Despite the 5G talk, investment in LTE will see plenty of runway in 2019, which is leading to more new tower builds, tower executives say. T-Mobile is building coverage sites for its low-band 600 MHz and 700 MHz spectrum, and AT&T is contemplating a network improvement project as well as its FirstNet-related project. Both of which involve ample new sites, Alex Gellman, CEO, Vertical Bridge, told AGL eDigest.
“We are in a renaissance period for good old macrotowers in the next few years ahead of 5G,” Gellman said. “The reason I feel that way is we are seeing a lot of rings for new towers. The economics and speed of collocations is hard to beat, but there will be new builds as well.
Ron Bizick, CEO, Tarpon Towers, described the new-build business as “vibrant.” It is bringing good times to the independent tower companies.
“There are a lot more towers being built in the rural areas to fill out the white spaces, particularly for AT&T’s FirstNet,” he said. “We are seeing the other carriers build out their coverage, as well. We have targeted some rural areas where we think a second tenant is possible, but only a second tenant.”
With that said, carrier capital expenditures are a quarter-by quarter-question mark. In the first quarter of 2019, tower owners will be looking closely at the capex budgets of AT&T and Verizon after the Big Two pulled back on their spend toward the end of 2018. AT&T’s reduced capex came after the Time Warner deal closed and Verizon shaved $1 billion off its guidance after announcing 44,000 in layoffs last year. Additionally, Verizon had a $4.6B write down of Oath (Yahoo and AOL).
“They pushed capex out at the end of 2018. Was that a trend or a one-time occurrence?” Gellman said. “The layoffs and the write down may be a signal a greater focus on the network in the future.”
Last year’s big story, the Sprint/T-Mobile merger, is carrying over to this year. It was bad news for some tower companies, which saw Sprint business go away after the deal was announced. Gellman believes the quiet surrounding the deal is a portent for its blessing from the Department of Justice. In the long run, he believes the merger will be positive for the industry.
“Sprint has not spent on its network in a meaningful way for a number of years, while T-Mobile has been very aggressive,” he said. “A stronger, larger T-Mobile will be excellent for our industry. T-Mobile is solely focus on its network, while AT&T and Verizon have other places to put their capital and have sometimes invested elsewhere than in the network. If T-Mobile is the same size as AT&T, it will be more difficult for it to do that.”
Jennifer Fritzsche, senior analyst, Wells Fargo, believes the Sprint/T-Mobile merger will go through in the first half of 2019. “Our regulatory checks suggest that the DoJ/FCC approval process has been relatively drama-free thus far,” Fritzsche wrote in an Equity Research note. “We do, however, believe that T-Mobile will have to divest assets – most likely spectrum – to receive approval. The New T-Mobile plans to create a more scaled, viable competitor to AT&T and Verizon, and help turbocharge the carriers’ push to 5G.”
Towers Still a Wall Street Darling
Fritzsche has written that the towers will be remain a compelling investment for shareholders 2019, despite the possible Sprint/T-Mobile merger. Tower stocks beat the S&P index in 2018 (+4.9 percent vs. S&P -6.2 percent), and in 2017 (+40.4 percent vs. S&P +19.4 percent).
“Even with these recent moves, we believe towers will remain very topical in 2019,” Fritzsche wrote. “In our view, there exists a number of tangible catalysts (i.e., FirstNet, T-Mobile’s 600 MHz deployment, 5G densification efforts, edge computing, etc.), which should more than offset expected choppiness in international markets (particularly India) and impact from carrier M&A (namely Sprint and T-Mobile) in the short term.”
Carrier leasing activity, which has grown year over year in recent quarters, is expected to continue to increase in the coming 12 months, according to Fritzsche.
“There is much ‘naked spectrum’ that has yet to be deployed (600 MHz, FirstNet 700 MHz, AWS-3, WCS, 2.5 GHz, mmWave, etc.) – where towers will clearly play a role,” she wrote. “Most deployments are part of multi-year strategies designed by the carriers and complement what they plan to build for densification needs ahead of 5G technology rollouts.”