What happened?

As telecommunications companies are beginning to invest in licenses and infrastructure rollout for 5G mobile communication networks, it is worthwhile to consider what happened two decades ago. Telecom markets in the West had just been liberalized and network providers were investing (and loaning) heavily to capture their share of the nascent mobile telephony market. The arrival of a new and promising standard for mobile data, UMTS/3G, pushed them to invest further in additional infrastructure and operating licenses (>$100 billion in Europe alone). Even though there was no acute demand for mobile data services (e.g. emailing on a phone seemed absurd), the wider online boom seemed to justify these investments and telco valuations rose to great heights (e.g. Lucent Technologies topped at $250 billion). However, when the dotcom crisis hit in 2000, shareholders lost faith in the telecom sector and an estimated $2 trillion went up in smoke.

What does this mean?

No one can really tell which (genuinely new) services will be developed on top of 5G technology and whether those will generate sufficient revenue to justify all of today’s investments, but expectations of 5G are very high nevertheless. As a result, telcos are compelled to make their investments as they simply can’t risk staying behind other mobile (and wired) services. While most will opt for a more gradual approach to 5G than UMTS in the past, their combined investments (in licenses, antennas and the backbone) are likely to grow rapidly and surpass the $1.3 trillion that was spent on 4G networks (e.g. China alone is expected to spend $223 billion between 2019 and 2025).

What’s next?

All of this is not to say that a new telecom crash will take place. Interestingly, however, the rollout of 5G may very well coincide with a new economic crisis in the coming years. For one, this could spell trouble for heavily indebted telcos as consumers (and businesses) will be less likely to invest in (expensive) 5G phones or elaborate Internet-of-Things applications. From a systemic perspective, it would most certainly lead to a considerable slowdown of the 5G rollout as funding for infrastructure build-up would be more difficult to acquire. On an even more speculative note, one could imagine that places with early 5G networks will be able to profit disproportionally as other cities or regions would see 5G much later. The former could then, for instance, develop the first advanced smart city applications or be home to the first commercial fleets of autonomous vehicles.