Buoyed by long term leasing contracts, the tower industry appears to be set to weather the slowdown in carrier capex. The carrier leasing environment in the U.S. is “quite robust,” according to American Tower (NYSE: AMT) Chief Financial Officer Rod Smith. Because of its comprehensive agreements with carriers, the tower company projects an average of 5 percent organic tenant billing growth out to 2027, he told Brett Feldman, Equity Research Analyst at Goldman Sachs, at Goldman Sachs’ Communacopia + Technology Conference last week in San Francisco.
“So even if the carriers pulled back a little bit on capex, it doesn’t affect our organic tenant billings growth because our contracts are set up so that they’re independent of any quarterly cycles around capital deployment,” Smith said.
The wireless industry is at the “end of the very beginning” of the 5G cycle, according to Smith, with carriers spending $40 billion in 2022 for coverage purposes across the U.S. Typically in technology upgrades, carriers pull back and settle into a more consistent annual capital investment cycle, after the initial ramp-up in capital spending, he said.
“[With 4G] the ramp up came up into the mid-$30 billions and it settled back into the high $20 billions,” Smith said. “In this cycle, it went up to over $40 billion and now we’re pulling back, and we do think that in a 5G cycle it’s going to settle into around $35 billion a year going forward.”
The first wave of a new technology buildout typically establishes coverage. Next, data usage will spur capacity builds where needed, according to Smith. The driver of that continued capex growth is increases in data consumption, which is projected to continue at 25 percent annually. Fixed wireless access and private networks may also be a part of this cycle, he added.
“Consumer-driven applications that are on 5G handsets and that 5G handset penetration is going up, likely to around 50 percent or higher in 2024,” Smith said. “And when that happens, then you’re into a longer cycle of capacity-driven investments where the wireless carriers will continue to invest in that technology to handle the growing capacity demands on the network.”
By J. Sharpe Smith, Inside Towers Technology Editor
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