Marek's Take: Wireless industry remains immune to 'Covid effect'

Marek's take

If you have spent any time listening to investors asking questions on company second quarter earnings calls you’ve probably heard the term “Covid effect.” Investors are hammering wireless company executives with questions about how the Covid-19 pandemic is impacting their businesses. Back in April, when stay-at-home orders were in place throughout most of the country, a lot of executives deferred those questions, noting it was too soon to determine the impact Covid might have on the wireless business. But now that the pandemic has been around for six months, investors are looking for more concrete answers. 

Late last month I wrote a column calling the wireless industry “pandemic-proof” because the large operator fundamentals were still strong despite having to shutter their retail stores and transition the majority of their workers to work-from-home scenarios. A few people took issue with my column and suggested I look beyond just the big operators.

Well now I have looked beyond the big operators. And I’m still not seeing any red flags. This time I specifically looked at wireless companies that are in the small cell and in-building businesses. I figured that if companies are in no hurry to have their workers return to office buildings and campuses and consumers are staying away from shopping malls, airports and sports arenas, there may be less demand for in-building wireless and small cells.

Fewer people are passing through airports and spending time in large venues. And that decline in traffic did have an impact on Boingo Wireless’ second quarter. The company reported that its total connects, which is a metric that it uses to measure paid usage on Boingo’s global Wi-Fi- network, dropped in the second quarter to 13.8 million connections compared to 85.8 million connections in the second quarter of 2019. This was also nearly an 80% decline from 66.5 million connections in the first quarter of 2020. Boingo expects this metric to continue to drop in the third quarter, but the company emphasized that most of its revenue does not come from connections but from recurring revenue contracts that are not based on usage. And when it comes to Boingo’s DAS and neutral host business, the company said activity is strong and noted that it had won several new contracts in the quarter.

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American Tower also said that it is seeing continued opportunities around DAS and small cells in indoor spaces. “We continue to be very positive on the indoor spaces. We think that the unlicensed access spectrum in the U.S. has the potential to really transform, if you will, the overall indoor connectivity landscape,” said Tom Bartlett, president and CEO of American Tower, according to the Seeking Alpha transcript of American Tower’s second quarter earnings call.

And Crown Castle, which builds and manages macro towers as well as small cells, said that while the company didn’t make any significant small cell deals in the second quarter, that is not unusual given the nature of the business. Crown Castle President and CEO Jay Brown added that he doesn’t believe this is at all related to the Covid effect. “We don’t view this as a change in the business. We think it’s reflective of natural timing and the ebb and flow we will see over time,” Brown said, according to a Seeking Alpha transcript of Crown Castle’s second quarter earnings call.  

Another company that seems to be riding the small cell wave is Corning. The company, which makes indoor small cells for enterprises, reported that its optical communications group's second quarter sales were up 12% from the same quarter in the previous year. The company attributed much of this to the projects that it’s doing with wireless carriers. Specifically, Corning referred to its deal with Qualcomm to deliver indoor 5G-ready small cells.

Short-term disruptions

However, some companies may be shifting their priorities due to Covid-19 and this may result in some short-term disruptions to the small cell and indoor coverage market. According to the Small Cell Forum’s July 2020 Market Status report, the group downgraded its estimates for small cell deployments in the second and third quarter of 2020 because of Covid-19.  But it expects those estimates to bounce back in the fourth quarter, and it is predicting an acceleration of deployments of small cells from the fourth-quarter onward because of increased demand.

The Forum estimates that by the end of 2021 its forecast will be close to pre-pandemic levels. The group also notes that it can’t attribute everything to the impact of Covid-19 and economic downturn, and some uncertainties are due to the immaturity of 5G platforms and 5G uses cases.   

Analyst Chetan Sharma of Chetan Sharma Consulting noted that many wireless carriers have shifted their small cell strategies but he said that phenomenon is independent of Covid-19. “This area isn’t growing as much as people expected,” Sharma said.

He added that wireless traffic is on the rise and he believes that while many stay-at-home workers rely on their wired broadband connections for connectivity, many want a wireless hotspot for redundancy and backup. Plus, not everyone has a reliable wired connection. “Wireless plays an important backup role,” Sharma said. And he believes that we’ll see more people gravitating to wireless hotspots for connectivity in the fall as schools continue to rely on online learning and companies keep employees working at home longer than originally anticipated.

The “Covid effect” is pervasive in many industries but wireless continues to thrive. "The ecosystem around computing and communications is doing fine," Sharma said.