Tower CEOs Upbeat Despite Declining Investments in 5G
During recent calls with financial analysts, executives at major tower companies acknowledged some slowness in the push to build 5G across the U.S. That’s in keeping with a trend seen last year (see 2308010069). The calls included those from SBA Communications and American Tower this week.
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Last year “was marked by some significant macro headwinds,” including high interest rates, said new SBA CEO Brendan Cavanagh during a call with analysts. “As we look forward to 2024, we recognize that we are coming off of a period of reduced network investment by our largest domestic customers,” he said.
But Cavanagh said “future network needs” for its carrier customers “remain significant” and many SBA sites “still require 5G-related upgrades, which we are confident will take place over the next couple of years.” While interest rate cuts are possible, predictions about them change regularly, he said.
The growth of fixed wireless access will spur demand, Cavanagh said, noting the average FWA customer uses 20 times or more broadband data than a typical mobile customer. “The evolution of AI-infused 5G offerings will continue to fuel the demand for improved speeds and lower latency.”
New American Tower CEO Steven Vondran said on a call this week that master lease agreements (MLAs) with major carriers somewhat insulate his company from changes in the U.S. market. “Comparing us to someone else's estimations of leasing new business is a little bit tough, just given the fact that we have a level of locked-in activity,” he said.
Service revenue provides more insight on trends but are “notoriously hard to predict,” Vondran added. “A couple of years ago, we had to take guidance up quite a bit -- last year, we brought it down,” he said. “We do see a general uptick” in discussions with customers “that make us believe that there will be an uptick in the second half of the year.”
Vondran sees other reasons for optimism. “Evolving technology trends continue to drive demand for more ubiquitous, dense, low latency distributed networks,” he said during the call. American Tower plans to build about 3,000 towers this year, mainly outside the U.S., down from the pace of the past two years, he said.
Crown Castle interim CEO Tony Melone also offered a cautious take on the 2024 outlook in a call with analysts. A lot depends on how carriers allocate capital, he said. “The remaining densification required to deliver on the promise of 5G performance will drive not only robust tower growth, but also significant demand for small cells,” he said.
Melone said during his 30 years in the industry the tower business has grown “tremendously, particularly during periods of generational upgrades.” During his time at Verizon “the shift from 3G to 4G required more tower densification than initially expected and more than initially deployed,” he said.
SBA reported Q4 income of $109.5 million, up from $102.6 in the year-earlier period. Revenue of $675.1 million was down slightly from $686.1 million the previous year. American Tower said net income increased 101.9% over the previous Q4 to $13 million. Revenue increased 3% to $2.8 billion. Crown Castle posted income of $363 million in Q4, off 12.32% from the year-earlier quarter, and revenue of 1.7 billion, down 5.1%.
“The past couple of years have been tough for tower equities, with the stocks significantly underperforming the S&P 500,” MoffettNathanson’s Nick Del Deo said in an investment note after American Tower reported. The company is the best positioned of the three because of its MLAs, he said. “Over the long term, there shouldn’t be much of a difference between the results that an MLA-oriented approach and an a la carte approach yield,” Del Deo said. “But with domestic carrier leasing currently in a downcycle, those MLAs provide certainty that investors value.”