5G Connecting the World

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1 5G Connecting the World Quarterly Commentary February 2017

5G Enabling The Next Generation of Mobile Services This quarter, we take a look at the potential benefits of 5G as we continue to see a greater number of connected devices (e.g. IoT) and higher bandwidth consuming applications such as streaming HD video.

Some of the key characteristics of 5G include: Large increase in speed from 4G.

2 5G Enabling The Next Generation of Mobile Services This quarter, we take a look at the potential benefits of 5G as we continue to see a greater number of connected devices (e.g. IoT) and higher bandwidth consuming applications such as streaming HD video. 5G aims to offer higher capacity than 4G, allowing a higher number of mobile broadband users per area unit, and allowing consumption of higher data quantities. Some of the key characteristics of 5G include: Large increase in speed from 4G. The new network is also very flexible: it can adapt to a number of very different objects, making the experience much more user friendly. Enabling new services that can take advantage of lower latency and higher bandwidth, such as Autonomous Driving, Virtual Reality, and Video Calling and Streaming. However, all connected devices will benefit from 5G. Improved network responsiveness and reduction in power consumption for connected devices, paving the way for a world that is close to being 100% connected. Benefits of 5G New Services Enabled by 5G Source: GSMA Source: 5G News The timeline for 5G s rollout is around 2020, when it is predicted that up to 50 billion devices will be a part of the Internet of Things (IoT). 5G and IoT will also work with IPv6, which will increase the amount of available IP addresses by upgrading to a 128-bit address, rather than the current IPv4 32-bit address. However, recent announcements from the likes of Verizon and AT&T suggest that there is a race to be first to market that could accelerate the introduction of full 5G services. 2

5G Market Size It is expected that mobile device subscriptions will increase from 7.1 billion in 2014 to 9.2 billion in 2020.

3 5G Market Size It is expected that mobile device subscriptions will increase from 7.1 billion in 2014 to 9.2 billion in This is in addition to the billions of other connected devices, mainly driven by IoT. The research shown in the graphic below by Ericsson forecasts that both 5G and LTE will increase their share of mobile subscriptions relative to other technologies. While LTE looks to continue to grow, 5G s growth will be driven by the increasing number of connected devices that require lower latency and higher bandwidth. This will eventually lead to 5G overtaking LTE as the standard system of telecommunications in the future. Mobile Subscriptions by Technology Source: Ericsson 3

5G Market Size Chetan Sharma Consulting predicts that as capital expenditure on 4G continues to fall from its peak of $6B in 2015, 5G investment will begin to rise as the market nears the predicted

4 5G Market Size Chetan Sharma Consulting predicts that as capital expenditure on 4G continues to fall from its peak of $6B in 2015, 5G investment will begin to rise as the market nears the predicted 2020 commercial rollout. The growth in 5G capex is expected to significantly increase from thereon. The exhibit below illustrates that while 5G will coexist with 4G for some time, eventually the infrastructure and demand for 5G will be widespread enough that it will overtake 4G as the main system of communications for the connected world. Source: Chetan Sharma 4

5G Progress Driven by regional, national government, wireless carrier and vendor initiatives, we expect 5G R&D and trial investments will account for nearly $5 billion by 2020, representing a CAGR of

5 5G Progress Driven by regional, national government, wireless carrier and vendor initiatives, we expect 5G R&D and trial investments will account for nearly $5 billion by 2020, representing a CAGR of nearly 40% from 2015 to 2020 (Source: rnrmarketresearch.com). Below we highlight some of the initial 5G roll outs and trials that are occurring globally as mobile operators look to be first to market. Source: Ericsson, Huawei and Qualcomm 5

In the first half of 2017, AT&T plans to conduct a trial in Austin, Texas, where residential customers can stream the DirecTV NOW video service on various devices over a fixed wireless 5G connection.

6 5G Progress: AT&T vs. Verizon AT&T In its initial 5G lab trials, the company has achieved speeds up to 14 Gb/s. AT&T also tested a connection with less than 3 milliseconds of latency the industry expectation for 5G is latency less than 5 milliseconds. In the first half of 2017, AT&T plans to conduct a trial in Austin, Texas, where residential customers can stream the DirecTV NOW video service on various devices over a fixed wireless 5G connection. Among other 5G learnings, the company will test how fixed wireless millimeter wave (mmwave) technology handles heavy video traffic. Verizon At Barcelona s 2016 Mobile World Congress, Verizon announced that 5G trials were underway in Euless, Texas; Hillsboro, Oregon; and a few cities in New Jersey. This past summer, Verizon s 5G network tests showed speeds in excess of 1 Gbps. Verizon was the first cellular service provider to test 5G in the U.S. market and is currently overseeing commercial-scale 5G pilot programs in 10 locations around the country. Before these consumer-oriented tests of network speeds, Verizon s work with 5G was limited mainly to controlled indoor trials and the use of a slowmoving van as a proxy for a 5G device. 6

7 5G Market Drivers & Challenges Market Drivers 1. Increased Demand for Bandwidth There are many data-heavy services that utilize mobile networks such as Ultra HD streaming and virtual reality. 5G seeks to greatly increase bandwidth for not only the consumer, but to accommodate the innumerable amount of communications from connected devices in IoT. 2. Requirement for Reduced Latency Industries such as driverless cars and augmented reality require very low latency in order to have reliable services. At the moment, neither 4G nor LTE are able to provide latencies that are as low as 5G. 5G s reduction of latency opens up M2M markets such as Vehicle-to-Vehicle to reach economies of scale. 3. Internet of Things (IoT) The existing IoT infrastructure currently relies on legacy networks that can still connect the billions of IoT devices without interfering with higher bandwidth 4G/LTE networks. For example, 2G technology is still being utilized for connecting low bandwidth intensive IoT sensors. However, 5G is being built with the intention of creating a network for IoT devices with low latency and intelligence in connectivity. 4. IPv6 IPv6 seeks to exponentially expand the number of available IP addresses. This means that for 5G, which seeks to standardize IP as the data protocol, it will be ready to supply a unique IP address to every sensor and device that will be connected to both the Internet and each other. Market Challenges 1. Infrastructure Cellular networks in urban areas typically work via network nodes placed every two miles. However, in rural areas, this system is more difficult as the areas that need to be covered are greater. 2. Cost Efficiency 5G will need to provide a low cost per megabyte so that it is able to compete with and eventually supplant 4G. It is especially important that 5G can be cost efficient in professional industries that can benefit from interconnected devices. Besides the monetary cost, 5G is also expected to be able to make connected devices consume less power as the world moves towards energy conservation. 3. Flexibility Because 5G will be designed to connect a plethora of unique objects together, the system will need to be prepared to expand into new frequency bands. Furthermore, 5G should also be flexible so that it may allocate resources to devices that require different demands for latency, peak data throughput, connection density, throughput density and device power. 7

8 5G Outlook & MWC THA s Take on Funding and M&A Activity in 5G Primary network infrastructure vendor consolidation has been very robust over the past two decades. At the turn of the century, there were a multitude of vendors including Alcatel, Ericsson, Huawei, Lucent, Motorola, Nokia, Nortel, Siemens, and many others. Today, there are only three key vendors, Ericsson, Huawei, and Nokia. However, we do see the primary vendors and other peripheral vendors arming themselves with add-on acquisitions for a 5G world and beyond. Areas such as NFV/SDN, IoT enablement, fixed-mobile convergence (fixed, Wi-Fi, 5G, etc.), applications (e.g. IoT, AR/VR, etc.) and analytics (e.g. network, subscriber) are key. We thus expect the era of large vendor consolidation to give way to more small-tomedium sized acquisitions in order to acquire new technologies and expand the customer base. THA at MWC The Telegraph Hill Advisors Team plans to attend MWC in Barcelona next week, as well as future conferences such as IoT World and MWC Americas later this year in the San Francisco Bay Area. We welcome the chance to meet with the various players in the ever expanding mobile world, in areas such as NFV/SDN, BSS/OSS, Analytics, IoT, Marketing, EMM, Clearinghouse, and VAS. As mobility becomes increasingly pervasive, we believe these markets and others will increase in importance to mobile operators, enterprises, and consumers alike. 8

Financial Advisory Financial Advisory Equity Financing

9 Select Tech Transaction Successes By THA Professionals Bridge Financing Equity Financing Financial Advisory Financial Advisory Financial Advisory Equity Financing Convertible Debt Equity Financing Equity Financing Financing 9

Contact Us For further information, please contact any of the Telegraph Hill Managing Directors listed below: Phillip Courten phillip@telehilladvisors.

10 Contact Us For further information, please contact any of the Telegraph Hill Managing Directors listed below: Phillip Courten Mobile: (917) Office: (415) Ext. 235 Scott P. Sutherland, CFA Mobile: (310) Office: (415) Ext. 448 Dinesh Moorjani Mobile: (415) Office: (415) Ext

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