Outlook for Infrastructure Players Bullish, Say Analysts, Tower Company Executives

Wells Fargo's Jennifer Fritzsche called the "tone" of her meetings there "'cautiously optimistic,’ though with the exception of new deployments by T-Mobile not much has changed from the previous year," she emailed investors. It was "markedly more positive than a year ago given the ‘backlog’ expected to come,” she said. “This backlog centers around -- 600 MHz, FirstNet, inventory of undeployed spectrum and the general need to spend given the impact of the Unlimited plans on the networks. There was much enthusiasm around each of these factors.”

Deployment of spectrum from the incentive auction “will likely be an ’18+ event, with a few deployments in ’17,” said Macquarie Capital's Amy Yong. “The shift of broadcast licenses should also be net positive as churn will likely be minimal and there will be opportunity to pick up new tenants. Though it is too early to quantify FirstNet, it provides 20 MHz of spectrum that will be deployed. Revenue will likely come in as amendments; if states opt out, it could come in as new tenant revenue.” Yong saw as positives a potential combination of Sprint and T-Mobile and network densification. “The wireless market is attracting more players, accelerated by 5G, IoT, and the prospect of net neutrality being repealed,” she said.

New Street Research’s Jonathan Chaplin said it's a good time to be in the infrastructure business. Chaplin said in a note he's bearish on AT&T and Verizon, but positive on challengers T-Mobile and Sprint, and on Dish Network and tower companies.

Leaders of the major tower companies speaking at WIA agreed about boom times. The incentive auction was a huge success and important to the tower industry, said Steven Marshall, president of the U.S. tower division at American Tower. “It obviously makes available additional low-band spectrum, which will be deployed over sort of the next three-plus years and will be good for all of our industry.” American Tower also serves broadcasters, and some are exiting the market, he said. “We still see upside on the broadcast side from auxiliary antennas” and other facilities, he said.

The auction was “a great indication of how much future demand there’s going to be from the data standpoint and what’s coming,” said Crown Castle CEO Jay Brown. “As much spectrum that’s been put out there over the years, to have another band for spectrum and more opportunity for us as infrastructure providers, speaks … to the long-term growth trajectory of the business.” There will be a “long trajectory of growth and runway of growth” for infrastructure companies, Brown said. The demand curve suggests the 600 MHz spectrum is needed and “when it does get built, I think it’s going to be good for our industry,” he said.

SBA Communications CEO Jeffrey Stoops said T-Mobile, the largest bidder in the incentive auction, was working toward deployment long before the auction was over. “It would not surprise me at all if they really got a good jump on things and got a lot done well ahead of the 39-month targeted time frame,” he said of the time for broadcasters to vacate spectrum they're relinquishing.

Executives said FirstNet and AT&T's buildout of the network offer lots of promise for the infrastructure industry. FirstNet CEO Mike Poth also spoke (see 1705230006). With AT&T, there’s a “clear path” to construction of a network for first responders, American Tower's Marshall said. “It’s just going to be great for the U.S., great for the industry,” he said. “Our portfolio of towers … will be extremely important for AT&T to achieve its goals. It’s just great to see after such a long time.”

Brown said it seems industry has been talking about the public safety network for 15 years. It's excited "about the opportunity it’s going to mean for us,” he said. “Across the entire spectrum of companies, I think you’re going to see a lot of demand. It’s in essence a new network build and it has been a long time in the industry since we’ve had a full new network build that’s happened nationwide.” AT&T made clear it will use the buildout to also deploy AWS and other spectrum, Stoops said. “This has been a very smart move on their part,” he said. “This is going to be a good thing for our industry for many, many years.”

Executives saw lots of promise from deployment of 5G by carriers. “There’s a lot of talk about 5G and the applications for 5G,” Marshall said. “The reality is the standards are still evolving.” Major deployments are unlikely before 2020, he said. “That doesn’t mean to say that there isn’t a lot of work to be done now by all of us.” Brown said 5G offers carriers the best opportunity to increase average revenue per user in a way that hasn’t been possible for many years. “Whether you want to think about wearables or autonomous cars, smart cities or any number of applications, I believe there are real opportunities for our carrier customers,” he said. “Ultimately, that is the driver for our industry.”