Connect (X) 2023
Speakers at last week’s Connectivity Expo 2023, presented by the Wireless Infrastructure Association in New Orleans, used many different descriptions of the current situation in terms of wireless infrastructure capital expenditure. The panel “5G: Past Predictions, Current Realities, and Future Expectations,” chose the word “pause” at least 15 times. Higher interest rates are exacerbating the impact of the carrier capex drop, according to the panel.
Site Link Wireless & Site Link Construction has benefited from the C-band auction, building out the overlays, enjoying “some of the biggest MNO capex we’ve ever seen,” David Yacoub, President & CEO at Site Link Wireless & Site Link Construction, said.
However, the current pause puts services companies in a bind when it comes to planning, Yacoub said. “The option to unload overhead may not make sense because it costs a lot of money to build up a company and then if you lay off personnel it’s going to cost even more to bring them back and retrain them. You have to make a little bit of a guesstimate as to how long the pause is going to last,” he said.
Additionally, the cost of money, which has gone up dramatically, by 500 basis points, or five percentage points, which may have more of an impact, he noted. “That’s debilitating, initially, for anybody trying to borrow money or anybody trying to build. For anybody trying to expand, that is a massive hit,” Yacoub said. “I think that as long as the cost of money stays at an elevated level, it’s going to be challenging, and it’s going to take a while for that to level out.”
Because of the interest rate hikes, carriers are using more of their cash flow to pay for interest expense, which takes away from money that would go to capex and dividends, according to Alex Gellman, Executive Chairman and Co-Founder at Vertical Bridge. “It is a fundamental question,” he said. “With less free cash flow, they have to make choices.”
As to when rates will come down, Gellman said the general sense in the financial community is they will be down to 3 percent or 3.5 percent in a couple of years, which could further cool the market. “So, if you’re in an environment where rates are five percent, and people think there’ll be three in a year or year and a half, wouldn’t you pause? Why fly into the teeth of the wind?” he said.
DISH Wireless is a notable exception to this theory, raising money at 13 percent recently, because it is facing several FCC buildout deadlines in order to keep its spectrum, Gellman noted. “That’s not sustainable. You want to wait until the rates come down,” he said.
The carriers are sitting on 5G spectrum assets for which they paid dearly. Verizon paid “$60 billion for C-band, while AT&T paid $20 billion for C-band and multiple billions for 3.45 GHz,” according to Jennifer Fritzsche, Co-Head of North American Telecom and Digital Infrastructure at Greenhill & Co.
“There is a high carrying cost to that spectrum, which is good news for the wireless infrastructure industry. They can’t just sit there and be idle. They have to spend on it,” she said. “Pixie dust won’t make 5G happen.” The C-band buildout has a long runway, she added.
Yacoub agreed that 5G has a long runway in terms of infrastructure buildout. He noted that tower companies are reporting that 5G equipment resides only on about half of their assets.
“By some estimates, there’s still another $100 to $150 billion to be spent on 5G, based on the patterns of the 4G and 3G build outs,” Yacoub said. “There is still a lot of spectrum to be deployed.”
Gellman said that the introduction of true 5G applications, which will not work on the current infrastructure, will be the ultimate driver of 5G equipment build outs. “A lot of the things we think about as 5G, such as machine communications, aren’t enabled in the current software. So there’s a lot of room to grow,” he said.
No matter what you call it, a “cool down,” a “dip” or a “pause,” the current business environment has become more complicated for wireless infrastructure companies and more difficult for some, according to this panel.
By J. Sharpe Smith, Inside Towers Technology Editor
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