These past months have been interesting and challenging to say the least. While not immune, the wireless business has held up much better than most because it is an essential service for people-to-people voice and data connectivity and emergency services.
Certainly, North American wireless networks have performed well through the pandemic.
At this juncture, there are positive signs that carrier capital expenditures are on the rise. More important, if carriers stick to their full-year 2020 guidance, we should expect a significant ramp in the fourth quarter.
Consider what happened up until now.
In the latter part of 2019, the U.S. wireless business experienced a marked slowdown in network infrastructure investment.
The main reason was the specter of the T-Mobile-Sprint merger that hung over the industry. While awaiting approval, both companies scaled back their capex each quarter throughout the year.
Historically, Q4 wireless capex is the big spend quarter as carriers close out their full-year budgets. Here, 2019 proved atypical.
In the second half of 2019, AT&T Mobility, Verizon Wireless and U.S. Cellular showed only modest capex upticks. For equipment vendors and installation contractors alike, orders slowed down.
That slowdown carried into 1Q20. COVID-19 hit in mid-March and added a new dimension to the pace of network builds.
The bright spot was that the T-Mobile-Sprint deal was approved on April 1.
Even so, network investments remained slow. Aggregate 1Q20 carrier capex was $6.6 billion, down 9 percent from $7.2 billion in 4Q19.
Through 2Q20, network investments continued albeit at a subdued pace through the pandemic. Capex for 2Q20 grew a modest 5 percent to $6.9 billion.
Since mid-year, network build activity is up. The main driver is the new T-Mobile itself.
Once the deal closed, the company claims it has been “going like crazy” with its 5G deployments in key markets around the country. T-Mobile says it is upgrading around 700 cell tower sites per week in both low-band 600 MHz and mid-band 2.5 GHz spectrum. It expects more tower builds in the second half.
Other factors are bolstering the positive capex outlook for 2H20.
Both AT&T and Verizon are now on track with their respective 5G builds, mainly in millimeter wave spectrum. Both companies recovered from embarrassing missteps trying to gain a competitive advantage on 5G introductions by touting pre-5G deployments as “true 5G” even before the 5G New Radio standard was finalized.
Furthermore, the recent FCC 3.5 GHz CBRS spectrum auction suggests some interesting outcomes.
Verizon scooped up some much-needed mid-band spectrum for its 5G builds. The company, along with smaller wireless service providers and private network users could commence their network builds soon. With available CBRS-ready smartphones and radios, many license holders likely will get started before year-end.
With current activity, carrier capex for 3Q20 is expected to increase modestly at about 4 percent to $7.2 billion.
Carriers generally provide capex guidance in a range. Taking the mid-point of the aggregate guidance range among Verizon Wireless, T-Mobile, AT&T Mobility and the regional wireless carriers, then the full-year mid-point capex is roughly $30.1 billion.
With T-Mobile as the pacesetter and the other carriers following suit, 4Q20 cumulative spending is expected to accelerate to roughly $9.4 billion, up 30 percent both on a sequential and year-to-year basis.
What to watch for: Will carriers maintain or modify their prior full-year capex guidance in their upcoming 3Q20 earnings calls?
by John Celentano, Inside Towers Business Editor