Tower Companies Note Slight Activity Uptick, Express Optimism

Following a period of stagnant organic revenue growth in 2023, tower companies are cautiously optimistic about the future. First-quarter earnings calls revealed promising indicators, including increased carrier activity and continued network densification efforts. SBA reported a rise in applications for colocations and amendments, but cautioned that it was too soon to say how this might affect growth forecasts. Crown Castle reaffirmed its long-term commitment to its 5% organic growth target, citing the ongoing need for carrier network expansion. American Tower echoed this sentiment, highlighting the cyclical nature of wireless carrier spending while emphasizing the current cycle’s higher network demand and capital expenditures compared to previous upgrades.

Carriers Continue Growing Subscriber Bases and Network Upgrades

The first quarter of 2024 saw strong subscriber growth for T-Mobile and AT&T, while Verizon experienced a narrowed net subscriber loss compared to the same period in 2023. T-Mobile continues to lead in mid-band 5G deployment, with 90% of its sites equipped for 5G and 93% of its 5G traffic carried on mid-band spectrum. Verizon reported exceeding 250 million people covered with C-Band and has significant additional C-Band spectrum yet to be deployed. All three carriers anticipate their 2024 capital expenditures (capex) to return to “business as usual” levels, significantly lower than the peak levels seen during the initial 5G buildout in 2022.

US Cellular Transactions Spark Consolidation Concerns

Following their Q1 earnings calls, US Cellular finally broke their silence in May 2024, announcing a definitive agreement to sell its wireless operations and some spectrum holdings to T-Mobile. Notably, T-Mobile will become a long-term tenant on at least 2,600 of US Cellular’s towers (out of approximately 4,500 total) through a new master lease agreement. While this secures significant leasing for US Cellular, questions remain about the viability of the remaining towers without major tenants like T-Mobile and the fate of US Cellular’s own leases on third-party structures.

Market Watch

Key Takeaway for Cell Tower Owners

The industry’s resilience continues, with strong fundamentals in the wireless sector despite lower growth and spending. However, the recent acquisition of US Cellular by T-Mobile and Dish Network’s financial status may alter the landscape for some individual tower owners.

Landlords can navigate this environment by considering their exposure. Portfolio companies with a diversified base of sites and locations are well-positioned to weather any headwinds. Conversely, landlords with a limited number of assets leased to US Cellular or Dish Network should closely monitor the market and take decisive action if necessary.

EARNINGS CALL SUMMARIES

Crown Castle reported annual tower organic growth of 4.6% for the quarter, in line with the anticipated 4.5% organic growth forecast for 2024 but a slowdown from the 5% organic growth in 2023. Looking further ahead, they still expect long-term tower organic growth to get to their 5% target due to required densification of carriers’ 5G networks. In their small cell business, there was 16% organic growth in the first quarter due to an acceleration of new nodes. Finally, they provided a brief update on their strategic review of their fiber business, stating that they are engaged with several parties on potential transactions, which could include full or partial sales as well as joint-venture relationships.

SBA reported 2.3% net domestic organic growth rate year-over-year including higher-than-normal 3.6% churn rate due to Sprint. This Sprint churn is expected to continue through 2026, with the out-years of 2025 and 2026 seeing the greatest impacts. CEO Brendan Cavanagh stated that “leasing activity from an execution standpoint was only slightly higher than the fourth quarter. However, during the first quarter we saw increases in applications for both new leases and amendments as well as an increase in our services backlog” although he later clarified that it is too soon to say how this might affect growth forecasts. Cavanagh noted that he believes the elevated cost of capital environment is at least partially to blame for the lower carrier activity pace. Finally, on the M&A front, the company continues to be very selective and sits out most opportunities due to return thresholds.

American Tower reported 4.6% domestic organic tenant billing growth year-over-year and 5.5% when removing the impact of Sprint churn. They reiterated guidance for 2024 of 4.7% domestic organic tenant billing growth, which will include approximately 5% growth in the second and third quarters before a step down in the fourth quarter due to increased Sprint churn. Finally, CEO Steven Vondran gave extensive remarks regarding the current status of the domestic wireless industry: “Over the course of the 4G investment cycle between 2010 and 2018, average mobile data consumption per smartphone increased from less than 100 megabytes per month to seven gigabytes per month. And over that period, carriers were deploying approximately $29 billion annually on average, up from approximately $23 billion during 3G. As we’ve moved into the 5G investment cycle from early 2019 to today, we’ve once again seen mobile data consumption per smartphone grow to almost 30 gigabytes per month in 2024. We’ve seen early 5G subscribers consuming roughly two times the mobile data compared to the average 4G subscriber, and we see average annual carrier CapEx step up to approximately $36 billion a year. This CapEx investment translated to the approximately $230 million in year-over-year co-location amendment growth we delivered last year, much of which was attributed to 5G activity, as well as an expectation for growth on a per site basis in 2024 that significantly exceeds the average seen during the 4G deployment cycle.”

Verizon Wireless reported total postpaid phone subscriber net loss of 68,000 for the quarter, driven by a net less of 158,000 in consumer segment (an improvement from the 263,000 net loss in 1Q 2023) and a net gain of 90,000 in their business segment. First quarter capex was $4.4 billion and full year capex is still expected to be between $17 and $17.5 billion, which is stated as their business-as-usual level and well below the 2022 peak of $23 billion. They further reported another strong quarter of fixed wireless subscriber gains, again coming in at over 350,000 adds and bringing their total fixed wireless subscriber base over 3.4 million. Finally, in broader network updates, they stated they surpassed 250 million POPs covered with C-Band almost a year ahead of schedule, noted that many sites have just 60-80 MHz of C-Band spectrum deployed despite their ~160 MHz of nationwide holdings, and CEO Hans Vestberg touted that they “already have mobile edge compute in many of our sites across the country in order to be able to meet that compute and storage” of AI.

AT&T reported postpaid wireless subscriber net adds of 349,000 for the quarter and over 1.5 million for the year, as well as a quarterly churn rate of 0.72% – their lowest first quarter churn on record. Additionally, in fixed wireless the company added over 110,000 subscribers in the quarter to bring their total over 200,000, although CEO John Stankey noted several times that fixed wireless is not a product they are looking to offer as widely as Verizon and T-Mobile are. Finally, AT&T reported first quarter capex of $3.8 billion, down from $4.3 billion in 1Q 2023, and expect full year capital investment to be $21-22 billion.

T-Mobile reported postpaid wireless subscriber net adds of 532,000 for the quarter, again leading the industry and beating expectations. They reaffirmed guidance of their 2024 full-year capex to come in at $8.6-9.4 billion, down slightly from 2023 levels, and slightly increased their 2024 total net customer additions guidance. They further added 405,000 fixed wireless subscribers to cross over 5 million total fixed wireless subscribers. They stated that 90% of their sites are capable with 5G and 93% of their 5G network traffic is on mid-band spectrum. Finally, they announced a joint venture with EQT to purchase regional fiber provider Lumos.

Dish reported they ended the year with 7.3 million wireless subscribers, a decline of 81,000 from the prior quarter, and they noted that they are still working to move these subscribers onto their own network. Additionally, their capex for 2024 is expected to be about half of their 2023 capex. Finally, a portion of the call and several analyst questions were focused on the company’s overall financing position. It has stated they have approximately $2 billion of debt maturing in November and will not have cash on hand to meet these obligations without additional sources of financing. The company is exploring options at all levels of their capital structure, and analysts believe that meeting this November maturity will be crucial to the company avoiding bankruptcy.

US Cellular reported a reduction in churn from their Q4 2023 high, down about 0.20%, and total net subscriber loss of 47,000 for the quarter. On fixed wireless, they reported a gain of 10,000 customers bringing their total customer base to 124,000. Following the earnings calls, US Cellular announced that they have entered into a definitive agreement with T-Mobile to sell their wireless operations and a portion of their spectrum holdings. As part of the agreement, it was stated that T-Mobile would enter into a new MLA and be a long-term tenant on at least 2,600 of US Cellular’s towers with US Cellular retaining ownership of their approximately 4,500 towers.

Comcast and Charter reported that they added 289,000 and 486,000 wireless subscribers, respectively, in the quarter. For both companies, this is a sequential and year over year decrease in the number of new subscriber additions, however both remain confident in their ability to continue adding subscribers due to the low wireless penetration from their broadband subscriber bases.