Secrets of the underworld

Walk north along Blackfriars Bridge. Cross the Embankment, leave the river behind you and head up the hill.

A short while later you’ll reach a crossroads. Stop and look around you. You’re standing on the very western boundary of the old City of London. To your right – the east – lies St Paul’s Cathedral. To the west, down Fleet Street and the Strand, lies Trafalgar Square and Westminster.

But north, south, east and west are irrelevant to us today. Our destination lies directly beneath your feet. As you’re going to see, something critical is happening beneath the streets of Britain. It could hold the key to a $12.3 trillion fortune. And part of that fortune could be yours. Today I’m going to try and explain why.

It’s Nick O’Connor here, by the way. I’m the publisher of Southbank Investment Research and the new editor of Exponential Investor. It’s nice to be back. I developed and launched this letter three years ago. It’s been in good hands since then. And now I’m back, to take up the torch again.

My mission is simple: to share the most important technology stories in the world today with you before you hear about them elsewhere. The idea being, of course, that first-mover advantage is significant when it comes to breakthrough technology. Being early and being first can be the difference between life-changing profits and mediocre returns.

With that in mind, why did I start today’s letter with a ramble around the streets of London?

I can explain. The location I described, just north of Blackfriars Bridge, is called Ludgate Circus. It’s one of my favourite parts of London. One reason for that is because it’s close to several pubs I like, neither of which are filled with tourists or loud, young bankers (the worst of our species). But publishing the names of those pubs would be counter-productive. 

But the main reason lies below the streets. Ludgate Circus sits on top of a lost river of London. It was called the Fleet. Actually that should read is called the Fleet. It still exists. It’s just buried beneath the streets.

Rumour has it you can still hear the rushing of the water beneath the streets at certain points on its course, Ludgate Circus being one of them. But I don’t see how you’d hear that. Too noisy.

But it’s there. It’s one of 14 “lost” rivers of London. Take a ferry ride down the Thames at low tide and you’ll see where some of them deposit themselves into the last river standing. They’re mostly underground. Buried. Piped up. Tamed.

It’s a shame. Though it is fascinating.

Those hidden rivers burrowed deep into my subconscious when I first moved to London, nearly a decade ago. I’ll confess to becoming a little obsessed with the world beneath London’s streets. The lost rivers, the secret tunnels, abandoned Tube stations, catacombs. What’s hidden beneath carries an extra frisson of excitement when compared to what’s visible above.

And the underworld is about to play host to a new secret. It’s part of a plan to “host” a major new tech system within an existing subterranean Victorian network.

There’s a nice kind of symmetry to what’s happening. The tunnels and sewers pioneered by Brunel and Bazalgette in the great era of Victorian civic engineering will be upgraded and overlayed with a new kind of technology that could change the way Britain’s economy works every bit as much.

I’m talking, of course, about the 5G rollout. You’ll have heard of this, I’m sure. Though it’s possible you’re not aware of just how close we are to it – or of the kind of returns it’ll generate. In a rather poetic move (if you think like me) the “nodes” in this new network are being attached to the underside of manhole covers – effectively hosting a very new technology within a very old one.

We’ll get to the numbers in a second. Before that, let’s deal with a common misconception. 5G isn’t just another, faster iteration of the internet. It’s not like when your broadband provider claims your internet now runs slightly faster (which is always total BS anyway, as everyone knows). It’s a much bigger step change than that. Why?

That’s what I’m going to explore this week. But the main one is the fact that 5G is a platform technology. It’s a technology that enables entire industries to flourish. To understand how much money is at stake you need to not just understand the platform itself – but the new kinds of business it will enable. More on this in a second.

First, some numbers.

According to a report from IHS Markit, the 5G technology will ultimately enable $12.3 trillion in economic output by 2035. That is an awful lot of money. It’s roughly the same figure as China’s entire GDP last year.

Think about that. Think about all the ways in which the rise of China has changed the world in the last 20 years. We’re talking about one piece of technology that could – in pure financial terms – create a “new China” within the world economy. That’s huge.

By the way, the same report forecasts that 5G will create 22 million jobs and result in a $3.5 trillion “value chain”. I’ve put that phrase in quotation marks because I hate it. It’s the kind of phrase business school graduates use to try and sound smart. And it turns something critically important into something utterly dry and boring.

I prefer “ecosystem”. It tallies more closely with the way I see the economy, as a naturally occurring system that arises when millions of people try to better themselves by creating, inventing, innovating and consuming.

And it’s clear the 5G ecosystem is going to be a big one. Right now we’re in the first phase – when the “plumbing” of the system is rolled out. Apologies for the mild plumbing/sewage pun. I couldn’t help it.

The best way of thinking about where we are is simply to look back at how other, older networks were developed. The first thing that happens lays the groundwork for what comes – often literally. Canals are dug out. Rail tracks are laid. Telegraph cables spread like vines. Phonelines connect first whole towns, then individual homes and businesses.

You might call that the engineering phase. It’s easy to understand. It’s easy to see. You can’t miss it.

And if you keep a sharp eye out, you won’t miss the engineering phase of 5G. The network has to be physically built out. There’s money to be made from the businesses doing this work. They may not be sexy companies. But just look at what you could have made from a business like Cisco or Intel – businesses that helped build out the plumbing and essential components of the internet.

Cisco shares, for instance, traded at 10 cents in October 1990. Today a share in the business sets you back $56. So, roughly a 560x return, if my maths is correct. It’s not a particularly exciting business, but would you care about that if you’ve made 560 times your money? I wouldn’t. I’d be on the beach.

After the engineering phase, you get the what I’d call the startup phase. That’s when new business models based on the new network emerge. It is much harder to predict how this phase will play out – because it involves such wild diversity.

What comes next is typically a bubble or mania. This isn’t a bad thing. In fact the opposite is true. The mania phase is best seen as a period of wild, accelerated innovation. It’s like the Cambrian explosion. It’s characterised by experimentation, trial and error and failure. Lots of failure.

But what emerges from that period of innovation will likely be world-changing. Look at the way Amazon, Apple, Facebook, Netflix and Google (to name just a few) emerged from the mania of dotcom era. An early £1,000 speculation in any of that stocks would have made you… well, I’m not even going to go and do the maths. You get my point. You could have made a killing.

Let’s map that way of thinking on to 5G. You can broadly split your approach into two. You can seed money in the “engineers” – the firms that are building out the plumbing of the system. And you can speculate on the “startups” using that network in a new or unexpected way.

Both approaches can pay off. They involve different levels of risk. But they both require you to extrapolate the trends we’re seeing today into the future – and then invest based on that vision.

This is hard to do. But you’re in the right place to attempt it. My goal in these letters is to, even in some small way, help paint a picture of what the future may look like. If we can understand what’s happening today, we can try and predict what tomorrow will look like. We can invest based on that prediction. And if we’re right, we can make a profit. Perhaps a life-changing one.

So how could 5G change the world?

For that, my friend, you’ll have to read tomorrow’s Exponential Investor…


Nick O’Connor
Publisher, Exponential Investor

PS A final piece of housekeeping. I’m always keen to hear your own thinking on the ideas I share with you. My email address is I read everything. I reply to what I can. I enjoy reading it all – whether good, bad or just plain bizarre. Write to me.  

Category: Technology

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