Capex among U.S. wireless carriers totaled $27.8 billion in 2017, coming in essentially flat with 2016 levels. This figure is the bottom of a 5 percent slide, annually, down from a peak of $31.8 billion in 2013 at the height of the 4G LTE rollout.
With current guidance, U.S. wireless carrier network investment is expected to rebound to more than $30 billion in 2018, up 9 percent year-over-year (YoY), driven by continuing 4G LTE densification with small cells, new FirstNet deployments, and early stage 5G deployments. Network expansion will continue apace in 2019e reflecting new 5G deployments in new frequency bands.
Even as ARPUs have declined at a 2 percent CAGR for the last five years, mainly due to fixed-price unlimited data plans, carriers have maintained a capital intensity (capex/service revenues) of around 17 percent. Any ratio above 15 percent suggests that they are modernizing and expanding network capabilities each year to keep up with capacity demand.
But the real question that vendors want to know is: How is this capex being allocated for equipment and services?
The bulk of the money, some 40-42 percent, goes into the business end of wireless – the radio access network (RAN). The RAN includes all the radio equipment operating on the various cellular bands – microcell remote radio heads (RRHs) and baseband units (BBUs), small cells, indoor and outdoor DAS, and all associated antennas, cables and connecting components.
Site infrastructure that includes towers, shelters, poles, and backup generator sets accounts for another 6-7 percent. DC power equipment and batteries add 3-4 percent.
Most cell site backhaul, at least in metropolitan areas, is handled over leased fiber optic cable connections. Where fiber cable is not available, the carriers spend roughly 4 percent of capex for wireless backhaul using point-to-point microwave radios with associated antennas and cabling.
The network core includes the LTE Evolved Packet Core (EPC), IP traffic switching and routing along with network function virtualization (NFV). Add in back office operations support systems (OSS)/network management systems (NMS) and billing, then core and back office account for 25 percent of the total.
Professional services account for about 20 percent and include all capitalized labor – RF planning, site surveys, site acquisition, permitting and licensing, system engineering and equipment installation, testing and commissioning.
Verizon Wireless was the big spender in 2017 with a 37 percent share. With AT&T Mobility, the two companies accounted for 69 percent of the total. Together with Sprint and T-Mobile, the Big 4 made up 97 percent of the U.S. wireless carrier capex. The Regional carriers, led by US Cellular, accounted for the 3 percent balance. For 2018, AT&T Mobility and Sprint are upping the ante while Verizon Wireless and T-mobile are holding to 2017 levels. Regional carrier spending upticks by 10 percent.
Note that the figures shown here relate only to the U.S. wireless carrier capex and do not include another $2 billion invested by the tower companies mainly for steel used in new tower builds and for modifications and maintenance of their domestic tower portfolio.
Even with a positive YoY outlook, quarter-over-quarter (QoQ) spending is hard to predict. 2015 quarterly capex followed historical trends. 2016 exhibited a similar up and down pattern although at lower overall levels. 2017 started out on a positive note in 1Q then flattened out for the rest of the year. With increased guidance, expect a rebound to 2015 spending patterns in 2018e.
In the end, understanding capex allocations will help equipment vendors and service providers identify addressable business opportunities with these carriers.
The caveat is that capex proportions vary by carrier and even by different type of deployments – greenfield versus upgrade, macrocell versus small cell, outdoor versus indoor.
Make those distinctions, then adjust marketing and sales plans accordingly.
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