Reactions have poured in regarding carriers’ action at the FCC auction for C-band spectrum which generated more than $81 billion. While not everyone agrees the biggest spenders translate to biggest winners, one group that appears ready to benefit – albeit not immediately – are tower companies.
The carriers are still in a quiet period, but AT&T, T-Mobile, and Verizon are each hosting investor analyst days next week, when more details will be disclosed.
In the meantime, here are some of the takes from investment research firms on how C-band spend could impact towers.
MoffettNathanson analysts wrote Thursday, in a in-depth look at impacts from C-band auction, that towers are clearly better off with C-band in the mix, but pressure on carriers’ spending budgets (after the whopping double-digit billions paid for spectrum) could impact the pace of roll out and mean operators will initially deploy from existing sites, rather than densify with new ones.
“Capital budget stress will impact the level of carrier investment and how that investment is targeted,” wrote senior analyst Craig Moffett. “But spectrum is the lifeblood of the tower leasing model, so more is better, especially when it’s in the hands of multiple carries, since that means multiple deployments.”
As the firm noted, AT&T and Verizon are very motivated to put the new spectrum to use as they work to catch up to T-Mobile’s early lead on deploying 2.5 GHz spectrum for 5G. And deploying C-band on existing macro sites in urban areas is the quickest and most cost-effective way to do that, Moffett wrote.
Tower company SBA echoed similar sentiments during its fourth quarter earnings call in that spectrum in general is a positive, carriers are incentivized, and C-band deployments are expected on macro sites.
Although C-band deployments aren’t necessarily going to make significant impacts on 2021 tower financials (because of the time it takes between when changes are made versus revenue collected) – it could set SBA up well for 2022 and beyond, executives noted.
“Spectrum bands typically take many years to fully deploy, and C-Band will likewise stimulate incremental revenue opportunities for the Towers over a long period of time…” wrote Moffett.
Macro tower focus, amendment driven
Verizon spent more than $45 billion not including clearing costs for spectrum in the 3.7-3.98 GHz band. It largely targeted A-block spectrum that’s expected to be cleared earliest, with a December 2021 deadline if satellite companies want the full amount of accelerated clearing payments.
Verizon initially focused squarely on high-band millimeter wave spectrum for 5G, which requires small cell density. But with C-band, LightShed Partners and others expect the focus to be on macro sites.
“The fact is, [Verizon] just spent more than $50 billion on “upper” mid-band spectrum that will require greater macro cell site density,” wrote LightShed Partners Walter Piecyk and Joe Galone in a February 24 note to investors. “It’s hard to fathom how this will not benefit tower companies.”
Moffett, meanwhile, thinks economics of faster and cheaper deployments will force carrier to add spectrum and equipment to existing macro sites where they can use existing backhaul, less zoning/permitting efforts, and pay lower lease amendments versus higher new site rates.
“Those benefits will be even more pronounced in post-C-Band budget environments and in the face of rapid 2.5 GHz deployments by T-Mobile, so they will likely shape C-band’s roll-out,” wrote Moffett.
As a result, MoffettNathanson expects a stream of C-band driven amendment revenue, with the firm estimating a tower amendment to fall in the range of “several hundred dollars per month.”
About 55% of towers’ gross growth comes from new leasing – with the majority of new leasing driven by amendments, according to MoffettNathanson, in pointing to the tower segment as more insulated but not totally exempt from financial impacts of carriers’ big spending outlays.
Because C-band has worse propagation than lower mid-band spectrum, deployments on existing small cell networks could also be in play, particularly for Verizon.
“Verizon would seem poised to do this given the investments it has made to deploy its own small cells, which would be well-suited to hosting C-band,” wrote Moffett. “Crown Castle may be able to drive some incremental rent from its existing systems for similar reasons.”
But as carriers need to densify over time, Moffett expects C-band prioritized on macro versus small cell sites “as much as possible.”
Because more of Crown Castle’s tower portfolio falls in urban areas, versus peers American Tower and SBA with more rural skews, analysts previously suggested the company could be the first to benefit from C-band deployments.
AT&T’s A-block purchases
*Update - the portion of this article below refers to AT&T purchasing 40 MHz of the available 100 MHz A-block spectrum slated for December 2021 clearing schedule and Verizon the remaining 60 MHz. For clarity, it removes earlier comments regarding final assignment 'A' channel category.
Before auction results were released, there were assumptions that Verizon would be the only carrier to scoop up the so-called “A-blocks” that align with earlier clearing schedules. But AT&T surprised, purchasing 40 MHz of the 100 MHz available A-block spectrum, and spending more than $23 billion overall.
“We had originally assumed that only Verizon won A-Block licenses; with AT&T also capturing the A-Block, the quanta of C-band amendments could be twice as large in 2021 and 2022 than we previously expected,” wrote New Street Research analysts led by Jonathan Chaplin.
New Street estimates that could increase organic tower growth by 10-30 basis points in 2021 and 40-70 basis points in 2022.
RELATED: AT&T spends big for C-band
LightShed, meanwhile, doesn’t fall into the camp of those who think AT&T may have bid on A-blocks to drive up the price for Verizon, writing last week that it “sounds to us like a far fetched conspiracy theory given the negative implications it has on AT&T’s already strained balance sheet.”
And AT&T has followed a strategy focused on macro towers and deeper spectrum, Piecyk and Galone noted.
“AT&T’s willingness to pay up for the early A-Block spectrum likely means that it plans on being more aggressive on macro tower spending than we previously thought,” wrote LightShed.
Still, Verizon "monopolized the A licenses" leading MoffettNathanson so believe the carrier will drive initial C-band leasing activity by itself, with AT&T, T-Mobile and U.S. Cellular to contribute in the coming years.
With a $1.28 billion price tag, UScellular was the fourth biggest spender at the C-band auction.
More carriers show up, cable sits out
The fact that Verizon, AT&T and T-Mobile all showed up at C-band is a good thing, even if the amounts paid by some puts stress on financials.
Moffett explained, “redundancy is good for tower operators” as tower rents don’t necessarily go up if one carrier deploys 200 MHz versus 10 MHz of a certain spectrum band because the same amount of equipment is needed either way, compared to if that spectrum band is spread across multiple carriers who need to deploy.
Initially Verizon was thought to be the main significant holder of C-band spectrum at the end of Auction 107.
“We now know that Verizon, AT&T and T-Mobile all acquired licenses – Verizon and AT&T nationally, T-Mobile in key markets - a clear positive relative to going -in expectations, at the cost of, well, a higher cost for the spectrum and stressed capital budgets,” wrote Moffett about impacts on towers.
However, while AT&T and Verizon want to race to catch up to T-Mobile for deployments, the firm cited caveats for towers.
Among others, those include that tower companies won’t bring in additional rents when carriers deploy BC-block licenses at locations where the early A-block spectrum is already rolled out. Again, that’s because the network equipment gear can support however much spectrum operators need to deploy – so without the need to add more equipment, the carriers don’t need to make as many changes with towers.
And that means “the monetization of C-band by the Towers may be somewhat more front-end loaded than the clearing schedule suggests, all else equal,” wrote Moffett.
One group that did not show up at the C-band auction were cable operators. Comcast and Charter were among qualified bidders but bowed out and spent nothing on C-band spectrum.
Moffett noted that “to the extent any tower observers were hoping for a new customer in the form of the cable operators, those hopes were dashed (we’ve always been skeptical of a big facilities-based push)."