U.S. tower companies have seen their shares generally hold firm despite concerns about carriers' network strategies as the industry moves toward 5G. But the ongoing strike by Verizon's wireline workers could create a temporary drag on network investments by the company's largest mobile network operator, according to analysts at Evercore ISI.
And that would be bad news for the tower industry as a whole.
"Coming out of 2Q results, tower investors are showing some signs of relief as the slower-than-expected beginning of the year for wireless capex -- and the implications on tower site leasing guidance -- was largely absorbed by the market without incident," Evercore analysts wrote in a new report. "That being said, our most recent channel checks indicate a growing concern that the strike from Verizon's wireline unions -- which is drawing away resources from even the company's wireless operations -- may also be impacting the pace at which the nation's largest carrier is able to deploy capital. Coupled with an already muted carrier spending environment, this may add some additional headwinds to near-term tower sector growth -- leaving us still cautious on the group (though, longer-term, we remain bullish)."
Verizon's CFO Fran Shammo addressed both the ongoing strike and Verizon's spending on its wireless network during the carrier's recent quarterly conference call with investors, but didn't say either issue would affect the other.
Carriers not only are tightening their belts recently, they're considering newer strategies and technologies in addition to traditional macrocells. All four carriers are pursuing small cells to one extent or another, opening the door for a small army of vendors in addition to tower companies.
Evercore warned last month that carriers' network investments "could remain muted" in advance of the upcoming incentive auction, during which Verizon, AT&T and T-Mobile are expected to spend billions on TV broadcasters' airwaves. First quarter earnings reports indicate mobile capex has been mixed in recent months, though: T-Mobile's quarterly capex of $1.3 billion surpassed the expectations of UBS analysts, for instance, while Verizon said its 9.5 percent year-over-year decline in capex was skewed in part by last year's hefty network investments in advance of the Super Bowl.
Still, Evercore reported two weeks ago after Verizon, AT&T and T-Mobile posted quarterly earnings that the three operators spent $1 billion less on wireless capital investments than anticipated by consensus, marking a 17 percent shortfall. And Sprint raised eyebrows last week when it lowered its capex guidance for the year from $4.5 billion to $3 billion.
Wireless spending across the four major carriers during the first quarter was down 21.7 percent sequentially, Evercore said, and 18.4 percent year over year. "In aggregate, the four carriers have spent $1.3 billion less on wireless capital investments than anticipated by consensus, implying that spending is running 19.4 percent below expectations," according to the analysts.
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