emergency services will respond faster to incidents. Crime may diminish. Traffic congestion should decline. With smart meters, homes and businesses will use water and electricity more efficiently and utility providers will refine their peak/non-peak pricing plans using consumption data to better forecast energy needs. By using energy more efficiently, pollution should decrease. According to the Global Commission on Economy and Climate, smart cities may save the world as much as US$22 trillion by 2050.
In the United States, Verizon and AT&T rolled out 5G last year in several cities including Atlanta, Dallas, Sacramento, Los Angeles, Houston and Indianapolis with broader coverage to come this year. In Europe, at least one city in each European Union country has 5G. South Korea is launching its 5G network this month (March 2019). China Mobile plans to offer full 5G service by the end of this year.
In Canada, 5G is being tested currently, with broader coverage expected in 2020.
What does it mean for entrepreneurs?
- Understanding this technology and its benefits will allow entrepreneurs to create exciting new products and services and leap ahead of the competition.
- Consider what types of data your business could use to be more efficient. By collecting more data and analyzing it, you’ll be able to discover improvements and new applications for your customers.
- How could you better serve your clients and support employees with a faster, more stable wireless service that’s connected to many more devices?
Canadian economy at a glance
It’s not a recession, just a slowdown
A slowdown in the Canadian economy in 2018 may stoke fears that a recession is on its way, but conditions still look good for maintaining growth this year.
The economy grew by just 1.8% last year, a little slower than anticipated, with the fourth quarter showing the weakest growth.
For the year as a whole, business investment increased 2%, partially offset by a 2.3% contraction in residential investment. Overall, consumer and government spending drove growth.
Household spending falls
As indebted consumers face higher interest rates, their spending is slowing down.
In 2017, household consumption grew by close to 4%, while in 2018 that pace was halved, with the weakest growth in the fourth quarter (see chart). While spending on goods slowed throughout the year and contracted in the fourth quarter, services consumption is expanding at an average annual pace of 2%.
Job gains, but slower wage growth
Canada’s job market remains healthy—the unemployment rate was steady at 5.8% in February. This will support basic household spending, but slow wage growth will limit major expenditures.
Nationally weekly wages grew 2% in February, compared to a year ago. There is considerable variability across the country, with the oil-producing provinces hurting the most. However, British Columbia and Ontario continue to outperform. Wage growth has slowed down recently in Quebec compared to its exceptional performance in late 2017 and early 2018.
Exports will be a source of growth
Exports are expected to outpace imports in 2019 and be a source of growth. Exports of goods and services grew 3.3% in real terms last year, with the last two quarters showing the strongest growth.
The improvement in exports is partly attributable to the sliding loonie, which has lost about 5% against the U.S. dollar over the past 15 months.
The Bank of Canada estimates the Canadian economy’s potential growth to be 1.9%. With weaker investment this year, growth is likely to be below that figure. Inflation remains well under control at 1.4% in January. This means a rate hike in the near term is unlikely.
What does it mean for entrepreneurs?
- Interest rates are likely to remain steady for the next few months given slower than anticipated economic growth.
- Given the pause in hikes, it’s a good time to move ahead on investment projects to get ahead of your competitors.
- With the loonie unlikely to appreciate in the near term, consider exporting to the U.S. market where demand remains strong.
U.S. economy at a glance
2018 was a good year for the U.S. economy
Spurred by tax cuts and strong employment, the U.S. economy enjoyed an excellent year in 2018, growing by 2.9%.
However, the fourth quarter slowed compared to the second and third as the impact of the tax cuts began to fade. While consumer spending was weaker compared to the earlier quarters, it continued to grow at a solid pace of 2.8% annualized in the fourth quarter.
Meanwhile, business investment in equipment and intellectual property continued their positive trend, while residential investment contracted, although only modestly.
Despite President Donald Trump’s efforts to fire up U.S. trade, imports grew faster than exports once again, bringing the trade deficit to US$621 billion, and dragging down overall growth.
The consumer drives the economy
With consumer spending representing roughly 70% of U.S. gross domestic product, consumers’ confidence is a critical indicator. After dipping in January, consumer confidence rebounded in February though not yet back to the high reached in October, according to the Conference Board. This bodes well for the first quarter of 2019.
Low prices keep households shopping
Inflation remains well under control, with the rate dipping on the back of falling energy prices, in particular, gasoline. Currently, core inflation is running just below the Federal Reserve’s target of 2%.
Prices unlikely to pick up
Wages, the classic driver of inflation, don’t appear to be a threat. While wage growth continued at a solid pace—hitting 3.4% in February compared to a year ago—this is not pushing inflation the way it has in the past. Part of the reason may be that labour has a smaller share of the income pie than in the past, diminishing labour’s bargaining power for higher wages.
As well, competitive pressures resulting from highly globalized markets seem to be keeping inflation in check in advanced economies.
Little inflationary pressure from tariffs
Despite U.S.-imposed tariffs of 25% on steel and 10% on aluminum imports from many countries, including Canada, and tariffs of 25% on US$50 billion worth of Chinese goods, and of 10% on US$200 billion worth of Chinese goods, inflation hasn’t picked up.
So far, the Chinese currency has absorbed a fair bit of the shock from tariffs, with the reminbi depreciating against the U.S. dollar, making it cheaper for American producers to continue buying Chinese goods.
If the Chinese and American governments are able to resolve their trade dispute, then concerns about rising prices will vanish. Media reports suggest a deal would see the rollback of the tariffs in exchange for Beijing agreeing to increase imports of American goods, including agricultural products, chemicals and cars.
This is an important moment given the next step in the trade war would be to raise tariffs from 10% to 25% on US$200 billion of Chinese imports, possibly fueling higher inflation. This is because roughly three-quarters of these items are intermediate goods and producers need to find alternatives or pass on the higher costs to consumers.
The Fed remains patient
With inflation running close to target and concerns rising about a global economic slowdown, the Federal Reserve seems unlikely to raise its policy interest rate in the near term. However, if the U.S. economy remains resilient, and a deal with China materializes, the Fed may return to gradually raising its rate later this year.
What does it mean for entrepreneurs?
- U.S. demand for Canadian exports should remain strong, given continuing robust consumer demand and a low loonie.
- Now may be a good time to get a business loan since steady interest rates in the U.S. could allow Canadian banks to lend more. Banks fund themselves in part in the U.S. interbank market. Indeed, the effective business interest rate has recently fallen in Canada.
- A deal between the U.S. and China would boost business confidence globally.
Oil market update
Venezuela's faltering production is a boon for Canada's oil
Venezuela’s lack of investment and massive inflation, coupled with more sanctions imposed by the United States, are boosting demand for Canada’s heavy crude oil.
Venezuela produced only 1.26 million barrels a day in January, according to the International Energy Agency, continuing a decline in production, which began to free fall in September 2017.
Before Hugo Chavez took over control of the state-owned oil company, Petróleos de Venezuela, S.A. known as PdVSA, in 2002-03, Venezuela produced close to 3 million barrels a day of crude oil.
The vast majority of Venezuela’s oil is heavy sour crude oil, similar to what Canada produces in Alberta. About 40% of Venezuela’s exports go to the United States, with the rest going to China, India and Russia. Shipments to China and Russia are in lieu of payment for loans these countries have made to Venezuela.
With the imposition of further U.S. sanctions coming into force at the end of April, production is expected to drop further. Estimates of how big the decrease will be vary considerably—from 400,000 barrels a day, according to Rystad Energy, to 1 million barrels a day, according to Citigroup.
As the chart shows, the U.S. is relying increasingly on Canada for its heavy sour crude oil imports. U.S. refiners have invested significantly in capacity to process this grade of crude into gasoline, jet fuel and diesel.
As a result, the discount between West Texas Intermediate and Western Canada Select (WCS)—a benchmark for Alberta’s heavy sour crude oil—has narrowed significantly since December and is currently around US$12/barrel. The market for heavy crude oil is about 9 million barrels a day, according to IHSMarkit, and Canada supplies about a quarter of that.
Russian compliance not yet evident
Despite agreeing to a new pact with Saudi Arabia and other oil-producing nations, Russia, Azerbaijan, Kazakhstan as well as Iraq, are not keeping up their end of the bargain.
Compliance with agreed cuts fell to 67% in January across all the participating countries. However, even this level of compliance was thanks to Saudi Arabia, Mexico, Kuwait and Angola cutting more than their share. Russia reduced output by just 18% while Iraq and Kazakhstan produced significantly more than their targeted amount.
Saudi Arabia has indicated it would reduce its production by another 500,000 barrels a day in March. Nevertheless, recent demands for lower oil prices by U.S. President Donald Trump may cause the Kingdom to re-adjust.
No end in sight for strong U.S. production
U.S. production remains strong, hitting a new high of 12 million barrels a day in February. The U.S. Energy Information Administration recently revised its forecasts upward to 12.4 million barrels a day for 2019, and 13.2 million barrels a day in 2020. With the recent cuts by Saudi Arabia and Russia, the U.S. is now the world’s largest crude oil producer.
With strong production in the U.S., and perhaps some hesitancy on the part of Russia and other producers to adhere to supply cuts, oil prices are unlikely to move much beyond their current US$55-65/barrel range. The slowdown in global trade will also weigh on prices.