U.S. mobile operators will step up their network capex investments next year after tightening their belts in recent months, according to Guggenheim Securities. And tower companies stand to benefit in a significant way.
Capex among carriers came in below estimates when the major wireless carriers posted quarterly earnings over the last two weeks, falling roughly 12.4%—or $913 million—short of expectations. But while spending was down incrementally it was actually up year over year, according to Guggenheim’s Robert Gutman.
And while that fell 8.1% short of Wall Street estimates, it marked an improvement over the third quarter of 2016, which came in at 15.1% below consensus estimates.
T-Mobile is expected to ramp up spending as it continues to deploy service on its new 600 MHz airwaves, though, and AT&T will move aggressively as it builds out the FirstNet network next year. And Sprint has said repeatedly that it plans to up its network capex in the coming fiscal year after several quarters of spending less than analysts had expected.
“Looking to next year, AT&T’s deployment of 60 MHz of fallow spectrum and the deployment of 600 MHz spectrum should drive additional spending on top of ongoing network densification activity,” Gutman wrote in a note to investors. “Crown Castle has already issued 2018 guidance, which came in conservative, as we expected. That being said, while the two aforementioned catalysts could be (second-half) weighted), we remain on the cusp of a new long-term spending cycle.”
And tower companies could begin to reap rewards as soon as the current quarter, Gutman said. Estimates for the fourth quarter of 2017 “imply a 21.2% quarter-over-quarter acceleration” from the major carriers, he wrote, which is aggressive compared to historical averages.
“Though carrier capex spending in aggregate remains muted and continually below forecasts, we believe this is nothing new,” according to Gutman. “Coming into 3Q, as we wrote in our towers sector preview, we expected no real improvement in the spending environment and looked for conservative 2018 guidance from Crown Castle. This is largely what happened, with Crown Castle slightly increasing its 2017 organic growth guidance and issuing conservative initial 2018 guidance….”