SBA acknowledges 5G slowdown, but offers some hope

Cell tower giant SBA Communications said it too is seeing the broad pullback in spending that has affected its rivals including American Tower and Crown Castle. But the company's management sought to reassure investors with promises of continued growth over the long term.

And the company offered another ray of light: a new deal with AT&T.

"We are also very pleased to announce our newly signed master lease agreement [MLA] with AT&T," SBA CEO Jeffrey Stoops said in a release. "This agreement serves to expand upon our existing strong relationship with AT&T, providing for future leasing growth from AT&T at our tower sites and enhancing efficiencies in the day-to-day operations between our two companies."

Financial analysts generally cheered the tower company's surprise AT&T deal.

"Like American Tower and Crown Castle, SBA indicated that domestic activity was a bit lower in the aggregate than it had expected," wrote the analysts at MoffettNathanson in a note to investors this week. "Unlike its peers, however, the company left its site development revenue forecast unchanged. And it had an MLA in its back pocket."

SBA's earnings report offered a contrast to the warnings and layoffs among its competitors in recent days.

SBA's management also sought to put the industry's general slowdown into perspective.

"While we had always anticipated domestic leasing growth to moderate as we move through 2023 and organic leasing activity levels were lower than we anticipated in Q2 from some of our customers. Some of this was due, we believe, to slower activity from AT&T in anticipation of our new MLA as would be expected," Stoops explained during his company's quarterly conference call, according to Seeking Alpha. "We believe that these variations in activity are part of the normal cycle of carrier network investment that we have seen over time, a large initial burst of coverage activity as the next generation of technology starts to be deployed, followed by many years of coverage completion and capacity building."

Added SBA CFO Brendan Cavanagh during the call: "Longer term, we continue to see significant runway for new 5G-related leasing activity based on the number of our sites that remain to be upgraded with midband spectrum deployments by the major mobile network operators."

The ongoing pullback

To be clear, there have been rumblings of a 5G cooldown stretching back to the end of 2022. However, following relatively dour second quarter reports from the likes of Nokia, Ericsson, Juniper Networks, Corning and others, the extent of the slowdown appears to be more significant than most had expected.

In the cell tower industry specifically, big players have been taking moves to address the situation.

For example, Crown Castle said it would discontinue offering network installation services within its cell tower business, but said it would continue to offer cell site development services. The company also said it would cut 750 jobs, or 15% of its workforce, as part of the move.

Separately, 5G equipment supplier Ericsson said it would cut 750 employees from its North American business as it shutters its field services operation.

And American Tower lowered its margin expectations for the year by $40 million.

During their earnings call, SBA officials said they expect activity to increase next year as T-Mobile looks to add 3.45GHz and C-band spectrum to its network, and as Dish Network restarts its network buildout.

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— Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano