Carriers Cool Off on Network Spending After 5G Rollout
The fourth-quarter 2023 earnings calls reflected a continuation of trends observed earlier in the year. Wireless carriers once again exhibited a slowdown in capital expenditures dedicated to network expansion, following the initial 5G infrastructure buildout.
There is some divergence in industry guidance regarding the duration of the slowdown. SBA anticipates this trend persisting throughout 2024, with a potential uptick not expected until 2025 at the earliest. Conversely, American Tower expressed a more optimistic outlook, suggesting a possibility of increased activity in the second half of 2024.
Subscriber Growth and Data Usage: A Positive Sign for the Industry
Positively impacting subscriber numbers, all three major carriers (AT&T, Verizon, and T-Mobile) reported strong subscriber growth during Q4 2023, likely attributable to seasonal trends. While the industry awaits the emergence of a transformative “killer app” for 5G technology, data usage continues to demonstrate significant growth. AT&T reported a remarkable 30% annual increase in data traffic over the past three years, and this trend is anticipated to continue. Similarly, Verizon CEO Hans Vestburg highlighted the positive impact of C-Band deployment, citing areas with this technology as experiencing higher subscriber acquisition, lower churn rates, and increased customer adoption of premium services.
Merger and Acquisition Activity Picks Up
The mergers and acquisitions landscape within the industry showed signs of a rebound after a slowdown in deal making in the second half of 2022 and first half of 2023. TowerCo and Everest announced a joint purchase of 546 towers from Charter in the fourth quarter, while Vertical Bridge announced the purchase of 220 towers from Shentel in the first quarter of 2024.
Market Watch
- Dish Network reported a continued loss in subscribers and a further deteriorating financial situation as they approach debt maturities this year that will require additional fundraising to service. Their 2024 wireless network capex is expected to be about half of 2023 levels as they slow down after meeting the FCC’s initial build requirements.
- Comcast and Charter, cable companies operating on Verizon’s network, reported another quarter of strong subscriber growth with over 850,000 new lines added, combined. Further, both discussed their beliefs that the fixed wireless offerings of the traditional mobile operators will see performance suffer as consumers continue to increase their bandwidth demands.
- US Cellular did not comment further on its previously reported process exploring “strategic alternatives” other than to state it is active and ongoing. Updates on the process will continue to be monitored closely, as an acquisition could result in network changes, potentially including site churn.
Key Takeaway for Cell Site Owners
Although spending has slowed significantly following the initial phase of heightened 5G spending, macro towers are expected to hold their position as the cornerstone of carrier networks. However, savvy site owners should continue to monitor both Dish Network and US Cellular for further updates on their long-term plans.
EARNINGS CALL SUMMARIES
Crown Castle reported tower organic growth of 5% for 2023 and expects this growth to step down slightly to 4.5% for 2024. Looking forward farther, they expect tower organic growth to average approximately 5% through 2027. On churn, they continue to see levels on the low end of their 1-2% range, exclusive of Sprint, and expect this to continue moving forward. Anecdotally, they expect there to be a long tail of densification by the carriers on both towers and small cells based on trends from prior upgrade cycles. Finally, they provided little comment on their strategic review of their fiber business, other than to note that the review was ongoing.
SBA reported 3.5% net domestic organic growth rate year-over-year including higher-than-normal 3.4% churn rate, 1.6% of which is due to Sprint. This Sprint churn is expected to continue through 2026, with the out-years of 2025 and 2026 seeing the greatest impacts. The company expects 2024 growth to continue to be affected by the continuation of reduced carrier capex. CEO Brendan Cavanagh stated that “a significant percentage of our sites still require 5G-related upgrades, which we are confident will take place over the next couple of years” as well as reiterated that SBA is confident in the long-term dynamics of the industry. Finally, on the M&A front, it was noted that part of the reason for lower deal volume is due to a spread between seller and buyer expectations, as many seller expectations have not yet re-rated down for the higher interest rate environment.
American Tower reported 5.3% domestic organic tenant billing growth for the year and 6.6% when removing the impact of Sprint churn. For 2024, they expect 4.7% domestic organic tenant billing growth, and 6% when removing the impact of Sprint churn. It was noted that they are seeing an uptick in conversations with carriers and a modest increase in application levels off the lows of the second half of 2023, and American Tower expects more activity in the second half of the year. Finally, CEO Steven Vondran noted that “I think the micro data centers at the base of the towers, facilitating AI is still a little bit further out” in reference to a question about the data center demand due to AI.
Verizon Wireless reported total postpaid phone subscriber growth of 449,000 for the quarter including 318,000 adds in consumer, a segment that had previously been losing subscribers. Full year capex was $18.8 billion, which was more than $4 billion less than 2022, and it was stated that capex is expected to fall even farther in 2024 to the business-as-usual level, which was previously cited as $17-17.5 billion. They further reported another strong quarter of fixed wireless subscriber gains, coming in at over 350,000 adds bringing their total fixed wireless subscriber base over 3 million. Finally, they stated that they will continue deploying C-Band to suburban and rural areas, as CEO Hans Vestburg noted “where we have C-Band, we see higher gross adds, lower churn, and more step-up to premium services.”
AT&T reported postpaid wireless subscriber net adds of 526,000 for the quarter and over 1.7 million for the year, an acceleration from the prior quarters. The company noted that traffic on its network has increased in excess of 30% per year each of the past three years, and expects traffic to further increase in the coming years. In fixed wireless, AT&T Internet Air ended the year with 93,000 subscribers, but the company noted they don’t expect to push fixed wireless as hard as their peers due to their focus on fiber. Finally, AT&T reported 2023 capex of $23.6 billion, but expect this to fall to $21-22 billion in 2024. CEO John Stankey stated that “we (AT&T) will get through kind of what we need to do on fiber before we’re into another air interface investment.”
T-Mobile reported postpaid wireless subscriber net adds of 934,000 for the quarter, again leading the industry and beating expectations. They continue to slow capex and expect 2024 full-year capex to come in at $8.6-9.4 billion, down slightly from 2023 levels. They further added 551,000 fixed wireless subscribers to cross over 4.8 million total fixed wireless subscribers. Finally, they expect subscriber additions to slow in 2024 as the total net adds in the industry are expected to moderate.
Dish reported they ended the year with 7.4 million wireless subscribers, an 8% decline from the prior year, and they noted that they are actively working to move these subscribers off T-Mobile’s network (using their MVNO agreement) and onto their own network which will improve economics. Additionally, they stated that the company has cash on hand to repay their March 2024 debt maturities but they will need to raise additional capital for their November 2024 maturities. Further, they implied that they will not be able to exercise their option to purchase 800 MHz spectrum from T-Mobile due to a lack of financing. Finally, they stated that their 2023 network capex was similar to their 2022 levels, but this is expected to be about half as much in 2024 as they have met the FCC’s original build guidelines and have over 20,000 sites built.
US Cellular again refused to comment further on their exploration of “strategic alternatives”, other than noting that the process was active and ongoing. One the operating side, they reported a tick up in postpaid phone churn and total net subscriber loss of 33,000 in the fourth quarter. On fixed wireless, they reported a gain of 8,000 customers bringing their total customer base to 114,000, while noting they see a total market opportunity of about 400,000 subscribers. Finally, for their owned towers, they reported a similar slowdown in spending as noted by the tower companies, however they remain confident in their towers long-term due to their competitive positioning and continued need for network densification, especially in lieu of the lack of current spectrum authority to auction additional spectrum.
Comcast and Charter reported that they added 310,000 and 546,000 wireless subscribers, respectively, in the quarter. In the third quarter Comcast touted their deployment of CBRS in select markets to handle mobile traffic, and this quarter Charter noted that they were doing the same with one market live and another expected to go live this quarter. Finally, both companies discussed fixed wireless and voiced opinions that as consumers continue to use more bandwidth the fixed wireless networks will become capacity constrained without the further availability of spectrum.
