Investors may harbor concerns about the traditional tower market, but Wells Fargo Securities analysts left this week’s 2017 Wireless Infrastructure Show wearing rose-colored glasses.
The macrocell segment has faced headwinds in recent months on multiple fronts: Concerns of consolidation among service providers are heightened under Donald Trump’s administration, carriers are increasingly looking to small cells as they densify their networks, and capex investments were down last year amid an extremely competitive environment.
Tower companies have become investors' “punching bag," as Cowen and Company noted in January. But the near-term future looks bright for several reasons, Jennifer Fritzsche of Wells Fargo wrote in a research note on the heels of the Wireless Infrastructure Association’s annual conference in Orlando.
“(T)he overall tone of the conversations we were having were markedly more positive than a year ago given the ‘backlog’ expected to come to the industry,” Fritzsche wrote this morning. “The backlog centers around—600 MHz, FirstNet, inventory of undeployed spectrum and the general need to spend given the impact of the unlimited plans on the networks. There was much enthusiasm around each of these factors at the event, which should allow for a tangible set of catalysts for late 2017/2018 in our view ... While we continue to most favor the small cell/fiber strategy of Crown Castle, we left Orlando feeling increasingly optimistic about near-term macro activity level."
Indeed, T-Mobile continues to move aggressively to deploy as much of the 600 MHz spectrum it recently won at auction as quickly as it can. Meanwhile, AT&T’s commitment to spend roughly $40 billion on its network over the 25-year life of the FirstNet contract has unquestionably buoyed the tower segment. And the sudden rush to offer unlimited-data plans will surely result in increased usage, which will require carriers to invest more heavily in their networks.
Another significant factor is the confluence of wireline and wireless networks, Fritzsche noted. Wireless carriers are increasingly looking to fixed-line networks to support increased uptake, and that trend will only increase as 5G services are deployed and data consumption continues soar.
“As is to be expected, 5G architecture and what it looks like was a major focus for the conference,” Fritzsche wrote. “While fiber and small cells were on the top of the list, one of the common themes of the conversations we heard was carriers are looking for those tower companies/infrastructure companies that can offer a full solution infrastructure services—DAS, fiber, macro and maybe even data center capabilities. We see this as a positive for models such as Crown Castle that have many tools in (their) toolkits (small cells, macro, fiber).”