Analysts predict 13% increase in wireless network capex in second half of 2018

Towers are uniquely positioned to benefit from the capex needed to provision for exploding data demand, according to Oppenheimer analysts. (Pixabay)

A surge in wireless capex spending in the second half of this year is shaping up to be a substantial benefit for tower companies, according to new research from Oppenheimer. The analysts now predict a 13% increase in wireless network capex from the first half of 2018 to the second half of the year.

“Towers are uniquely positioned to benefit from the capex needed to provision for exploding data demand,” Oppenheimer analysts wrote in the report. The firm also predicts wireless network capex in 2018 will be 18% higher than the previous year, with the accelerated spending in the second half of this year accounting for much of that increase.

“Domestically, carriers are upgrading their networks to support unlimited data usage and to prepare for 5G,” the analysts wrote. “Network capacity and data demand reciprocally reinforce mutual demand; however, 5G represents a step-function lift on this relationship.”

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The carryover impact for wireless tower companies will likely lead to higher stock valuations in the near term, according to the firm. “Tower valuations are in the middle of their historic range at a time when the market is near peak valuations,” the analysts wrote. “The tower stocks have underperformed for the last year and usually outperform coming off this.”

Rising interest rates are a negative for tower companies, but if rates return to a more normal range, tower company valuations could rise by as much as 10%, according to Oppenheimer.

The fundamentals of the wireless industry are strong, the firm concludes. It expects wireless volumes to continue growing at 40% per year and ARPUs should also stabilize or improve. “The shift to unlimited negatively impacted ARPU at first, but we are now seeing stabilization and may see a lift with the higher priced premium unlimited bundles,” the analysts wrote.

The accelerated wireless capex spend predicted by Oppenheimer is also noteworthy because of how much it is outperforming previous estimates by Wall Street analysts. Barclays in February said it expects capex among the big four carriers—Verizon, AT&T, T-Mobile and Sprint—to rise by 10% this year, which it said would be the largest increase in the past five years.