Tower execs say U.S. 5G buildout is slower but not over

Mobile operators are spending a lot less on their 5G buildouts this year, but that doesn’t mean that the 5G deployment phase is over. Executives at the big-three tower companies told investors at Goldman Sachs Communacopia + Technology Conference this week that the tower leasing business is still thriving because mobile operators are still expanding their 5G networks, particularly in their mid-band spectrum, where much of the 5G traffic will be carried. And along with that mid-band expansion, operators are starting to densify their networks with small cells, particularly in urban areas as well as filling in coverage gaps throughout the network.

“We’re at the end of the beginning of the 5G cycle,” said American Tower CFO Rod Smith. “But operators will continue to invest in capacity. We saw it in 4G, and we saw it in 3G, and we expect to see it with 5G.”

Smith also noted that operators are spending more on 5G than they did on 4G, and he expects the mid-band spectrum to be the “workhorse” of 5G, which means that operators will need to lease more cell sites and add more antennas in the mid-band spectrum to fill coverage gaps.

Meanwhile Crown Castle lowered its 2023 outlook at the end of Q2 because it saw tower leasing activity slow down in the first part of the year. Jay Brown, president and CEO of Crown Castle, said that unlike previous upgrade cycles, all three big U.S. operators started deploying 5G simultaneously, which is why last year’s tower leasing activity was so much larger than normal. He said Crown is now experiencing “normalized” growth with the expectation of a 5% increase in tower leasing this year.

However, both Smith and Brown noted that they are anticipating 5G data traffic to surge in the coming years, particularly if certain 5G use cases start to take off. If data traffic surges, both expect to see demand for tower space accelerate.

Brown believes that industrial applications such as retailers using drones to deliver packages, or autonomous taxis, could drive demand for more capacity and in turn, prompt the deployment of small cells.

Crown Castle is a big proponent of small cells, and the company has said it expects to deploy 10,000 small cells this year. “Macro towers can’t solve all of the need,” Brown said. “When there are targeted uses, where there are capacity constraints, small cells excel at handing that.”

SBA Communications also is experiencing slower leasing activity this year. However, the company signed a master lease agreement with AT&T in Q2, which allowed it to boost its guidance for the year. SBA CFO Brendan Cavanagh told investors that outside of the AT&T deal, activity from other operators has been slower this year. Cavanagh added that he believes this 5G cycle is different from 4G and 3G because there hasn’t been a “killer” app for 5G yet that has prompted competition between operators in terms of coverage and speed. “This may be a more elongated cycle than we saw with 4G,” he said.

Nevertheless, Cavanagh said he expects an uptick in activity from operators deploying 5G in their mid-band spectrum, particularly when T-Mobile finally gets access to its 2.5 GHz spectrum. T-Mobile has not received access to hundreds of 2.5 GHz licenses that it won in an auction last year because the FCC’s auction authority expired in March and has not been renewed by Congress.

The Dish Factor

All three tower company executives said that Dish Network has been a welcome addition to the market, and they look forward to it ramping up for its next buildout goal. Dish met a major coverage milestone in June when it deployed more than 15,000 5G cell sites and made its 5G service available to more than 240 million people nationwide. Dish was required by the FCC to provide coverage to 70% of the U.S. population by mid-June as part of the deal that enabled T-Mobile to acquire Sprint. The company’s next buildout deadline requires it to reach 75% of Partial Economic Areas (PEAs) by June 2025. This goal is expected to be a difficult one for the company because it requires more densification of its network.

Dish said earlier this year that it planned to pull back on its deployment and take a “pause” in its capital expenditures after it met its June 2023 buildout goal. Nevertheless, the tower executives all said they believe Dish will start working on that June 2025 goal at the beginning of 2024.  “Our portfolio is well positioned for Dish to help them get to the next level if, and when, they choose to do that,” American Tower’s Smith said.