Tower companies see lower Q1 network spending from Verizon, AT&T and T-Mobile - with Sprint as the wild card

Top executives from the nation's tower companies saw lower spending form the Tier 1 wireless carriers in the first quarter, but the carriers and tower firms all expect network densification and buildout activity to ramp up as the year progresses.

Verizon Wireless (NYSE: VZ), AT&T Mobility (NYSE: T) and T-Mobile US (NYSE:TMUS) have each reported their first-quarter earnings, and their capital expenditures were below most analysts' expectations for the period. The nation's tower companies too acknowledged that lower capital spending in the first quarter. Sprint (NYSE: S) reports earnings May 5 and is expected to detail its network and capex plans for the year, and some expect the carrier to announce a major network expansion.

SBA Communications CEO Jeffrey Stoops said on his company's earnings conference call last week that while SBA is "very, very excited about the future," the company is currently seeing lower spending by the Tier 1 carriers.

"What is at play right now is a historic low in some of our customers' spending which we don't think by any stretch can be or will be long-term, particularly as we look at the AWS-3 rollout," he said, according a Seeking Alpha transcript of his remarks. "So as we think about the Sprint next-generation project, the AT&T, AWS-3, the work that T-Mobile has yet ahead of it and what Verizon kind of has done on a steady basis through the years, I think 2016, '17 and beyond are pretty exciting times. So I do believe that these current quarters that we're in, last quarter, the fourth quarter, I think are aberrations and that these will be worked through as carriers come off of their spending break and get back to their historic steady heavy investment in network."

Crown Castle CEO Ben Moreland said the company is seeing carrier spending that is a "little back-end loaded" toward the second half of the year, "but that's consistent with how we originally forecasted guidance." However, he said that Crown has "gotten to the point where we don't get really that worked up about individual carriers and individual quarters of how it shapes up."

Moreland added that carrier spending has "gotten fairly consistent across the years" thanks to "the inevitability of the need for cell site density and more upgrades on existing sites."

Verizon Communications CFO Fran Shammo noted that Verizon spent $3.7 billion on capex in the quarter, including $2.4 billion on wireless. The carrier is focusing on deploying existing AWS spectrum, small cells, inbuilding solutions and distributed antenna systems. Verizon is also beginning to refarm its 1900 MHz PCS spectrum for LTE in some markets. "We have given you guidance of $17.5 billion to $18 billion," in capex for 2015, Shammo said. "And right now we are staying on track with that. You should see that ramp up through the rest of the year."

Stoops noted that Verizon and T-Mobile represented the majority of its new business in the quarter. "AT&T was active but at reduced levels compared to the year ago period," he said. "The reduction in activity with AT&T was expected and it's not surprising or concerning given the large amounts invested by AT&T in the prior 36 months."

AT&T CFO John Stephens noted during the company's earnings call that the carrier plans to spend capital to improve its Mexican wireless networks it acquired via its Iusacell and NII Holdings deals. "We intend to get the network quality up to our standards. And as quickly as prudently possible, we're working through those plans," he said.

AT&T's capital expenditures in the first quarter came in at $4 billion (AT&T has committed $18 billion for 2015). "Capex is just what we needed," Stephens said. "It is lower than the run rate. We're not changing any guidance on capex. It's just more of a philosophy to spend it as you need it, don't spend it early."

Regarding AT&T's plans in Mexico, American Tower CFO Tom Bartlett said on his company's earnings call yesterday that AT&T's move into Mexico will be "very much of a positive for us."

"And I would expect that they would want to have the same type of customer experience in Mexico that they have in the United States," he added. "So, we're very hopeful that we'll be seeing some of that build and some of that activity probably in the latter half of the year."

T-Mobile spent $982 million in capex in the first quarter and plans to spend between $4.4 billion to $4.7 billion in 2015. "The capex profile is just purely timing," T-Mobile CFO Braxton Carter said during the carrier's earnings call. "We again reiterated our guidance for the $4.4 billion to $4.7 billion in cash capex spend during 2015, so I wouldn't read anything into a slight dip in Q1 capex."

T-Mobile plans to expand its LTE network to 300 million POPs by year-end, both through the deployment of its 700 MHZ A Blocks spectrum and by refarming 1900 MHz spectrum for LTE.

Sprint remains something of a wild card. The company plans to expand its 2.5 GHz TD-LTE network, though it's unclear by how much.

"Contributions from Sprint due to its 2.5 GHz and Clearwire upgrade projects remained about the same as the last several quarters with an increasing amount of discussion around Sprint's next-generation network plans," Stoops noted. "Our backlogs continue to be healthy. We continue to expect that leasing activity levels will be higher in the second half of the year which depending on timing may or may not impact 2015 results. At a minimum this would bode well for 2016."

American Tower CEO Jim Taiclet said his company's earnings call that Sprint has not been "as active as the other three [Tier 1 carriers]." Yet he said there is "also pent-up demand we think to work on their network as the next few quarters play out, although we're not seeing the applications quite yet, we expect to see some more from Sprint as we go forward." 

For more:
- see this Seeking Alpha Crown Castle transcript
- see this Seeking Alpha SBA transcript
- see this Seeking Alpha American Tower transcript
- see this BTIG blog post (reg. req.)

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AT&T's slowdown in spending on its mobile network affects SBA, American Tower
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