5G and Beyond

US operators' 5G spending might not pick up until 2022

There are growing indications that network operators in the US won't begin spending heavily on their 5G networks until 2022.

"This year is not going to be the robust year that some of my colleagues are predicting," Alex Gellman, CEO of cell tower company Vertical Bridge, said during the virtual Metro Connect event Tuesday.

Others agree.

"Our outlook for '21 does assume a pace of activity that is increasing throughout the year, so it's definitely a little bit slower is our assumption here at the beginning of the year, and it picks up in the latter half of the year," Brendan Cavanagh, CFO for cell tower company SBA Communications, said Monday during the company's quarterly call, according to a Seeking Alpha transcript of the event. SBA is the nation's third largest US cell tower operator.

Indeed, SBA's financial guidance for 2021 came in below most financial analyst expectations. As a result, the analysts at Raymond James reduced their pricing target on the company's stock due to "slower near-term growth rates" and rising interest rates.

Already, both Verizon and AT&T have said their overall capital expenses in 2021 – a figure that includes spending on 5G – will be either similar to 2020 or slightly lower.

A low point

The financial analysts at MoffettNathanson likened the overall 5G spending situation to a giant U shape stretching between 2019 and 2022, with the industry sitting today squarely at the low point.

"While the idea of a 'U' is fairly consensus by now, the cadence of the recovery and ultimate level it reaches has been less clear," they explained in a note to investors following SBA's financial results. "SBA's initial 2021 outlook suggests a relatively long, modestly improving curve at the bottom of the 'U,' with expected growth coming in shy of expectations."

There are several factors driving the situation, but none bigger than the massive, $81 billion C-band spectrum auction. Although the FCC has not yet identified the winners of the auction, most expect Verizon and AT&T to walk away with the bulk of the licenses up for grabs. They'll undoubtedly want to put those spectrum licenses to work by first renting space on cell towers owned by the likes of SBA and then adorning those towers with 5G radios capable of working in the C-band.

However, the staggering amount raised by the C-band auction – total bids were almost twice the most aggressive predictions – has sparked concerns among some wireless executives that operators won't have much money left over for their actual 5G network buildouts.

"Big spectrum [purchase] years tend to reduce spending over the short term on network infrastructure," Jim Hyde, CEO of network construction company ExteNet Systems, explained during the Metro Connect event.

Vertical Bridge's Gellman concurred. "I think [the network buildout] is going to be measured over time, not rushed in a few months."

Tower companies aren't the only ones fretting over the size of the C-band auction. "I just worry that the size of the investment that the operators are making is going to suppress the [network] build," Ed Cholerton, Nokia's new North American chief executive, told Light Reading recently.

The MoffettNathanson analysts agreed: "The eye-watering price tag of the [C-band] spectrum means a good chunk of money that would have otherwise flowed toward capex or infrastructure leases will instead be used for debt service and debt retirement."

Silver linings

However, most expect the US industry to begin scaling the right side of the "U," and growing again, perhaps next year. For example, the first 100MHz of C-band spectrum should be cleared for commercial operations by the end of 2021, and the remainder should be ready by 2023. Further, T-Mobile's efforts to build out Sprint's 2.5GHz spectrum, coupled with Dish Network's expected 5G buildout, will likely increase overall 5G network spending in the US in the coming years.

"It'll pick up at some point," predicted Gellman.

"The deployment of a new spectrum band is good for towers, especially if it requires a dense grid, and especially if it's in the hands of multiple players," argued the analysts at MoffettNathanson.

"We have recommended owning the towers [stocks] on the view that the acceleration in organic growth from T-Mobile integrating Sprint's network, Dish deploying a new network, and carriers deploying C-band spectrum was underappreciated by the market," financial analysts at New Street Research wrote Monday in a note to investors. "Our call has been a little premature: The ramp in activity that we expected from T-Mobile has materialized slower than we expected, resulting not only in slower-than-expected growth in 2020, but also in 2021. Estimates have fallen over the past three months in anticipation of the slower growth in 2021; at this point, we think the bad news is largely priced in. Organic growth should bottom in 1Q21, acceleration throughout the year and accelerating further into 2022. Beyond this, there is significant upside to estimates from carriers deploying C-band spectrum, and Dish's entry as the fourth national player in the US."

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

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