Internet Access is Big Business

Almost everything we do is on the internet, it permeates every aspect of our lives.

Almost everything we do is on the internet, it permeates every aspect of our lives. Today I’m analysing 5G and “Space Internet”, and how both are likely to be a step-change in how the internet is used, and therefore how we do everything.

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5G - it’s not just about faster internet speeds. Kind of.

If you’re anything like me, the race to win 5G infrastructure contracts has been background noise across your various news reading apps for years now. More recently the race was highlighted as the US of A - followed by several other countries - banned telecommunication companies from deploying and using Huawei’s 5G infrastructure. At the time Huawei was the lead dog in the race previously mentioned, and the few months I spent working in telcos got me a-wondering who would be the beneficiary of Huawei’s fall from grace, and just how big this prize might be.

Why is Faster Internet so Important?

On the surface of it, 5G is just about faster internet. Much. Faster. Current tests have topped out at of a gigabit per second beating out fibre optic and other wired speeds in most places. It also provides lower latency (nerd-speak for less delay), which is the other very important aspect of internet speeds; higher reliability; and improvements to energy consumption helping batteries last longer. So, besides less buffering on videos and other content, why is this interesting? Two key reasons are large-scale disruption of traditional Internet Service Providers, and the transmission of enormous quantities of data.

1. The Disruption of the ISP Industry

For governments looking to get affordable internet to their citizens they currently have to undertake enormous infrastructure projects in order to meet this demand. For the likes of my home city (London) ISPs needed to operate over ancient infrastructure and/or dig up roads, lay new cabling, perform maintenance on the cables, switches, employ people to do all this work, and all the other bits and pieces needed to create and operate wired internet at decent speeds. When fibre became popular, and citizens wanted to upgrade their ADSL internet, a whole new round of infrastructure projects had to be executed. This has created an entire industry, and that industry is about to experience one helluva shakeup. The deployment of high-speed internet is about to become a lot easier, and soon enough will be a lot cheaper. Expect a lot more competition, and therefore decent prices for the end consumer. It also means the cost of deploying internet access to previously unreachable areas will become a fraction of what it costs today. Providing internet access to some of the world’s poorest regions will accelerate their ability to climb the wealth ladder.

2. Data Data Data

The second, and arguably just as important reason to care, is data. Faster internet speeds facilitate much richer experiences. During the time of 56K internet speeds our experience of the internet was almost entirely (badly formatted) text. Faster internet speeds enabled the likes of cloud computing, and a swathe of new consumer and business services including household names like Netflix and Dropbox. Now, with 5G we’re enabling the next generation of internet capabilities including:

1. The internet of things coming of age - everything will be measured

2. The next generation of AI - AI needs data, the more the better

3. Truly autonomous vehicles (a subset of AI really)

4. Enormous efficiencies in logistics and manufacturing

Long-story short, 5G is a very big deal for businesses and people alike.

How Does This Make Me Money?

Wherever there’s a loser in business, someone else is winning. Many investors are looking at Ericsson and Nokia as the major beneficiaries from the Huawei debacle, but few are looking at Samsung. Samsung is a fantastic business in its own right:

1. Massively diversified, highly successful product lines

2. Fantastic books with a low PE, $35bn in cash, decent dividend growth, lots of experience at turning sales into a profit, and decent EPS growth

They’ve also proven their 5G tech in the US and Korea, and could no doubt ramp up a UK and European operation in no time. Feels about time to pick up some Samsung stock, no?

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Space Internet - the greatest tech you’ve never heard of

Almost everyone has heard of Tesla, and most have heard of SpaceX but I suspect few have heard about Elon’s Space Internet (my term not his) technology called Starlink. Starlink hopes to bring internet access to (almost) the entire globe using a constellation of thousands of satellites in a low orbit around the Earth. What you might find even more surprising is that it is already operational.

Why is This a Thing Now?

Starlink was born out of SpaceX, and kicked off in 2015 but faced several delays because:

1. Satellites are expensive, as is getting them into orbit and Starlink needs thousands of them in order to work properly

2. Getting governments to okay thousands of new satellites in low orbit hadn’t been done before

3. Satellite internet had been attempted before, but latency (roundtrip delays) had always been a challenge

Insurmountable challenges seem to be Elon’s thing though, so he ended up:

1. Creating a cheaper satellite and a cheaper way to get things into space

2. Got governments to sign up, in part by letting them use some of the satellites

3. Invented a new way for the satellites to communicate

Easy-peasy lemon squeezy! In October 2019 Musk used Starlink to send a tweet, and as of today, they have more than 650 satellites in orbit. According to Starlink, the latency of their network will be less than that achieved by even our fastest wired internet over great distances. And in fact, this is how they intend to fund the business early on.

How to Fund a Global Satellite Network for Dummies

First up, devise a cunning plan. The initial set up of your network will have very high costs, so you’re going to need people with deep pockets.

You know that banks, traders, and exchanges pay a lot of money for leased lines, as well as close proximity to other banks, traders, and, exchanges so that they can make their trades (or not) before others do. So if you invent a high-bandwidth, low latency internet access technology they might want it. If you’re able to make it significantly cheaper than what they use already them BAM, you’re in business. And that’s exactly what they’ve done. The video below does an excellent job of explaining the details.

If Starlink’s satellite deployment schedule proves to be accurate we may all end up being Starlink’s customers in the next few years, and this is what gets me really interested as an investor.

How Does This Make Me Money?

Starlink will bring internet access to every corner (just about) of the globe, and in a similar way to 5G will completely upend the current internet service provider market. There are going to be a lot of companies going out of business. But Starlink itself may be looking to go public in coming years. SpaceX’s COO said earlier this year that Starlink is the “right kind of business” to be spun out from SpaceX and taken public, but Musk has contradicted this (as well as staunchly saying that SpaceX will only go public when it gets humans to Mars).

Unfortunately, this means that we don’t yet know if we can make money from Starlink (which is tipped to have a market size of over $1trn). But if this rumour is eventually confirmed you better believe that I will be buying.

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