Despite Slowdown, Tower CEOs See Long Road Ahead for 5G Deployments
The three major U.S. tower companies reported Q2 results, with Crown Castle the last to go, on Tuesday. All three companies' CEOs said that despite some slowing in 5G deployments, major U.S. carriers still have a ways to go to build out their networks. In addition, they expressed optimism despite a downturn in deployments in recent quarters (see 2402290050).
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“There's still a lot of room for the carriers to continue to expand their 5G presence,” new American Tower CEO Steve Vondrian told investors Tuesday. About half of the sites for the carrier have been upgraded to mid-band 5G, he said. American Tower is the largest of the three by market capitalization.
Vondrian didn’t provide specifics but said one major U.S. carrier has mid-band 5G at more than 80% of its sites, another is at slightly more than 60% and the third is “a little bit further behind.” There's “a lot of runway there for them to continue to roll out mid-band 5G across the portfolio, and we expect them to continue to do that.”
5G is “working for the carriers,” Vondrian said. “It's letting them produce more gigabytes at lower cost.” He said the growing focus on fixed wireless and improving ARPU, as well as other trends, provide a “compelling business proposition” for 5G.
American Tower's reported Q2 earnings and revenue bested consensus estimates. Earnings hit $900.3 million, almost double from $475.7 million a year earlier as the company adjusted its asset portfolio. Revenue was up 4.6% to $2.9 billion.
SBA CEO Brendan Cavanagh, who held an investor call after the close of the financial markets Monday, said about half its U.S. towers were upgraded with mid-band 5G, “leaving a significant growth opportunity ahead of us.” The percentage of upgrades is lower in the company's international markets, Cavanagh said.
SBA expects growth as a result of its customers' regulatory commitments. “Some of these commitments not only require coverage of POPs, but also minimum downlink speeds,” Cavanagh said: “This means that denser buildouts and expansion into areas not previously prioritized, particularly rural areas, will become more important as deadlines approach.”
Cavanagh also expects demand growth from incorporation into handsets of new generative AI capabilities. SBA reported Q2 earnings of $159.9 million, down from $202 million a year earlier. Revenue was $660.5 million, down from $678.5 million. Earnings were slightly better than consensus estimates.
Crown Castle was the first to report, earlier this month. CEO Steven Moskowitz predicted organic revenue growth of 4.5% for the year, and continuing growth over the next few years.
Crown Castle's master lease agreements (MLAs) with its largest customers “provide us a stable and consistent level of growth over time,” Moskowitz said. Industry forecasts “estimate that long-term U.S. wireless data demand growth will continue to drive the need for significant future communications infrastructure investments,” he said: Major carriers “still have lots of work to do to expand their networks in the 5G build cycle.”
Crown Castle reported net income in Q2 of $251 million, a drop from $455 million a year ago. That figure was slowed by restructuring charges of $45 million during the quarter. Site rental revenue came in at $1.58 billion, down from $1.728 billion. Both were in line with consensus estimates.
Tower companies have underperformed in the market and “higher interest rates and an early peak to the 5G leasing cycle are primarily responsible (not to mention towers having long-term infrastructure economics rather than the AI-driven economics of the firms that have led the stock market),” MoffettNathanson’s Nick Del Deo said Tuesday in a note to investors.
American Tower had the highest percentage of customers among the three covered by holistic MLAs “coming into the 5G slowdown,” Del Deo noted: The T-Mobile MLA “meant that Sprint churn hit American Tower earlier than at others, but it hit at a time when overall leasing was healthy, mitigating investor concerns, and American Tower is now praised for having most of its Sprint churn behind it.”