Carriers' network investments have been stable in recent months, but Guggenheim Securities warned investors in tower companies they may want to curb their enthusiasm through the first half of next year.
“Our channel checks indicate stable carrier spending, inline with 1H 2017,” Guggenheim analyst Robert Gutman wrote in a note to investors this week. “We believe that spending by T-Mobile remains at a high level, Verizon is relatively normal/unchanged, and Sprint continues to show a little sign of improvement. Importantly, AT&T has not been as active as anticipated earlier in the year and continues to negotiate terms with tower operators.”
Indeed, AT&T has been outspoken about its efforts to increase pressure on tower companies to lower their fees and make it easier for operators to maintain their antennas. The company has openly solicited developers to build new towers close to existing structures to cut costs, MoffettNathanson reported last year.
While U.S. carriers have generally reined in their capex investments in advance of 5G deployments, analysts expect spending to ramp up in the coming months. T-Mobile has already begun rolling out service on the 600 MHz spectrum it won during the incentive auction earlier this year, and AT&T is planning to spend heavily as it builds out the FirstNet offering for emergency workers.
Those two factors may not drive revenues as quickly as investors may prefer, however.
“An improving spending environment in 2018 is largely predicated on the implementation of FirstNet and 600 MHz spectrum,” Gutman wrote. “Given recently arisen safety concerns—and the limited availability of crews to do spectrum repack work—we believe initial work on the 600 MHz spectrum could be delayed while the longer-term 39-month repack deadline could be subject to extension. Regarding FirstNet, we believe that 1H 2018 may see limited activity—though this could ramp through the year. Net/net, we believe 2018 will mark a year of increased carrier spending—though this could be weighted to 2H 2018.”
Gutman also cited “an overhang on tower stocks” due to speculation of a merger between T-Mobile and Sprint, “which we estimate could lead to incremental consolidation churn per year of 1% to 2.5%.” However, Guggenheim maintained its buy rating on American Tower, Crown Castle and SBA Communications.
Crown Castle is scheduled to release third-quarter results next week; American Tower and SBA Communications will post their quarterly earnings later this month.