November 20, 2014 — AT&T’s announced Y/Y reduction in capex during 2015 is consistent with our macro tower leasing outlook which already projects a decline next year. From a network perspective, the AT&T reduction appears inconsistent with RootMetrics data suggesting a recent degradation in quality. Amongst towercos, American Tower and SBA Communications expectations contemplate a modest U.S. leasing slowdown in 2015, but Crown Castle International’s 2015 guidance strikes us as potentially aggressive. American Tower could benefit incrementally from AT&T’s acquisition of Iusacell (2 percent exposure).
• AT&T’s recently announced Y/Y reduction in capex during 2015 (to $18B, from ~$21B in 2014) synchs with our earlier research suggesting a slowdown in site leasing activity during the next several quarters. We project a Y/Y slowdown in wireless capex from $11.5B in 2014 to $10B in 2015.
• Although AT&T mentioned the near-completion of certain network milestones, we believe the reduction may be driven the desire for financial flexibility around the U.S. AWS-3 spectrum auctions and Iusacell acquisition.
• Our compilation of RootMetrics network quality scores across top-25 metros suggests that AT&T has seen some degradation of performance relative to its peers. Thus, from a network-quality perspective, we find AT&T’s capex reduction surprising (which leads us to suspect financial flexibility as a factor).
• Verizon: In contrast to AT&T, we expect Verizon’s capex levels during 2015 to be approximately equal to 2014 levels at ~$17B (with ~$11B wireless), with a continued emphasis on network densification through cell-site additions and small-cell deployments.
• At Sprint and T-Mobile we believe there is greater potential variance to our wireless capex estimates, but our current 2015 projections are $5.2B and $4.64B, vs. 2014E levels of $5.26B and $4.37B. T-Mobile’s initiatives include the ongoing overlay and new site deployments at 700 MHz, with AWS-3 overlays a likely emphasis in 2H15.
• Our earlier cell site forecasts already anticipate a slowdown of new macro sites (from roughly 3,600 in 2014 to 1,500 2015. We anticipate AT&T WCS overlays will cover approximately 12% of AT&T’s cell sites during 2015, benefiting all three tower operators.
• While we believe this reduction is already reflected in expectations for American Tower and SBA Communications, we note that Crown Castle’s 2015 guidance assumes a modest increase in leasing activity on its macro sites in 2015, so the AT&T slowdown could represent a potential headwind.
• AT&T’s announced acquisition of Iusacell could benefit American Tower, which has 2 percent exposure to this carrier and stands to benefit from the deployment of Iusacell’s unused AWS band.
Jonathan Atkin is an analyst with RBC Capital Markets (415) 633-8589; firstname.lastname@example.org