6 new developments in the U.S. tower industry

If you’re wondering what’s going on in the wireless industry, a good place to start is with the nation’s major tower companies. After all, most of the nation’s wireless carriers install their network equipment on the towers from third-party tower companies like Crown Castle, American Tower and SBA Communications.

Thus, comments from the nation’s tower companies are key to discerning what the nation’s wireless carriers are doing with their networks in the runup to 5G.

As the second-quarter earnings season comes to a close in the U.S. cellular tower industry, here’s what tower executives are saying:

1, The tower industry is growing. Virtually all of the nation’s tower companies agreed that wireless carriers are increasing their spending on their wireless networks ahead of the launch of 5G. This work includes installing new equipment and spectrum bands on existing towers in order to transmit 5G signals, as well as deploying equipment to new locations (like small cells) in order to densify wireless networks.

“In the U.S., all 4 major U.S. wireless carriers have remained very busy, maintained the increased level of new leasing business signed up that we saw in the first quarter, which drove the increase to our forecasted contribution to full year 2018 leasing revenue from organic, domestic new leasing activity,” noted Jeffrey Stoops at SBA, according to a Seeking Alpha transcript of his remarks.

“Bottom line, we come out of 2Q Tower earnings reports increasingly positive,” wrote the analysts at Wall Street firm Deutsche Bank Research in a note to investors.

Indeed, that increase isn’t limited to the nation’s largest, publicly traded wireless tower companies. According to a Morgan Stanley Research survey of the nation’s private tower owners, “A quarter of respondents have seen a significant increase in leasing activity in recent months with 50% seeing a modest increase, while none reported a decrease. The momentum is also expected to continue as no one expects carriers to decrease leasing activity in 3Q, which we believe bodes well for 2H organic growth acceleration into 2019.”

2, Dish has a deal with SBA for towers. SBA CEO Stoops confirmed that the company has a deal with Dish during SBA’s earnings conference call, noting that Dish is in SBA’s “backlog.”

Dish’s deal with SBA is noteworthy considering Dish is allotted up to $1 billion by 2020 to build a NB-IoT network, though the FCC is probing the company’s network deployment plans.

3, AT&T is spending money on its network, but more slowly than expected. AT&T announced earlier this year a significant increase in its annual capex. But that hasn’t yet resulted in a massive spending spree.

“AT&T is showing solid signs of demand in the survey, though ~50% of respondents indicated that their leasing activity had not changed in recent months,” the Morgan Stanley analysts noted in their survey of private tower owners.

In an announcement last week, AT&T confirmed it will add FirstNet’s Band 14 700 MHz spectrum to between 12,000 and 15,000 of its towers by the end of this year. That, according to analysts, means the carrier has plenty of work ahead of it.

Specifically, the analysts at Wells Fargo said that they estimate AT&T has deployed its FirstNet spectrum on just 2,500 sites so far, which means the carrier will be “awfully busy in 2H18.” The analysts at Morgan Stanley estimate that AT&T ultimately must work on around 60,000 tower sites by 2021 to deploy its FirstNet and WCS spectrum.

“We believe these comments and our survey results indicate that AT&T is still ramping up its deployment after getting off to a slower start than expected in 2018,” the Morgan Stanley analysts noted.

4, Small cells remain a major opportunity. “Since we made our initial investment in small cells, we have seen the market rapidly evolve from a small opportunity and only a few locations to where we are today with all four of the major wireless customers deploying small cells at scale across all of the top markets,” Crown Castle CEO Jay Brown said earlier this month during the company’s quarterly conference call with analysts, according to a Seeking Alpha transcript of the event. Click here for a deeper look at the small cell market.

However, SBA and American Tower have remained conspicuously outside of the small cell business. “We don't do a lot of the small cells,” SBA’s Stoops said, noting though that the company is seeing spending “way up from a year ago” on its macro towers.

5, The Sprint and T-Mobile merger isn’t slowing each company’s respective spending. “Over 90% of owners with T-Mobile in their portfolio saw increased activity from the carrier in the last 3 months, while over 70% saw increased activity from Sprint,” the Morgan Stanley analysts noted of the results of their survey.

“We have not seen any impact to organic leasing activity as a result of the announced T-Mobile/Sprint merger, and our interactions with both companies continue to be business as usual,” added SBA’s Stoops.

6, 5G is real. “On last quarter's call, we mentioned that we have begun to see 5G-oriented activity on macro sites outside of urban areas,” said SBA’s Stoop. “We continue to see this activity and are excited about what 5G ultimately will mean for SBA. Mobile 5G will require the deployment of advanced radios and antennas across carrier macro footprints. With only a small fraction of this deployment happening over the last several quarters, the vast majority of the opportunity is still in front of us.”

American Tower executives said they’re seeing the same trends.

“We continue to believe that strong levels of U.S. organic growth are sustainable over a multiyear period, as ongoing positive secular trends in mobile are further enhanced by upcoming scaled rollouts of 5G technology,” said American Tower’s Thomas Bartlett on his company’s earnings conference call, according to a Seeking Alpha transcript of the event.