Since the start of the Donald Trump administration, defense stocks have been going up like rockets.
The second stage on that may now have been lit with reports that the government is considering “nationalizing” the 5G network.
What that probably means is that the government would build a military version of 5G technology on some of the frequencies it already owns. There are frequency bands across the spectrum set up for military use.
Making that happen is complicated, but what it almost certainly means is military contractors getting access to necessary technology, building secure infrastructure to military specifications and managing the resulting networks.
As a result, stocks in major military contractors involved in radio are on fire. Lockheed Martin Corporation (NYSE:LMT), Raytheon Company (NYSE:RTN) and Northrup Grumman Corporation. (NYSE:NOC) are all up over 5% just since Jan. 24.
The Argument Around 5G
There are several arguments being made in the memo, but they all point to fears of China.
China dominates the current market for radio gear, and there are fears that China’s government may be building back-doors into its equipment allowing it to spy on even military conversations in the future. China has dismissed a French report that it put backdoors into the networks it installed for the African Union’s headquarters in Ethiopia.
Despite the denials, the reports are fuel to an administration fire which treats China as an enemy, rather than just a trading partner. The current proposal is filled with holes, but has just the kind of language Trump is said to love, meaning it’s likely being taken seriously.
Wireless companies have been looking at 5G for years, with plans for virtual base stations, wireless and wired networks tied together, and bandwidth measured in gigabits per second. It is not “a network,” it is a set of emerging standards for base stations, radios, and networking companies.
Strategic Analytics, a market research firm, sees military and civilian networks becoming both more integrated and similar in coming years. Its Jan. 22 report saw growth of just 3.5% in the advanced defense systems market over the next 10 years, but if priorities change that could ramp up.
The Game Is Afoot
The release of the memo has begun a regulatory dance around 5G, with the wireless industry and the Federal Communications Commission voicing objections to the Defense Department memo.
But the reality could be more benign, with the Defense Department building a consortium of contracting companies that could license the underlying technology, upgrade military networks to new standards and operate 5G on military-owned bands under government control.
Putting all military communications into military networks could avoid the embarrassment of Strava, a fitness-tracking company that recently measured use of its app and accidentally pinpointed the location of many military assets.
Among major military contractors, Raytheon may be of most interest here because of its work on cognitive radios, which automatically seek radio channels and even change transmission parameters to assure maximum throughput.
The Bottom Line
Right now, it would be foolish to invest in any military contractor simply because it has 5G or cognitive radio technology.
These are very early days for 5G. The heart of the technology is a virtual network that adapts automatically to changing conditions and maximizes throughput of any signal. That’s a huge opportunity for military contracting, but it’s not the same thing as the government taking over a technology.
But if you are interested in a speculation, here’s a name. If we’re not going to be getting this technology from China, maybe we’ll get it from Israel. Mobilicom Ltd., an Israeli company that recently listed in Australia and sells for about 10 Aussie cents per share, offers mobile private network technology that could soon become very interesting to someone.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at [email protected] or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.