The tower industry looks healthy heading into the second quarter, according to analysts, but the cloud of potential consolidation among wireless carriers continues to loom over the segment.
Companies such as Crown Castle and American Tower have long been the foundation of the U.S. wireless industry, but Cowen and Company said in January that they’ve become “everyone’s punching bag” as operators increasingly look to small cells, distributed antenna systems (DAS) and other architectures to densify their networks ahead of 5G deployments. And carriers invested significantly less in their networks last year than investors had expected as they tightened their belts amid an extremely competitive wireless market.
Those factors were highlighted by the latest quarterly earnings reports from American Tower and SBA Communications, Guggenheim Equity Research wrote this morning in a note to investors.
“In the print, we indeed saw muted carrier spending and conservative guides,” Guggenheim analysts wrote. “Guidance was generally light at American Tower and SBA, coming in below (conservative estimates), while updated guidance at Crown Castle was in line with us.”
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Network spending is expected to ramp up if—as expected—AT&T wins the FirstNet contract, giving it the right to provide the nation’s first broadband network dedicated to public safety. But the nation’s second-largest carrier is beginning to take a more holistic look at its network needs, Wells Fargo Securities suggested, and winning the FirstNet contract may not benefit the traditional tower companies as much as it would first appear.
“(W)e still get the sense AT&T is actively seeking out new relationships on the wireless infrastructure side with more of an integrated bend,” Jennifer Fritzsche of Wells Fargo wrote in a research note. “Checks suggest AT&T is seeking out companies that can service multiple wireless network needs (small cell, fiber and macro). In terms of who is best positioned of the public tower companies—Crown Castle checks most of these boxes (and) Unit Group is also well positioned. We would expected other tower companies to also benefit from amendment activity if AT&T does officially win FirstNet.”
Indeed, AT&T's new strategy of playing hardball with its longtime tower partners is already paying dividends, as Wells Fargo noted last month.
Meanwhile, investors have become increasingly concerned that a major tie-up between major wireless service providers may be more likely under Donald Trump’s administration, which would almost certainly lessen demand for traditional macrocell sites. Speculation has largely focused on a potential merger of T-Mobile and Sprint, which would whittle the number of major U.S. network operators from four to three.
“While we acknowledge AT&T ramping wireless spending would be a positive for the tower sector, we remain on the sidelines as it has to be balanced with what we see as impending M&A announcements and how this may impact other carriers’ near-term network decisions,” Wells Fargo wrote.