Friday, October 6, 2017

Mapping the benefits of a circular economy

Most European industries can improve financial performance with specific actions to reconfigure product lifecycles.

Is there a reliable way for industries to increase their profitability while reducing their dependence on natural resources? In recent years, McKinsey research has shown that the circular economy—using and reusing natural capital as efficiently as possible and finding value throughout the life cycles of finished products—is at least part of the answer.1In 2015, as part of a major study with the Ellen MacArthur Foundation, we demonstrated that such an approach could boost Europe’s resource productivity by 3 percent by 2030, generating cost savings of €600 billion a year and €1.8 trillion more in other economic benefits.

Exhibit 1 shows that most of the 28 industries we studied could adopt three to four of six potential circular-economy activities, improving performance and reducing costs accordingly. These are shifting to renewable energy and materials (Regenerate), promoting the sharing of products or otherwise prolonging product life spans through maintenance and design (Share), improving product efficiency and removing waste from supply chains (Optimize), keeping components and materials in “closed loops” through remanufacturing and recycling (Loop), delivering goods and services virtually (Virtualize), and replacing old materials with advanced renewable ones or applying new technologies such as 3-D printing (Exchange). Most industries already have profitable opportunities in each area.

Six circular-economy activities have the potential to improve performance and reduce costs for a number of industries. — Exhibit 1

In the sections that follow, we explore how leaders are putting these principles to work in three short case studies covering emerging markets and specific industries.

For additional research on the circular economy, see “Finding growth within: A new framework for Europe,” in The circular economy: Moving from theory to practice, McKinsey Center for Business and Environment, October 2016, by Morten Rossé, an associate partner in McKinsey’s Munich office, Martin Stuchtey, an alumnus and former director of the McKinsey Center for Business and Environment, and Helga Vanthournout, a senior expert in the Geneva office.

Building a business from waste

Economic growth in emerging markets has helped to raise living standards—but inevitably it has also generated massive consumer and industrial waste. Many municipalities in these markets spend up to half their budgets on solid-waste management. Innovative businesses, however, drawing on circular-economy principles, are finding ways to convert trash into income streams. By aggregating volumes substantial enough to justify business investment, they are able to create the infrastructure to organize and manage waste supply chains.

Exhibit 2 shows three opportunities and three levels of value for each. Polyethylene terephthalate bottles in mixed waste, for example, can be incinerated, but the economic payoff from the energy generated is low. Recovering the bottles’ material value, from mixed recyclables or bottle-to-bottle recycling, produces a much higher payout. Metals, meanwhile, are commonly extracted from tires in open backyard fires—at great cost to human health and the environment. Aggregating tires for use as industrial fuel, on the other hand, could increase their value almost tenfold, while crumbling them to make road-paving material yields even more. The same principle works for electronic waste: shifting from small-scale recycling to best smelting processes or liquid-chemical extraction techniques multiplies yields. Bear in mind that pound for pound, there is more gold in electronic scrap than there is in ore.

Value recovery generally increases with the aggregation of waste flows and investment in more advanced recovery approaches. — Exhibit 2

Scaling up requires management discipline. Successful programs such as the tire-recycling exchange of the Recycling and Economic Development Initiative of South Africa (REDISA) have a strong balance sheet that encourages investment by downstream waste users and the management expertise to hone operations and attract talent. They also invest in infrastructure, including IT. REDISA’s digitized product tagging improves recovery, which in turn allows manufacturers to design tires with less toxic materials.

For the full article, see “Ahead of the curve: Innovative models for waste management in emerging markets,” in The circular economy: Moving from theory to practice, McKinsey Center for Business and Environment, October 2016, by Hauke Engel, a consultant in the Frankfurt office, Martin Stuchtey,and Helga Vanthournout.

Making ‘fast fashion’ sustainable

Apparel sales have risen sharply in recent years, as businesses have used “fast fashion” design and production systems to cut prices and introduce new lines more often. From 2000 to 2014, global clothing production doubled and the number of garments sold per person increased by 60 percent. In five large developing countries—Brazil, China, India, Mexico, and Russia—sales grew eight times faster than in large advanced countries, though the average advanced-country resident still buys more clothing each year.

Narrowing that gap represents a big opportunity for clothing companies, but the environmental consequences are clear (Exhibit 3). Making and laundering clothes typically requires large quantities of water and chemicals; fiber farms occupy vast tracts of land; greenhouse-gas emissions are significant. After consumers discard old garments—something that happens ever more quickly—current technologies cannot reliably turn them into fibers for new clothes. Without improvements in how clothing is made, cared for, and disposed of, apparel’s environmental impact will worsen.

As consumer spending increases, especially in emerging economies, the clothing industry’s environmental impact could expand greatly. — Exhibit 3

Clothing businesses are taking note. Some have formed coalitions to promote nontoxic chemicals, improve cotton farming, and raise production standards. Others are helping develop standards for garments that can be more easily reused or recycled, and investing in the development of new fibers that will lower the environmental effects of production. Using more sustainable methods may cost slightly more, but doing so can also spur innovation, guard against supply-chain shocks such as drought conditions that affect cotton supplies, and enhance corporate reputations.

For the full article, see “Style that’s sustainable: A new fast-fashion formula,” October 2016, by Nathalie Remy, a partner in the Paris office, Eveline Speelman, a consultant in the Amsterdam office, and Steven Swartz, a partner in the Southern California office.

Why supply chains hold the key

The global consumer sector is expected to grow 5 percent a year for the next two decades. But environmental and social problems pose a real threat. We estimate that more than half of the enterprise value of the top 50 consumer companies depends on their projected growth, which is vulnerable to issues such as drought, government limits on greenhouse-gas emissions, and reputational damage from insufficient attention to pollution and safety.

When managing their sustainability performance, consumer companies often start with their own operations. The largest opportunities for improvement, however, can probably be found in supply chains, which typically account for 80 percent of a consumer business’s greenhouse-gas emissions and more than 90 percent of its impact on air, land, water, and biodiversity (Exhibit 4).

Most of the environmental impact associated with the consumer sector is embedded in supply chains. — Exhibit 4

Identifying sustainability challenges along the entire supply chain, then, is crucial. However, fewer than 20 percent of the 1,700 respondents to a survey by the Sustainability Consortium are doing this. Best-practice companies assist suppliers with managing sustainability impact, offering incentives for improved performance, sharing technologies that can help optimize the use of resources such as water and soil, and closely monitoring performance to be able to intervene quickly when problems arise.

Amazon Reportedly Testing Local Delivery from Merchant DCs

Mike O'Brien

October 5, 2017

Once again raising the specter of cutting out more business to UPS and FedEx, Amazon is reportedly testing a program called Seller Flex that involves making local deliveries from the warehouses of retailers selling on its marketplace, according to a report from Bloomberg.

While UPS and FedEx may still handle these deliveries, Amazon will decide and not the seller, the report noted. Amazon has already been using local couriers for same-day deliveries in major markets, and has been leaning more heavily on the U.S. Postal Service, including on Sundays.

The report did not indicate how the deliveries would be handled and by what type of service. Amazon spokesperson Kelly Cheeseman said the company is “using the same carrier partners to offer this program that we’ve used for years, including UPS, the USPS and FedEx.”

The new program began testing in India and has now begun on the West coast, the news organization reported, with Amazon letting more merchants know in advance of a broader rollout.

By handling deliveries from seller’s warehouses, Amazon gains greater flexibility and control over the last mile, benefits from cost reduction through volume discounts and frees up space in its own fulfillment centers, Bloomberg reasoned. You can read the full story here.

MCM Musings: Over the past couple years Amazon has been aggressively building up its own delivery and logistics capabilities including leasing cargo jets and purchasing tractor trailers, creating a $1.5 billion air huboutside Cincinnati for its Prime Air fleet and investing in freight forwarding from Asia. Amazon and both major carriers have said repeatedly that these moves don’t affect their long-term partnerships, but the actions do speak volumes – and will undoubtedly affect volumes, including the busy holidays. Speaking of that, Amazon also held open houses this summer to recruit last-mile carriers in several major markets.

After Storms, Fixing Supply Chain

Get Your Supply Chain Back on Track in the Wake of the Hurricanes

Companies have an even smaller margin of error than usual entering peak season, due to the ripple effect of the recent hurricanes.

Nick Foy | Oct 05, 2017

The 2017 hurricane season wreaked unprecedented damage and destruction on the southern United States and Caribbean, with three catastrophic category 4 and 5 storms occurring within a single month.

While the eye of the storms have passed (we hope; the latest news is that Tropical Storm Nate could develop into a hurricane this weekend), their effects will be felt for months to come, particularly as they caused closures at major ports including the Port of San Juan, the Port of Houston, the Port of Miami, Port Everglades and the Port of Savannah.

The ripple effect of these delays will be felt up and down the supply chain, from these port closures delaying shipments in and out of the country, floods leading to lost inventory and general destruction keeping companies closed for days or weeks at a time. Adding insult to injury, manufacturers, suppliers and distributors are facing the impact of the storms at the worst time possible: the lead up to holiday season.

September and October, which are typically months spent stocking up on inventory, forecasting for the holiday season and ensuring vendors and staffing are lined up, have instead become “catch up” months to regain precious time lost from these storms. This will lead to an even smaller margin of error for brands as they enter the critical season of peak demand surrounding the holidays, meaning it’s up to brands to plan and put systems in place to ensure they have done absolutely everything in their power to ensure things go smoothly. But where to start?

Assess Internal and External Damage

Once victims of these storms are in a place where they are able to get back to work—a process which may require some creative thinking given the evacuations that took place in Florida and Texas—the first step will be to assess the damage incurred, and come up with a list of priorities that need to be handled before things can begin to truly move forward. If brands are lucky, physical damage to facilities will be minimal, but if not, ensuring employees can safely work must be priority number one.

Beyond that, assessing the state of inventory and machinery (What’s unusable? What can be salvaged?), checking in with vendors to assess the damage to their facilities and gauge their level of readiness to move forward, and gaining an understanding of what exactly the business and its vendors are up against will be paramount. For brands that were able to plan for the hurricanes before they hit, it’s likely that they had a deal in place to source inventory from an unaffected market, so determining how to transport that inventory to where it needs to be in time for the holiday rush will be top priority. Brands can expect to incur increased short-term transport costs in these situations, given transporters are likely already moving at near-peak capacity.

For brands that were unable to plan and move inventory, assessing just how much was lost and then determining a way to make up the difference will be most important. This may require brands to implement quantity limits on products in the interim. Brands that procure their products through a single source will likely face the most difficulty, especially if that source is located in an affected area.

Be Flexible, Nimble and Patient

While it can be tempting to come up with a contingency plan on the fly, plans developed during times of crisis are seldom robust and often create more stress and uncertainty when it’s needed least. Instead, once brands have an understanding of what they and their vendors and partners are up against, they should focus on managing the situation one step at a time. This allows them to remain flexible and nimble, reacting to setbacks and unexpected issues as they arise versus being stymied by a plan created under duress.

Further, brands must remember to be patient, both with their employees and facilities, and with their outside relationships. Recovery will be trying for everyone, both personally and professionally, and being understanding and patient when the unexpected hits will go a long way.

Everyone has a million things to do and has customers who need to be serviced, but now more than ever businesses need to trust the people they work with (both internally and externally), make exceptions and understand that while things may not go entirely smoothly, the people around them are doing their best to get back to normal. If they can succeed in this, they will inspire loyalty with grateful employees, and develop stronger, longer lasting relationships with vendors and partners.

Learn from Successes and Failures Alike

Once things have settled down and are largely back to normal, brands should take a step back and assess their overall handling of and reaction to this catastrophic event. What were their strengths? Weaknesses? Asking themselves—and their employees, vendors and partners—these questions will be key, especially as they move into the next phase of the aftermath: planning for the next event.

As mentioned before, contingency plans created in real-time rarely work out—they tend to be shortsighted and high-level, and in some cases can cause more harm than good. But that doesn’t mean a plan shouldn’t be in place.

For organizations that do not already have one, take this reflective time as an opportunity to create a business continuity plan (BCP) that will influence action for all manner of natural and man-made disasters moving forward. Plan for crises where there is some warning (like hurricanes), where there is the opportunity to activate contingency locations, move inventory and run lines to create back-up inventory before the crisis hits, and also plan for crises that can hit out of nowhere, like fires or earthquakes.

Once the plan has been developed, it is necessary to make sure all key personnel have a copy of the plan and know what to expect during different scenarios. If a brand already has a BCP in place, they should use this as an opportunity to update the plan and make sure that it is well understood by all parties. They should also reach out to partners and vendors and insist on their development of such a plan.

Of course, as the saying goes, “No plans survive first contact with the enemy,” and there will always be an element of ad hoc planning during the next natural disaster. Having a plan in place, however, and adjusting it as needed is a lot better than having to think up everything on the fly.

The recovery and cleanup following these major natural disasters won’t be easy, especially not as we head into the busiest time of the year. But if organizations are able to band together, both internally and with their external partners and vendors, it’s possible for the process to create a stronger, more bonded community and to serve as an opportunity to plan for the future.

Chapter 22: Why Some Retailers Emerge from Bankruptcy Only to File Again

OCTOBER 5, 2017 | BY DAVID BERLINER AND NICK WEBER

As of August 31, 16 retailers have filed for Chapter 11 bankruptcy in 2017. Four of those sixteen retailers are filing for “Chapter 22”, meaning this is their second time declaring bankruptcy. Chapter 22 cases show that the first bankruptcy failed and that the firm and its advisors were too optimistic regarding the firm’s viability out of bankruptcy. The chart below summarizes the four Chapter 22 filings over the past year:

1 Emergence from 1st to 2nd filing.

In all of these Chapter 22 cases, the companies’ attempts to improve core operations were not successful. The restructuring of these companies after the Chapter 11 filings did not go far enough to address their various operational problems — instead the efforts focused on improving the appearance of their balance sheets. This was likely due in part to the secured creditors’ desire to expedite the Chapter 11 process to minimize costs.

Inability To Adapt

One of the central reasons why these firms were unable to improve operations was their inability to adapt to changing consumer preferences and competitive landscapes, while still being overburdened with debt. Radioshack’s product assortment was generally antiquated and did not match the products sought by their customer base. American Apparel, Wet Seal and Bob’s Stores did not draw enough foot traffic to return to profitability, in part because competitors offered more desirable products at a better value.

Closing unprofitable stores without changing the underlying economics and developing a consumer-focused strategy is an ineffective way to emerge from bankruptcy for retailers. Inefficient supply chains with slow design, manufacturing and shipment processes make retailers unable to quickly change their products to match current trends. The typical 4-wall EBITDA analysis views the historical results of each store in a vacuum and does not fully consider changing competitive dynamics that could affect future results — like if a competitor recently opened or plans to open a location near a historically profitable store. Also, the 4-wall EBITDA analysis does not consider what is happening with other primary drivers of traffic within the shopping center. For example, customer traffic and future profits would likely be lower if a large department store or other tenants close stores in a mall.

Short Lease Renewal Time

Currently, bankrupt retailers have only an initial 120 days to assume or reject leases and can only receive one additional 90-day extension without landlord approval. One reason why retailers have to rush their decision as to which stores should assume or reject leases is the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BACPA). Before BACPA, bankrupt retailers could essentially seek as many extensions that a Bankruptcy Court would approve. This enabled bankrupt retailers to keep stores open through at least one holiday season and take their time to determine if these stores should continue operating. Bankrupt firms were able to wait until after the holidays to decide which stores to close so that the sales associated with holiday season spending could be used in their analysis. BACPA, however, eliminated this option to continue to extend the decision as to whether to assume or reject leases.

In addition to the short lease renewal timeline, retailers typically face pressure from secured lenders who force shorter rejection timelines to ensure that their collateral, often their inventory, is liquidated before the 210 days. Without current sales data from an additional holiday season, retailers are unlikely to properly forecast the future operating results of all their locations, and may end up with the wrong mix of stores as well as more underperforming stores than expected.

As the saying goes, history tends to repeat itself. With this in mind, potentially bankrupt retailers should learn from the mistakes of previous Chapter 22 filings. Aggressive restructuring of operations, including revamping the product assortment, fixing supply chains and implementing a well-planned lease rejection strategy prior to filing are essential to improve the prospects for a successful restructuring. Unless the retailer is prepared to adequately address the core operational issues that led to the original bankruptcy filing, expediting the process to quickly emerge from Chapter 11 increases the likelihood that the restructuring will fail, thereby resulting in a Chapter 22 filing in the near future.

Amazon Experimenting With Its Own Delivery Service To Rival FedEx And UPS

by Tyler Durden

Oct 5, 2017 9:20 AM

Taking another bite out of the fortune they’ve built for FedEx and UPS shareholders, Bloomberg is reporting today that Amazon is “experimenting” with a new program, called “Seller Flex,” which would have them takeover the process of picking up packages directly from third-party warehouses and delivering them to customers.

Amazon.com Inc. is experimenting with a new delivery service intended to make more products available for free two-day delivery and relieve overcrowding in its warehouses, according to two people familiar with the plan, which will push the online retailer deeper into functions handled by longtime partners United Parcel Service Inc. and FedEx Corp.

The service began two years ago in India, and Amazon has been slowly marketing it to U.S. merchants in preparation for a national expansion, said the people, who asked not to be identified because the U.S. pilot project is confidential. Amazon is calling the project Seller Flex, one person said. The service began on a trial basis this year in West Coast states with a broader rollout planned in 2018, the people said. Amazon declined to comment.

Amazon will oversee pickup of packages from warehouses of third-party merchants selling goods on Amazon.com and their delivery to customers’ homes, the people said — work that is now often handled by UPS and FedEx. Amazon could still use these couriers for delivery, but the company will decide how a package is sent instead of leaving it up to the seller.

Not surprisingly, FedEx and UPS investors were not thrilled with the encroachment on their business…though we’re sure they’ll ditch their ephemeral bout of depression and push the stocks to brand new highs by the afternoon. Just another opportunity to BTFD.

Of course, with the company spending nearly $20 billion per year on fulfillment expenses, it’s hardly a surprise that they’rerelentlessly looking at everything from their own drones to a fleet of cargo jets to deliver packages faster and at lower costs to their end consumers.

Amazon increasingly wants a direct hand in the path from one-click purchase to Main Street. There is the company’s homegrown drone project, which for now is more marketing stunt than reality. Amazon hires its own employees or contractors for expedited deliveries to Prime members in select cities. Amazon has tested using its own delivery trucks in some places, either to drive among the company’s warehouses or for the routes to shoppers’ homes. The company has opened a couple dozen package sorting centers to organize deliveries and expanded by 13 percent this year the number of warehouses to get goods closer to population centers. The sorting centers let the company “control a lot more of our shipments for longer,” Amazon’s CFO has said.

Control of the delivery process is Amazon’s obsession. Now the company is negotiating to lease 20 cargo jets, according to the Seattle Times, again with the ambition of having more autonomy over a part of the delivery path typically handled by shippers such as UPS and FedEx.

Seller Flex would also give Seattle-based Amazon more visibility into the warehousing and delivery operations of its merchant partners, potentially helping it make full use of their product inventory, storage space and proximity to customers while still guaranteeing quick delivery.

The project underscores Amazon’s ambitions to expand its logistics operations and wean itself off the delivery networks of UPS and FedEx. A rush of last-minute holiday orders in 2013 forced Amazon to issue refunds to shoppers who didn’t get gifts in time, highlighting the perils of being overly dependent on partners for a main part of its business pledge — quick, reliable delivery.

Will a new internal logistics company be just enough to once again thrust Jeff Bezos to the top of the world’s wealthiest leader board?

Study: Gens Y & Z prefer credit cards over other forms of payments

OCTOBER 5, 2017 | BY DEENA M. AMATO-MCCOY

Following suit of older generations, younger shoppers want to pay for purchases with credit cards.

Specifically, Gen Z (ages 18-24) and Gen Y (ages 25-34) are comfortable using credit to make purchases, and overwhelmingly prefer credit cards to monthly payment options, according to new data from Vyze, a provider of cloud-based financial technology solutions.

A majority of Millennials (80%) and 71% of Gen Z preferred a credit card with 0% interest for six months over a fixed monthly payment plan. Over half (53% of Gen Y, and 55% of Gen Z) will forgo using cash for a credit card that offers 5% cash back.

Gen Z and Gen Y adults are also fairly comfortable with managing a credit card balance. Nearly seven in 10 younger shoppers reported being at least somewhat comfortable carrying a balance on a credit card, and nearly one in 4 are “very comfortable” with the practice.

One important difference between the two generations: Gen Z could benefit from more information and a helping hand. This generation is the least likely to know their credit score (only 42% have a rough idea vs. 73% of Gen Y). They are also more likely to say they don’t have the financial information they need to make a decision about whether to apply for credit online or in the store (47% vs 26% of Gen Z respondents).

According to the study, retailers and lenders have the opportunity to better serve younger shoppers by providing more information on interest rates and promotions, as well making sure credit options are transparent and easy to use. While more than four in 10 Gen Z shoppers characterize retail credit cards as “helpful” or “builds credit,” the remainder find credit equally “complicated” or “misleading.”

While limited by strict regulations around how to present information, companies can make the credit experience less overwhelming. Two suggestions: simplify the experience and add transparency into offers and promotions.

“Despite the hype about Millennials and Gen Z, it turns out there’s not a radical difference between these groups when it comes to credit,” said Doug Filak, chief marketing officer of Vyze.

“Instead, a relatively traditional view emerges across the board and these consumers are right where we’d expect them to be based on age and experience,” he said. “Our advice to retailers is to adjust their programs without overcorrecting based on a mistaken sense that these shoppers are drastically different, for example by simplifying and clarifying credit applications versus moving away from traditional credit entirely.”

That Disappointing Internet of Things Trade is About to (Finally) Heat Up

As Amazon’s device announcement shows, the status of IoT today is not where the Internet of Things will be a year from now, or in a decade

By James Brumley, InvestorPlace Feature Writer | Sep 29, 2017, 4:00 am EDT

A couple of years ago when companies like Cisco Systems, Inc. (NASDAQ:CSCO) and Sierra Wireless, Inc. (USA) (NASDAQ:SWIR) were heralding the arrival of the so-called Internet of Things (IoT), visions of automated homes and one-touch changes in manufacturing operations created quite a buzz.

That Disappointing Internet of Things Trade is About to (Finally) Heat Up

Source: Shutterstock

Now here we are, more than a few years after IoT became a thing, and those faithful owners of CSCO stock, SWIR stock and several other high-profile players are wondering if the there was more bark than actual bite to the concept’s practicality.

Fear not, IoT fans and believers. As is the case with most sweeping technological advances (like the advent of 3D printers), the rise of the Internet of Things still looms. It’s just taking longer than the earlier outlooks implied.

When Does IoT Get Here?

Truth be told, IoT is here… more or less. The connected home is a prime example. A smart refrigerator from Samsung Electronics, for instance, can see what you have and don’t have, and automatically order the food you need and have it shipped right to your doorstep.

It’s clever, to be sure, but hardly the sweeping overhaul of life as we know it that would usher in utopia. Don’t throw in the towel just yet though.

Giving credit where it’s due, it was Pavan Singh, of industry-centric website IoT Agenda, who most recently served up some informed perspective of where the movement is in terms of adoption. He says of the four stages we’ll need to work our way through before IoT becomes commonplace, we’re still only in the first one — operational efficiency. That’s the one where assets (technologies) are just starting to be utilized in a new way. Though not yet perfected, these underlying technologies are “good enough” and “cheap enough” to start increasing productivity rather than simply being employed to perform menial tasks like ordering groceries.

The best is yet to come. The next of the four stages is the launch of actual new products and services, followed by outcome-based initiatives, and finally, the establishment of an autonomous pull-based economy where users of IoT technologies want and expect the availability of these platforms that help make and save money. In the last stage, every aspect of a product is automated, from creation to final consumption.

And, what sort of actual new products and services should we expect?

Look no further than yesterday’s announcement by Amazon.com, Inc. (NASDAQ:AMZN) of six new hardware products. Not only are these portals and enablers of e-commerce, but they show that the company is positioning its Alexa from being a connected speaker to taking on Samsung’s SmartThings, Alphabet Inc‘s (NASDAQ:GOOGL) Nest, and Apple Inc.’s (NASDAQ:AAPL) HomeKit, according to The Verge’s senior editor Tom Warren.

It’s not just consumers and business psyches — the perception of need and subsequent demand — that have been holding the Internet of Things back, though. The technologies and radio signal bandwidth we need have also been limited.

Bandwidth No Longer a Problem

While industry experts ultimately believe IoT will interconnect 20 billion devices by the end of the year, with one trillion expected to be linked by 2035, the bulk of them will be connected wirelessly using radio transmissions. Problem: There aren’t enough available radio frequencies to go around without these signals interfering with one another.

Companies are working on solutions, though. While like water and land, we can’t make more bandwidth, we can make the constant data traffic between hardware require much less of it, and we can tweak these cell phone connections and mobile broadband signals to carry more data when signals are sent from point A to point B.

The deployment of 5G connectivity is one such product.

It’s different than the now-common 4G connectivity that powers your smartphone in that even as fast as 4G is, only one connection per radio frequency can be made at a time. With fifth-generation signals, the network understands and manages the high-speed connections being made at any given time by a massive number of devices, allowing them to share radio frequencies with minimal degradation of their connection speed. That’s how 5G connections will effectively be up to three times faster than 4G connections are.

5G connectively is in its infancy, however, only being tested in real-world settings rather than sold as an outright feature for wireless phone subscribers. Wireless telecom carriers know, however, the real opportunity in 5G is in providing the backbone for the radio-based connections the real rise of IoT will require. It’s coming though, and soon.

AT&T Inc. (NYSE:T) is setting the stage for a major victory on the 5G front, though you won’t see it until next year; it’s not ready for mass rollout just yet. Ditto for T-Mobile US Inc (NASDAQ:TMUS), which recently caught up with AT&T in its effort to reach 5G speeds in excess of one gigibit per second.

Indeed, T-Mobile is on track to unveil the nation’s first narrowband IoT network next year, directly addressing and removing one of the key bottlenecks that had been holding the movement back.

Bottom Line for the Internet of Things

None of this is to suggest the aforementioned Cisco and Sierra Wireless have suddenly become investment-worthy names (nor that they weren’t before). It’s also not to suggest you have to own TMUS and T stock because they’re the frontrunners in terms of making the Internet of viable when it wouldn’t otherwise be.

It is to say, however, whatever bet you may have been mulling as a long-term IoT may be on the verge of starting to pay off in a much more meaningful way.