Wireless network capex is “broadly healthy” in the United States, according to analysts at Barclays, as the outlook for carriers’ spending on both macrocells and small cells is positioned see solid gains through 2017.
The tower market faces considerable challenges in the pre-5G era on multiple levels: Increasing competition has forced carriers to cut costs; carriers such as AT&T are looking to implement new business models—and perhaps embrace new partners—to reach end users; and the looming prospect of consolidation among carriers may eventually lessen demand for macrocells.
Those factors, among others, are why Cowen and Company observed earlier this year that the tower market remains “everyone’s punching bag.” But with quarterly earnings of three of the four major U.S. wireless operators in—Sprint will post its results later this morning—network spending appears on firm footing.
“From a spending perspective, carriers continue to invest at healthy levels with each carrier tied to their own individual network strategies,” Amir Rozwadowski of Barclays wrote in a note to investors this week. “Overall, so far, carriers have reported mixed Q2 capex results (AT&T came in below our expectations, T-Mobile in-line, and Verizon above). However, with each carrier re-affirming their full-year capex expectations, we expect spending trends to remain steady (though we acknowledge the inherent quarter-over-quarter choppiness) for the remainder of the year.”
AT&T’s capex guidance implies year-over-year growth of roughly 2%, Rozwadowski continued, and Barclays “wouldn’t be surprised if fiscal-year capex comes in at or above its $22 billion expectation” due in part to the beginning of its FirstNet buildout. Meanwhile, T-Mobile expects to come in at the high end of its full-year capex guidance range as it begins to deploy service on the 600 MHz airwaves it won during the recent incentive auction. And Verizon recently restated its full-year capex guidance of a range from $16.8 billion to $17.5 billion, projecting to modest year-over-year growth of 0.5%.
Interestingly, spending on outdoor small cells—which are sometimes viewed as a competing segment to towers—is expected to remain relatively strong for the short term, at least. The small cell market has begun to get legs as carriers look to densify their networks, of course, and the segment is poised to gradually gain steam as governmental agencies at the federal, state and local levels address concerns regarding zoning, siting and deployments.
Just how viable that segment is in the long term, though, isn’t clear.
“While the return profile on smart cells appears attractive for the time being, questions invariably arise as to the sustainability of these returns,” Rozwadowski wrote, noting Crown Castle’s pursuit of the market. “As small cell economics continue to evolve, the ultimate success of the company’s small cell business is likely to be predicated on (Crown Castle’s) ability to pick the right deals. This isn’t to say we don’t think they will or don’t have the capabilities to do so. Simply, we think that selecting the right type of deals in an evolving competitive landscape is an important consideration.”