More mobile users, more connected devices, and more applications are spurring big upgrades of communications networks, both at the carrier and enterprise levels.

According to Bloomberg, mobile-phone companies, chipmakers, device manufacturers, and software developers are expected to spend $200 billion a year in research and capex to usher in next-generation 5G wireless networks.

Most mobile-phone companies are targeting 2020 for the initial rollout of the technology, which promises 10 times faster speeds and lower latency, or lag time, in transferring data when it’s requested, while some carriers, including Verizon (NYSE: VZ), are already moving from trials to deployments.

5G: Transforming More than Telecom

Like every new generation of wireless technology, the fifth generation, or “5G,” will dramatically increase the speed and volume of data transfer through the airwaves. However, the transition from 4G to 5G will be more significant than previous transitions as unprecedented speeds—in some cases up to 50 times faster—as well as significantly larger carrying capacity, will allow wireless technology to move past three technical thresholds, each itself representing a significant milestone.

The first threshold is that 5G wireless internet speeds will, for the first time, exceed those of cable broadband and potentially also fiberoptic cable (Verizon Fios, Google Fiber, etc.). 

Achieving this threshold will allow users to flip through high-quality video content on mobile devices, including 4K, 3D, and virtual-reality content, and have the same experience as (or better experience than) watching cable television.

Secondly, 5G will enable the “internet of things,” or “IoT,” which will have broad industrial and city-wide applications for the first time. 

Not only will consumer products such as fridges and thermostats be increasingly connected to the internet via the “consumer IoT,” but also large-scale and complex processes such as industrial agriculture, supply-chain coordination, fleet management, and city traffic flow will increasingly be guided by connected devices as part of the “industrial IoT.”

Importantly, 5G will provide the necessary bandwidth for connected vehicles to send and receive the huge amounts of data at the speed required for effective vehicle coordination, thereby representing a vital component in the development of autonomous driving.

The third threshold that 5G technology is predicted to surpass is the reduction of network latency, or lag, to one millisecond, faster than the speed at which humans perceive audio, visual, and physical response as instantaneous.

For comparison, 4G/LTE latency is currently between 20 and 50 milliseconds. 

Top 5 Service Providers Expected to Spend $50B on Capex in 2018

According to FierceTelecom, the five largest telcos alone plan to spend approximately $50 billion on capex in 2018, up from nearly $45 billion in 2017, as the move to 5G accelerates.

For investors, finding where this money is being spent could lead to big profits.

Most large enterprises and telcos contract network infrastructure work to regionally based solution providers. One such company is Spectrum Global Solutions (OTCQB: SGSI).

SGSI’s client list includes major carriers (Verizon, AT&T, Sprint, T-Mobile, etc.), aggregators (Crown Castle, Zayo, etc.), OEMs (Nokia, Samsung, Ericsson, etc.), and utilities (Entergy, Southern Company, etc.).

These customers regularly turn to SGSI (through its wholly owned subsidiaries) for the deployment and maintenance of both next-generation and legacy wireless and wireline networks and infrastructure.

Valuation Yet to Reflect Acquired Operations

For investors, SGSI is an extremely compelling opportunity right now.

SGSI entered the telecom landscape in 2017 through the acquisition of established solution providers.

One of its most recent acquisitions (ADEX Corp.) generated revenue of $20 million last year. It’s well positioned to generate similar revenue in 2018. This alone will drive significant year-over-year growth for SGSI.

Even with ADEX only contributing revenue for just over a month in the first quarter of 2018, SGSI exceeded $4 million in revenue for the quarter. Had ADEX been acquired on January 1, quarterly revenue would have been more than $7 million.

For the year, SGSI is well on track to report over $30 million in revenue. Yet today the stock trades for a market cap of under $2 million.

Rapidly Growing Pipeline of Business

SGSI’s telecom subsidiaries reported a backlog of $12 million in purchase orders in May, with an opportunity pipeline exceeding $127 million.

Over the past several months, through a series of back-to-back announcements, the company has been reporting millions of dollars in new contracts, adding even more business to its already impressive backlog.

This type of growth will likely attract significant investor interest as the year progresses, propelling shares to a more realistic valuation.

Trading at just 1x its estimated 2018 sales would put the company at a $30 million market cap, more than 15x where it is today. And for a company generating double and/or triple-digit growth, 1x sales is an extremely conservative valuation.

Add in the growth of its contract backlog, extremely favorable industry trends, and a management team with a proven ability to execute, and SGSI could be one of your biggest winners in 2018.

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