U.S. Tier 1 Wireless Carrier CapEx Reset

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A key takeaway from the 1Q20 earnings calls was that the coronavirus pandemic has slowed but has not stopped the Tier 1 wireless carriers’ network capital expenditures (capex). A slowdown became evident in March and is persisting through 2Q20. The good news is that wireless capex likely will ramp up through the summer and into the fall with that momentum carrying into 2021.

The main growth drivers are each carrier’s 5G buildout program along with T-Mobile’s accelerated network integration in the aftermath of its merger with Sprint. Each carrier is experiencing slowdowns because it is difficult to get construction permits and approvals from local government officials working from home.

That said, predicting quarter-to-quarter wireless capex is a crapshoot. Our projections are best-guess estimates given the current environment and each carrier’s network investment trajectories.  

The only true pointer of “what to expect” is the full-year capex guidance that each company provides at the beginning of the year. The companies will either reconfirm or adjust that guidance each quarter, depending on the prevailing market conditions.

At this juncture, the Tier 1 carriers each are reacting differently to the pandemic. As such, they have reset for network infrastructure investment expectations for the balance of the year.

AT&T (NYSE: T) withdrew its full-year 2020 capex guidance due to pandemic-related uncertainties. The company said it is not slowing its 5G buildout although it acknowledged the negative operational impact of COVID-19. Its original aggregate capex guidance for 2020 was $20 billion, down from the $23.7 billion total spent in 2019. T’s wireless capex accounts for about 45-50 percent of that total in any given year, say in the $9-10 billion range for 2020.

T’s bigger challenge is that it is cash constrained. With wireless service revenues flat and its Media and Entertainment businesses hard hit by the pandemic, cash from operations is down from prior quarters. Expect T’s wireless capex to pick up through 2H20 even as it lags its peers. At that rate, T’s wireless capex could come in below the low end of its guidance range.

Verizon (NYSE: VZ) is not slowing its 5G buildout either. The company reiterated its previously-revised 2020 capex guidance at $17.5-18.5 billion; about $10 billion of that slated for wireless. Despite a 1Q20 slowdown, VZ is focusing its 5G build efforts on small cells in dense urban centers leveraging its substantial 28/38 GHz millimeter wave (mmW) spectrum holdings.

VZ is using 28 GHz in its 5G Home fixed wireless access (FWA) offer and 28/38 GHz for its Ultra Wideband (UWB) mobility service in 34 cities to date. The company says it is on track to meet its 2020 buildout plan. VZ is using dynamic spectrum sharing (DSS) technology for delivering 5G New Radio (NR) mobility services over wide areas on existing 4G LTE 700 MHz low-band frequencies.

T-Mobile (Nasdaq: TMUS) wasted no time bouncing back from its slow roll in 2H19 while it waited for the Sprint merger approval. Since the April 1 close, TMUS picked up the pace on network integration and 5G deployments.

Given COVID-19 impacts, TMUS limited its capex guidance just to 2Q20 activity; it expects to invest $2.2-2.4 billion, excluding capitalized interest, in the quarter. If its network investments continue accelerating, TMUS’s full-year capex could reach close to $10 billion.

TMUS’ “layer cake” spectrum holdings in 600 MHz low-band, 2.5 GHz mid-band acquired from Sprint and 24/38 GHz high-band, give the company considerable leverage in how and where it expands 4G LTE coverage and deploys 5G nationwide.

By John Celentano, Inside Towers Business Editor

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