Verizon (NYSE: VZ) is locked and loaded. The company won big in the C-band auction garnering a nationwide average of 161 MHz of the coveted upper mid-band 3.7 GHz spectrum that it needs for its full-scale 5G network build.
VZ will use C-band spectrum for high-speed, low latency 5G Ultra-Wideband mobility services and 5G Home fixed wireless access to complement its 28 and 39 GHz millimeter wave deployments already underway in those applications.
Now VZ has stepped up the pace of its 5G network rollout.
The company maintained its total 2021 capital expenditure guidance in the $17.5-18.5 billion range, consistent with its overall wireless and wireline network investments in 2020. (Note that VZ does not break out its wireless and wireline capex allocations.)
For full-year 2020, we estimate that wireless capex was nearly $11 billion. Given the guidance for overall 2021 capex, the wireless portion should come in at the same level.
The difference in 2021, is that VZ has allocated an incremental $2-3 billion just for the C-band buildout. Full-year 2021, wireless capex is expected to be more than $13 billion, a jump of over 20 percent from the 2020 level.
Wireless service revenues grew 2 percent year-over-year to $16.7 billion. Total postpaid and prepaid retail connections increased 1 percent YoY to nearly 121 million.
VZ’s total 1Q21 capex was $4.5 billion, down almost 15 percent from $5.3 billion in 1Q20. Of that total, wireless capex is estimated at $3.1 billion, down just 2 percent compared to 1Q20.
Wireless capex in the quarter went towards expanding 5G UWB service to additional cities. At the end of 1Q21, VZ reported 30 5G Home and 67 5G UWB mobility cities with live service. During the quarter, the company deployed 3,600 new 5G UWB sites bringing the number of on-air sites to 21,000 sites and is on track to reach its 30,000 goal by year-end 2021, providing coverage to 15 million homes.
In its 1Q21 earnings call, VZ pointed out that it has already ordered from its 5G suppliers, Ericsson (NASDAQ: ERIC) and Samsung Electronics, half of the total C-band network equipment needed for UWB deployments in 2021.
Moreover, the company is coordinating with satellite operators that currently occupy the C-band. Under the terms of FCC Auction 107, these satellite companies must clear the first tranche of C-band spectrum involving A-block licenses in the top 46 markets by December 5, 2021. (see, Rockin’ the C-Band).
Of the total 100 MHz in A-block licenses in those markets, VZ holds 60 MHz (A1, A2, A3). The company noted that the satellite operators are on track to clear that initial A-block spectrum between 3Q21 and 4Q21. So, VZ is anxious to get going.
By activating C-band spectrum in 2021, VZ expects to gain a substantial lead over other C-band license winners that are not be able to deploy any of the remaining license blocks that will not be cleared until December 5, 2023.
Once on the air, VZ will cover an additional 100 million mobility customers in 1Q22. Over 2022 and 2023, it expects to increase coverage to more than 175 million people. By 2024 and beyond, when the remaining C-band spectrum is cleared, VZ will have access to more than 250 million people.
The company recently signed deals with Crown Castle (NYSE: CCI) and SBA Communications (NASDAQ: SBAC) to help accelerate C-Band deployments. Though VZ already is a big tenant for both towercos, deploying C-band spectrum requires new radios and antennas to be placed on existing towers.
Both agreements establish terms for leasing C-band equipment space on existing towers. More importantly, the agreements streamline the installation process by standardizing and reducing forms and minimizing legal reviews, thus allowing VZ engineering teams to expedite their C-band deployments.
VZ’s One Fiber program forms the strategic backbone of what the company calls its intelligent edge network. Basically, it is an integrated fiber network connecting all VZ’s cell sites to a common core. To date, One Fiber comprises more than 42,000 fiber route miles. Fiber projects typically are allocated to wireline capex.
All this network activity has come at a price. To garner the C-band spectrum, VZ ran up a big tab.
The company paid $45.5 billion for the spectrum at auction, agreed to pay another $9.3 billion to satellite companies as incentives to relocate to another part of the frequency band and will incur incremental capex of $10 billion over three years to put that C-band spectrum into play.
Total debt at the end of 1Q21 ballooned 23 percent to nearly $158 billion from $129 billion at year-end 2020. Its net unsecured debt-to-consolidated adjusted EBITDA went from 2.0x to 2.9x in that three-month period.
Nonetheless, VZ is managing that debt. The company has lenders willing to offer low interest rates and VZ itself generates net cash from operating activities of nearly $10 billion a quarter, part of which goes to paying down its liabilities. Still, that much debt will overhang VZ for quite some time.
By John Celentano, Inside Towers Business Editor
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