5G is coming and it will make the National Broadband Network redundant

The latest mobile phone networks offer 4G network speeds, hardly enough to keep up with super-fast fibre broadband, but that may be about to change with the arrival of 5G.

Telstra Corporation Ltd (ASX: TLS), Optus and Vodafone – 50% owned by Hutchison Telecommunications (Aus) Ltd (ASX: HTA) all currently offer 4G mobile networks, allowing users to download data at around 30-40 Mbps.

5G refers to the fifth generation of mobile network technology and expected to deliver speeds of more than 10x that of 4G. Telstra expects to bring in 5G technology before the end of 2020, with speeds of up to 1Gbps with much less power consumption. That means downloading a full-length movie to your iPhone or Android device in seconds.

The new technology is particularly designed to cope with a rapidly increasing amount of internet-connected devices – an estimated 50 billion devices according to global networking giant Cisco by 2020. 5G should also mean more available space, which should allow mobile operators to offer more people cheaper unlimited phone plans or even negate the need for them to restrict space at all.

The big question is how 5G will affect Australia’s multi-billion dollar fixed National Broadband Network (NBN). Essentially, 5G should mean users on a mobile network should be able to experience similar speeds to the NBN, perhaps even much faster if they are located close to a 5G cell.

The current NBN rollout is mostly a fibre-to-the-node (FTTN) model, so fibre optic cable is laid to a neighbourhood node/pillar and then using the old, existing copper network to connect homes and businesses to the fibre network. The problem is that using the old copper network for the remaining link slows down the potential speed dramatically, with theoretical average speeds estimated by Gizmodo at 46 Mbps – or slightly faster than Telstra’s 4G network.

That suggests that 5G should be much faster than NBN’s connections and in a worst-case scenario make the NBN redundant within a few years of being built (something we warned about in 2012).

That said, there are some possibilities that could see the NBN live on. Telcos could make a motza upgrading customers by replacing their copper lines with fibre, so they have fibre-to-the-premises (FTTP). Another possibility is that households may find that the more connected devices they have, the more they need a fixed broadband connection, increasing demand for NBN services.

Foolish takeaway

Whatever happens to the NBN, telcos and broadband providers look like they have a huge tailwind behind them which could easily blow for another 5-10 years. Investors may want to take note.

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Motley Fool writer/analyst Mike King owns shares in Telstra. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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