July 31, 2014 — We are in the middle of the second quarter earnings period, and today AGL Extra will cover the results of AT&T and Verizon Wireless.
Answering reports earlier this year of a spending freeze at the carrier, AT&T clarified that it will maintain the levels of capital expenditures forecast for 2014. “We’re still targeting capital spending in the $21 billion range even as we accelerated investment in the first half of the year,” John Stephens, AT&T CFO, said. AT&T’s capex was $6 billion in the second quarter and was $11.8 billion for the first half of the year.
Discussion concerning a freeze of the carrier’s spending was misinformed, according to Stephens. “With regard to the commentary about our spend in the first six months, it may have been more about the sharing amongst our spend,” he said.
Stephens said AT&T will complete its $300 million LTE build later this summer. “So most of the spending for that and much of the spending for the network densification has been already placed,” he said. “We just need to go out and utilize and put those assets into service, which we have to do.”
Other corporate work with regard to deploying fiber will moderate in the second half of the year as well.
Verizon Wireless Building out AWS Spectrum
With customer satisfaction on the line, Verizon Wireless spent more to increase network capacity and improve quality in its infrastructure build out in the first half of the year. During the second quarter, Verizon Wireless continued to add capacity to its LTE network, using Advanced Wireless Services (AWS) spectrum in the 1.7 GHz and 2.1 GHz range, covering more than 350 markets.
“The continued deployment of AWS and the addition of small cells, distributed antenna systems and in-building solutions will fortify our network advantage,” Verizon Wireless CFO Fran Shammo said. “Our consistent investment in wireless is the foundation of our success and drives our leadership and network quality, reliability, and the overall customer experience.”
Wireless capital spending in the second quarter was $2.8 billion (+21.7 percent) and through the first half totaled $5.3 billion (+23.25 percent), compared with 2013 capex spending of $2.3 billion and $4.3 billion, respectively.
“We are well ahead of what we spent through the first half of last year. We are investing to proactively stay ahead of demand,” Shammo said. “Our capital investment strategy is focused on adding capacity to the network to meet increasing 4G device adoption, which will drive higher customer usage.”
J. Sharpe Smith is the editor of AGL Link, AGL Small Cell Link and he contributes to AGL magazine.
Joel Metz, a 28-year-old father of four, became the latest tower technician to die on the job, early in the afternoon of July 2, in a horrific accident.
Metz, who worked for Fortune Wireless, Indianapolis, Indiana, was on a team of four that was replacing a boom at a tower site in Harrison County, Kentucky. The crew had removed one boom and was lifting up another boom, which weighed 1,800 pounds, onto the tower.
“[The new boom] got to within two feet of where it was supposed to be mounted when the crew heard a pop, which was possibly a failure of the rigging, and the boom fell to the ground and a cable decapitated and severed the arm of the man that was positioned below the boom,” Harrison County Sherriff Bruce Hampton told AGL Extra.
Metz’s body was then suspended in his safety harness near the top of the 240-foot tower, which is owned by Verizon Wireless. After roughly three hours, which included several unsuccessful attempts, Verizon Wireless gave Sheriff Hampton clearance to climb the tower and remove the body. The delay left the Sherriff frustrated.
“It was a tough, tough situation, because it was obvious that he was deceased,” Sheriff Hampton said. “We didn’t want to leave the poor guy hanging 240 feet in the air. We had team members in from Indianapolis asking to go up and get him, but I had to wait for Verizon to give me clearance to climb the tower.”
Sheriff Hampton summoned the Northern Kentucky Technical Rescue who brought down the body about five hours after the accident.
By J. Sharpe Smith —
The FCC’s Enforcement Bureau has concluded that Verizon Wireless violated its RF exposure limits and fined the carrier $50,000. Additionally, the carrier has agreed to implement a compliance plan to protect its employees, contractors and other people who may come into contact with RF emissions from its wireless facilities. The plan includes training, reporting requirements and other safety measures.
The investigation came as a result of complaints that Verizon Wireless violated the RF exposure limits at rooftop antenna sites in the Philadelphia, Pennsylvania and Hartford, Connecticut metropolitan areas.
In response to the investigations, Verizon Wireless has already spent $4.2 million to inspect all of its 5,000 rooftop antenna sites to review and update RF exposure warning signage at access and antenna points. Employees at the company’s two network operations centers have been trained on how to inform individuals working near transmitter sites on safety measures.
J. Sharpe Smith is senior editor, AGL Link.
By Jennifer Fritzsche…
We recently conducted our quarterly channel checks with RF engineers and other network contacts in our Rolodex to get a touch point on the current spending environment in the wireless arena and how it will affect the tower companies. Recall that these contacts’ revenue trends tend to have a 15- to 18-month lead time on the tower companies business, and that more than 90 percent of the annual revenue is booked on the first day of the year. There tend to be few surprises. That said, we always find these checks helpful as they give us a good idea of the pace of spending and who is doing what. Our checks offer a bullish outlook for the tower companies’ near- and longer-term revenue trends.
Big Red: the Consistent Tortoise in the Race
Our checks suggest that VZ [Verizon Wireless] continues to be the steady Eddie of the Big Four. Making the analogy from the children’s fable, The Tortoise and the Hare, one contact compared VZ to the tortoise in the tale and reminded us of the lesson of the fable — slow and steady wins the race! All the RF engineering contacts we spoke with indicated VZ has its hands in everything right now: new builds, further expansion of its LTE network, dark fiber draws to the cell site, AWS spectrum deployment and small cell/DAS deployment. This last comment was most interesting, as we have heard AT&T speak more publicly about its small cell effort, whereas checks would indicate VZ has been just as focused.
AT&T — Slower in Small Cell Effort, Still Very Busy on Network
Our checks suggest that T (AT&T) is slightly behind its original targets in deploying small cells. Recall that in November 2012, as part of its Project VIP effort, AT&T outlined plans to deploy 40,000 small cells in the three-year period from 2013 to 2015. It is our understanding that T wants to deploy multi-modal/multi-technology small cells, which have HSPA/LTE/Wi-Fi capabilities. Our checks suggest that it has taken longer than expected to get this equipment from the OEMs. That said, our channel checks show that AT&T remains very busy on the DAS side of the house. T has its own small cell solutions group. Like VZ, T also remains very aggressive on deploying its recently acquired AWS spectrum assets and doing many in-fill additions to its macro-site network to further increase the density of its network footprint.
Sprint and T-Mobile Going Slowly but Ramp Is Expected in Second Half 2014, 2015
Sprint and TMUS [T-Mobile US] have been a bit slower than expected in terms of spending, according to our checks. In the case of Sprint, while its target for 100 million covered POPs of 2.5-GHz spectrum by year-end has not changed (either publicly with Wall Street or in communication with its engineers), the deployment of the equipment has been slow in coming. It is unclear where the issue is, but our contacts indicated it has been about six months behind the delivery schedule originally suggested by the OEMs at the early part of 2013.
In the case of TMUS, it seems it is finishing up its network modernization now and ramping up its spending on its recently acquired A block 700-MHz spectrum. We note that both of these upcoming initiatives (700 A Block deployment by TMUS and the 2.5-GHz deployment by Sprint) were not reflected in the tower companies’ 2014 guidance in a meaningful way. Although we expect some effect from this spending in the second half of 2014, a more significant contribution to tower companies’ revenue trends may occur in 2015.
So What Is the Bottom Line for Tower Companies?
While S and TMUS could be more active, we believe AT&T and VZ have been more than active enough to keep the tower companies busy! A few of our contacts indicated some concern that we could see a repeat of last year when all the work that needed to be done got compressed into a shorter time frame. In our view, although this could lead to resource constraints (like we saw at the end of 2013), this pent up demand bodes very well for the tower companies’ 2015 and beyond outlook.
We believe the biggest domestic tower theme that seems to be shaping up for 2015 is definitely small cells. One contact we spoke to indicated that with legacy DAS, nodes needed to be spaced every three or so city blocks. With low-power small cells, these may be deployed every few hundred feet — suggesting, on average, four times the density now seen. In our view, this is hugely positive for the tower companies participating in this arena (CCI and AMT especially). To explore this theme further, Wells Fargo will be hosting a Small Cell Symposium (one-day conference) in New York on July 24.
Jennifer Fritzsche is a managing director in the Equity Research Department at Wells Fargo Securities, where she has focused on the Telecommunications Services sector since 1999.
Cincinnati Bell has sold its wireless spectrum licenses and some tower leases to Verizon Wireless for $210 million. The total value of the deal is estimated to be 4.5 and 6 times 2014 and 2015 adjusted EBITDA, respectively. The deal is expected to close in the second half of 2014.
But you won’t see the spectrum on Verizon’s books, however. The carrier turned around and assigned its rights to acquire the spectrum licenses being sold by Cincinnati Bell to Grain Management, a small private equity firm. Verizon Wireless will then lease spectrum from Grain Management.
This spectrum two-step has happened before. Last September, Verizon Wireless sold lower 700-MHz B Block licenses covering the Charlotte, Greensboro and Raleigh-Durham markets in North Carolina to Grain Management for $189 million. Grain then leased the spectrum to AT&T. In addition, Verizon Wireless began leasing an AWS license covering Dallas from Grain Management, which Grain had acquired from AT&T.
Why is Grain Management buying spectrum and then leasing it out? From a business model standpoint, it could be compared with its other business buying towers and leasing space. As everyone knows, spectrum is money. Grain Spectrum Funding raised more than $330 million backed by payments due from AT&T and Verizon Wireless pursuant to two leases of wireless spectrum.
From the perspectives of AT&T and Verizon Wireless, having a small private equity firm own the spectrum may help from a regulatory standpoint with getting nods from the FCC and the Department of Justice. Especially with Sprint’s Son Masayoshi calling on the industry to fight the “wireless duopoly,” AT&T and Verizon Wireless have more incentive than ever to avoid the appearance that their spectrum caches continue to grow.