After years of frenzied spending, U.S. 5G network operators began tightening their purse strings earlier this year. Now, some financial analysts are debating when they will start spending again.
As financial analysts at Wells Fargo wrote in a recent note to investors: "We expect that 2024 could be the 'trough' for operator CAPex across the industry, at around $27 billion, with Verizon, AT&T and Dish Network all contributing to a decline in industry capex from the early 5G peak."
Warnings about a slowdown in spending by 5G network operators first emerged around the end of 2022. "Expect Verizon and T-Mobile's capex to decline significantly next year," financial analysts at Morgan Stanley wrote in a note to investors in late 2022.
These warnings begin to heat up in the spring of 2023. The slowdown became apparent this summer in second-quarter reports from Nokia, Ericsson, Juniper Networks, Corning and others.
Jeffrey Stoops, CEO of U.S. cellular tower giant SBA Communications, said last month, "While we have been expecting [cellular tower] lease growth to slow as we head into 2023... However, in the second quarter, the level of organic leasing activity of some of our customers was below our expectations."
At the heart of the issue is the mid-band 5G build-out by T-Mobile, Verizon and AT&T. After spending more than $100 billion on mid-band spectrum, operators are investing heavily in putting that spectrum into 5G networks. These efforts are now nearing completion. Dish Network, meanwhile, successfully met its 2023 5G coverage target set by the Federal Communications Commission (FCC), but then quickly suspended its own spending.
Financial analysts point out that carriers should increase network spending starting next year for several reasons.
Financial analysts at MoffettNathanson wrote in a recent note to investors about the cellular tower market: "As T-Mobile begins to deploy C-band and 3.45GHz spectrum, its (cell tower) leases could start to come off this bottom sometime in 2024, and Dish could recommit in 2024 to avoid missing its 2025 (network) deployment target."
T-Mobile, for its part, is spending about $13.6 billion on C-band and 3.45GHz spectrum licenses, and at some point the carrier will buy the cell towers and radios needed to put that spectrum into service. Dish, meanwhile, faces a government requirement that 5G cover 75 percent of each of its spectrum license areas by June 2025, a requirement that will also require additional spending.
However, some analysts warn that the negative headlines could continue into the fall of 2023.
Wells Fargo analysts warned: "Crown Castle remains the only tower company to provide an outlook for next year. So we'll get our first look at what to expect in 2024 in October. We believe the company will 'open the door' in its 2024 outlook, which will be purely negative news for the entire tower stock."