Wireless network capex to ramp up in 2017: Wells Fargo

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Carriers will spend more to upgrade their networks next year compared to 2016, according to Wells Fargo Securities. And tower companies will reap the benefits.

U.S. operators reined in network capex investments in 2016 for a variety of reasons: Carriers have largely built out their LTE networks and have yet to commercially deploy 5G services, so timing is a consideration. Also, the U.S. wireless market has grown increasingly competitive as smartphone penetration rates have plateaued, prompting operators to tighten their belts.

Meanwhile, AT&T, Verizon and T-Mobile are all expected to spend billions on 600 MHz airwaves in the FCC’s ongoing incentive auction of TV broadcasters’ spectrum. And carriers’ efforts to densify their networks via small cells have been hampered by permitting difficulties and other headaches at the municipal level.

Some of those challenges will be addressed in 2017, though, paving the way for increased capex investments from the nation’s largest mobile network operators. AT&T is likely to deploy its AWS-3 spectrum more aggressively next year as it continues to roll out services on its WCS airwaves, and Verizon’s wireless capex is likely to increase from $11.5 billion this year to $11.9 billion in 2017 as it densifies its network with small cells. T-Mobile will continue to deploy its 700 MHz spectrum, expanding service through those airwaves from 230 million POPs this year to as many as 270 million POPs by the middle of next year.

“We anticipate that wireless spending overall will accelerate in 2017, with the largest increases coming from AT&T and Sprint,” Jennifer Fritzsche of Wells Fargo wrote in a research note to investors. “With a better wireless spending environment in 2017 vs. 2016, one obvious beneficiary should be the tower segment. Even as new tower builds are given to new/smaller developers, it is hard for us to foresee how the 96,000 towers, which the three public tower companies own, are not touched with cell site amendments.”

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T-Mobile CFO Braxton Carter echoed those sentiments during a presentation at an investors conference this morning.

“There’s no catalyst for a decrease” in network capex, Carter said. “But on the flip side, we don’t see any catalyst for any significant step-function increase in our capex profile.”

Carter explained that T-Mobile has allocated its capex budget mainly toward expanding its LTE network buildout, and will continue to do so throughout the next several months as it deploys its recently purchased 700 MHz spectrum licenses. However, he said the carrier could look to other, unnamed capex efforts starting next year.

“Once we finish that project, there’s a pool of dollars that can roll to do other things," Carter said. "There’s no reason that we can’t continue growing the way we’ve been growing.”

The biggest question mark for the segment is still Sprint, which has consistently raised eyebrows in 2016 by investing less in its network than investors had expected. The nation’s fourth-largest carrier will almost surely increase its network capex next year, which will help it continue to narrow the network-performance gap with its bigger rivals, Fritzsche suggested.

“At Sprint, the carrier has delayed some capex in fiscal year 2016 due to the procurement of permits for its densification plans, so we expect fiscal year 2017 to increase from the $3 billion or so it will spend in fiscal year 2016,” she wrote. “Given the fact Sprint’s liquidity position has significantly improved, we would not be surprised to see this ramp to $5 billion-plus. The key question for us (is) if Sprint can achieve such network improvement as it did in 2016 with low spending, what kind of advantage will they get when the real spending starts?”