Tower Companies See Slowing 5G Deployments in Recent Months

The CEOs of the major U.S. tower companies in recent calls with analysts all acknowledged a general slowdown in Q2 on carrier deployment of 5G. SBA on Monday became the last of the big three to report earnings.

SBA “always anticipated domestic leasing growth to moderate” during 2023, CEO Jeff Stoops said on a call with analysts. “We believe that these variations in activity are part of the normal cycle of carrier network investment that we have seen over time, a large initial burst of coverage activity as the next generation of technology starts to be deployed, followed by many years of coverage completion and capacity building,” Stoops said.

SBA announced a new long-term master lease agreement (MLA) with AT&T Monday, with its earnings release. Some of the slowdown was likely tied to “slower activity from AT&T in anticipation of our new MLA,” Stoops said. SBA is “confident that there will be additional material network investment over the next several years,” he said.

Stoops said more investment by carriers is coming. “Wireless demand continues to grow at a fast clip, consuming more and more of current network capacity,” he said: SBA also has many sites not yet upgraded with the mid-band spectrum acquired by major providers over the past couple of years, “some of which … is not even available for deployment yet,” he said. Some providers are also waiting for the availability of dual-band radios, he said. Despite the slowing, total Q2 revenue was $678.5 million, up 4.1% over the year-earlier quarter.

U.S. wireless carriers spent more than $100 billion to buy spectrum from 2020 to 2022 and moved quickly to deploy, Crown Castle CEO Jay Brown said during an earnings call. Brown warned Q2 activity was down about 50%. The “initial surge in tower activity has ended” and in Q2 “we saw tower activity levels slow significantly,” he said. “I don’t know if [or] when we’ll see a pick-up in activity, but our view of the business is that we will see consistent growth over a long period of time,” he said.

Crown Castle subsequently announced in an SEC filing it initiated a restructuring plan to cut costs -- reducing employee headcount by about 15% and discontinuing installation services as a product offering.

Crown Castle had an “acceleration ” in small-cell deployments in the latter part of the 4G era and “the vast majority of the 60,000 nodes we have on air today are 4G nodes that were deployed because towers alone could not support the continued rise in mobile traffic,” Brown said. Carriers are starting to look to further densify their 5G networks by adding small cells, he said.

“The pullback that we're seeing in spending today is absolutely reflective of the cadence of network investment cycles that we've seen historically,” American Tower CEO Tom Bartlett said on the company’s Q2 call. The 5G cycle “is no different, at least from my perspective, than what we saw with prior cycles,” he said.

Eventually, carriers will move into the “a capacity stage where we'll start to see more densification going on,” Bartlett predicted. The cycles for each major provider are “so different,” he said. American Tower also had improved results year over year, with total revenue increasing 3.6% to $2.78 billion. But the company dialed down expectations for service revenue this year by about $40 million.

MoffettNathanson’s Nick Del Deo stressed the importance of MLAs like the one announced by SBA, in a note to investors. Crown Castle “spooked tower investors by disclosing that it experienced a significant slowdown in activity on its towers in Q2” and American Tower “also shared that activity levels slowed during Q2,” he said: “We’ve noted that, all else equal, SBA would be more exposed to a reduction in carrier activity than its larger peers, since it does not have holistic” MLAs “in place the way its larger peers do. … The market has increasingly come to understand this dynamic, which we believe explains the recent underperformance in SBA’s shares vs. its peers.”