For 5G vendors in the US, the worst may be over

2023 was a tough year for 5G equipment suppliers, particularly in the US. American wireless network operators cut back spending far more than expected, forcing companies ranging from Ericsson to Crown Castle to issue warnings, reduce expenses and cut jobs.

But according to some analysts, things are looking better in 2024.

"It appears that activity levels may have stabilized and are showing some early signs of improving trends," wrote financial analysts at Morgan Stanley in a recent note to investors. The firm cited the results of its recent survey of cell tower operators in the US, which showed rising optimism amid improved sales. "These results are encouraging after a couple of tough quarters for the industry."

Others agree.

"While activity levels remain ~40%+ below peak levels, we believe they have reached a trough and should improve by the second half of 2024," wrote the financial analysts at Wells Fargo in a recent note to investors, in their own assessment of demand for cell towers in the US.

Of course, demand for space on cell towers is just one factor of many. But according to analyst Stefan Pongratz of Dell'Oro Group, operator demand for radio access network (RAN) equipment – the gear that goes on top of cell towers – also looks to improve in 2024. "Wireless capex [capital expense] in the US is still on track to decline" in 2024, Pongratz wrote on SDxCentral. "Yet we are forecasting the North America RAN market to grow, implying a greater portion of the capex will be allocated towards the RAN segment in 2024."

Specifically, Dell'Oro forecast 17% growth in RAN equipment sales in North America following a 47% decline in 2023.

That's likely welcome news to companies like Samsung, Ericsson and Nokia, which supply the majority of the radios that sit atop cell towers in the US. Buying radios and renting space on cell towers are two of the biggest expenses in running a 5G network.

A look at the Big 3, and Dish

In a recent note to investors, the financial analysts at Wells Fargo offered a detailed look at what they expect from the big three 5G network operators in the US – AT&T, T-Mobile and Verizon – in 2024. Broadly, they wrote that they expect total US wireless carrier capex to decline by 10% year-over-year in 2024, from an estimated total of $56.2 billion in 2023 to an estimated total of $50.5 billion in 2024. That's a slower decline though than the drop from 2022 to 2023.

AT&T: "AT&T has been the slowest out of the gate to deploy midband 5G spectrum, and it appears its pacing continues to be quite slow," the Wells Fargo analysts wrote. "AT&T doesn't appear to be in a rush to quickly scale its midband 5G footprint, in part because 5G use cases haven't scaled in a meaningful way (with the exception of fixed wireless, which is not being as broadly adopted by AT&T vs. its peers)."

They noted that AT&T has only upgraded between 25% and 35% of its cell sites with its midband 5G spectrum holdings. That's far below the 50%-60% upgraded by Verizon and the 80%-90% upgraded by T-Mobile.

AT&T is expected to drop its overall capex in 2024 to around $21 billion, from $24 billion in 2023.

T-Mobile: "The outlook for T-Mobile activity is more uncertain after the company completed the vast majority of 2.5GHz and 600MHz upgrades in mid-2023," according to the Wells Fargo analysts.

They noted that T-Mobile may add its midband C-band and 3.45GHz spectrum holdings to its network, but only in an "opportunistic" approach.

"We expect that T-Mobile will pick up [cell tower] leasing activity in 2024 as it selectively deploys additional midband spectrum and adds capacity within regions where it has heavy usage on wireless and home Internet, but we do not expect the company to return to the activity levels it experienced the past three years," they noted.

T-Mobile has said it will reduce its capex in 2024 from the roughly $10 billion it spent in 2023.

Verizon: "The outlook for Verizon is still relatively stable," the Wells Fargo analysts wrote. "Verizon did see a small step-down in Q1 2023 from Q4 2022 and anecdotally may have pushed some projects into 2024, but we believe its activity levels have been much steadier relative to its US peers."

The analysts expect to see Verizon continue to add C-band spectrum to its cell towers through 2025, as it expands its midband 5G network beyond urban areas.

Overall, the analysts said they expect Verizon to spend around $17 billion on capex each year over the next few years – a sharp decline from its spending in 2022 and 2023.

Dish: "Dish also has a lot on its plate," noted the Wells Fargo analysts.

Indeed, Dish recently completed its merger with EchoStar, and is now looking to raise more money against more of its spectrum holdings. The company is also struggling to acquire more 800MHz spectrum from T-Mobile while attempting to capitalize on its distribution deal with Amazon.

"Recent Dish guidance outlined a plan to spend only $2 billion of capex in 2024 and 2025 combined," the Wells Fargo analysts wrote. As a result, they expect the company to add its 5G radios to around 7,000 additional towers by 2025 – down from initial expectations of between 10,000 and 15,000.

A new year

2023 was quite a year for the mobile industry specifically and the telecom industry broadly. Network operators cut spending, but especially on 5G equipment for the US market.

Although there were rumblings of a slowdown at the end of 2022, the drop was more than most expected.

"We did see a change relative to what we previously expected," said Crown Castle CEO Jay Brown in July 2023. Brown has since been replaced as the chief executive of the tower company.

Brown wasn't the only executive surprised by the downturn.

However, things haven't quite picked back up yet. For example, Nokia warned again about its sales in the US – but that was mainly due to AT&T's decision to replace Nokia equipment with equipment from rival Ericsson. Another US company – Wi-Fi and enterprise networking vendor Extreme Networks – also issued a warning during January 2024.

And Ericsson officials said this week that the company could cut more jobs during 2024. But company officials also said it's "reasonable" to expect North American operators to reopen their pursestrings.

Fiber, data centers and international demand

It's also worth noting that optimism is returning to other corners of the US telecom industry beyond 5G. For example, a number of analysts predict an increase in demand for fiber equipment as federal subsidies begin to trickle down from the federal government and into state-run grant programs.

"The management teams in our sector are starting to sound more positive on the second half of 2024 and 2025," wrote the financial analysts at Rosenblatt Securities in a recent note to investors regarding the US telecom industry broadly. "Our recent conversations with companies like Adtran, Viavi and Calix suggest there is some near-term demand stabilization and increasing optimism for the second half of 2024. We are also picking up growing optimism on the second half of 2024 from companies such as Arista Networks, Ciena, Coherent, Extreme Networks, Infinera and Lumentum."

Further, demand for data centers in the US remains white hot amid generative AI buzz. "Data center fundamentals should remain favorable in 2024, with demand absorption near record levels, market rents trending upward, and new AI use cases developing," wrote the financial analysts at Wells Fargo in a recent note to investors.

But things may not be so rosy in other parts of the world beyond the US. "Market conditions are expected to remain challenging in 2024 as the Indian RAN market pulls back, though the pace of the global decline this year and for the remainder of the forecast period should be more moderate," according to Dell'Oro Group in its global RAN forecast.