AT&T has moved aggressively over the last year to renegotiate terms with tower companies to cut costs in an increasingly competitive wireless market. That effort appears to be paying dividends.
That news comes from analysts from Wells Fargo Securities who spent the last few days in Miami at Metro Connect, a conference focused on the urban fiber market. AT&T “is turning on the wireless network spending faucet,” according to Wells Fargo, increasing its spending on small cells, backhaul and “mods”—modifications of traditional towers.
“While this is a positive for the providers of these services, we believe the nature in which AT&T is spending is on terms more favorable to AT&T than it has seen in the past,” the analysts wrote in a note to investors. “Some consultants we spoke with indicated AT&T has been the most forward-looking company in seeing the cost benefits of a virtualized business….”
Indeed, AT&T has been the most outspoken proponent of network virtualization of any major U.S. wireless carrier. The nation’s second-largest operator recently said it had enabled 34% of its network with software by the end of last year as it closed in on its goal of virtualizing three-quarters of its network by 2020.
Meanwhile, AT&T has played hardball with traditional tower companies over the last year in an effort to cut costs. MoffettNathanson research reported last July that AT&T was openly soliciting real estate developers to build new towers close to existing cellular installations to give the carrier negotiating leverage, and in September FierceWireless posted a letter sent to tower owners pushing for “fair” early termination rights, the ability to upgrade or modify tower equipment at no extra cost, reduced or eliminated price increases, and “rents reduced to competitive rates.”
AT&T’s strategy may open the door for smaller vendors of small cells and other next-generation transmitters, Wells Fargo analysts said. And that may pose a threat to entrenched companies that have built their businesses on macrocells.
“In our view, every decision AT&T makes with its network is considered in light of this cost curve,” the analysts wrote. “As it relates to its network decisions today, we would not be surprised if some of AT&T’s new build initiatives (macro and small cell) are offered to some of the new players entering the space (namely in towers and small cells). Because these players do not have a large amount of legacy revenue it would be a win/win as these vendors would not cannibalize their existing (legacy) revenue.”