Tower companies are well positioned as mobile operators ramp up their network investments in coming months in advance of 5G, according to Deutsche Bank. And Sprint and AT&T are at the front of the pack.
Wireless capex among U.S. carriers fell short of expectations in 2016 as operators tightened their belts ahead of 5G deployments. Sprint was the most notable miser among operators in terms of network spend, incrementally lowering its capex guidance in fiscal year 2016 from an initial $4.5 billion to a range of $2 billion to $2.3 billion.
Sprint has yet to offer capex guidance for its current fiscal year, but it has said it expects its investments to accelerate as it continues to densify its network. Other major U.S. carriers will begin to open their wallets, too, Deutsche Bank predicted, buoying the tower market.
“After several years of moderating wireless capex (post LTE rollouts), we believe the wireless carriers are likely to accelerate spending this year,” Matthew Niknam of Deutsche Bank Markets Research wrote in a note to investors. “While Sprint’s pickup represents the biggest lift year over year among nationals, we also see tailwinds from (1) network capacity additions aimed at supporting new unlimited plans/mobile video, (2) small, but incremental lift from FirstNet (+WCS/AWS-3 builds at AT&T) and 600 MHz builds from T-Mobile, with more material contributions in 2018. As such, we think the setup for towers remains favorable in upcoming quarters, and into 2018.”
Niknam’s note echoed a report from Cowen and Company earlier this year claiming tower companies have a bright future even if they remain “everyone’s punching bag” on the stock market. Some investors have shied away from the segment as carriers look to cut costs in an intensely competitive mobile industry. And concerns linger over potential consolidation among U.S. carriers under President Trump’s administration, as well as an ever-increasing focus on small cells rather than traditional towers.
“While the four wireless carriers have seen Trump-related strength, the towers have been hit by concerns over rising interest rates and even more so by concerns over the potential merger of Sprint/T-Mobile,” Cowen analysts wrote in January. “All said, we urge patience for investors and believe while the stocks are unlikely to see meaningful upside over the next few months, that momentum should improve in 2H17 and heading into 2018 and that current prices offer good entry points for long-term investors.”