Edited by Huatai: the first year of 5G and the flow of attack & Everbright Securities: the 48th issue of Communications Industry Weekly.

5G has become the hottest topic in the global mobile communication industry. From the evolution of the technology path and the dimension of policy promotion, Huatai believes that the development of 5G is highly predictable, and 5G is expected to become the key point for China's communications industry to achieve global leadership. The increasing policy will ensure the commercial use of 5G in China as scheduled.

A few days ago, two pieces of good news came from the commercial direction of 5G in China:

(1) on November 20, at the 9th 2018 Global Mobile Broadband Forum, Huawei said that it had won 22 5G commercial contracts worldwide and had shipped 5G in batches to customers worldwide, providing more than 10,000 5G base stations.

(2) China Mobile Limited and the EU 5G-DRIVE team signed a project cooperation agreement on November 19, under which the two sides will carry out technical research and experimental cooperation to jointly promote the development of 5G technology industry and commercial use in China and Europe.

Huatai pointed out that with the landing of industry standards, the global competition for 5G to take the lead in commercial use has entered a stage of increasing policy. The Ministry of Industry and Information Technology issued the "three-year Action Plan for expanding and upgrading Information sales costs (2018-2020)", which requires to ensure that 5G commercial services will be launched in 2020. Three major operators have announced that they will launch 5G services in 2020. Operators in Japan, South Korea, the United States and other countries have also launched 5G commercial services based on their own standards, and will begin to deploy 5G networks around 2019.

From the point of view of the upper reaches of the industrial chain, Huatai believes that network construction driven by capacity expansion has created new demand for wireless RF manufacturers such as communications equipment manufacturers, optical modules and antennas. From the operator's point of view, under the background of the continuous expansion of the volume scissors gap, the expansion of new construction has also brought pressure on the capital expenditure side. In the first three quarters, telecom business revenue totaled 991.5 billion, an increase of 3% over the same period last year; the total volume of telecommunications business completed 4.3671 trillion, an increase of 139.8% over the same period last year, and the scissors gap between total business growth and business income growth further widened.

Huatai predicts that the investment scale of 5G will be much higher than that of 4G. By 2017, the three major operators have invested 1.4593 trillion yuan in 4G CAPEX, with an average annual investment of 364.8 billion yuan. 5G has a long life cycle because it supports more scenarios. According to the estimation of the Institute of Information Technology and Communication, the expenditure on network equipment of 5G in China reached the maximum in the fourth year after commercial use (2023), and then began to decline. If you consider a longer life cycle, it is estimated that operators will spend 2.64 trillion on network equipment within 10 years of the 5G construction cycle.

5G will have higher requirements in terms of network bandwidth, connection density, delay, synchronization, cost and efficiency. 5G network needs to be upgraded both on the wired side and the wireless side. The main changes include: 5G air port needs to introduce large-scale array antenna technology (Massive-MIMO); base station architecture changes, antenna active trend is obvious; bearer network upgrade, NSA/SA deployment scheme choice.

Huatai pointed out that the transmission network is an important part of the communication network and is used as a transmission channel. It is generally constructed under the switching network, data network and support network to provide signal transmission and conversion. In the 5G era, the traditional base station BBU will be reconfigured into two logical network elements, CU and DU. According to the requirements of specific scenarios, the two can be deployed together or separately. In addition to the demand for optical modules for forward and back transmission, optical modules are also needed for intermediate transmission. For the latter case, there will be more intermediate transmission links for CU and DU connections, bringing new demand for optical transmission and optical modules.

Huatai mainly recommended ZTE Corporation (000063.SZ), Jinxinuo (300252.SZ), FiberHome (600498.SH), Optical Communication Technology (002281.SZ), and Zhongji Xuchuang (300308.SZ).