What can wireless infrastructure vendors expect from Verizon Wireless for the rest of the year?
Verizon confirmed in its 3Q16 earnings call on October 20 that its overall capital expenditures (capex) for the year will come in at the low end of its original guidance range of $17.2 to $17.7 billion.
What does that mean for wireless equipment vendors and contractors? Consider where Verizon has invested in its capital through 3Q16.
To date, the company has spent a total of $11.4 billion or 66 percent of the projected $17.2 billion. Of that total, $7.8 billion or roughly 68 percent has been applied to its wireless network, $2.9 billion or 25 percent has gone into its wireline network with the 7 percent balance applied towards corporate and other capital investments.
If these proportions hold through year-end, as we might expect, then this means that Verizon will invest about $11.7 billion in wireless, roughly flat on a year-to-year (YtY) basis with the $11.7 billion spent in 2015.
In quarter-to-quarter (QtQ) spending, Verizon Wireless’ capex through the first nine months has been running 5 to 10 percent below the comparable levels in 2015. By the end of 3Q16, Verizon Wireless spent 66 percent of its full-year wireless capex projection compared to 72 percent over the same period in 2015.
To close the gap and meet its projected 2016 budget, we estimate that Verizon Wireless will invest about $3.92 billion in 4Q16, up 41 percent QtQ from $2.77 billion in 3Q16, and up 20 percent over the $3.26 billion spent in 4Q15.
Where is the money going?
Small cells and DAS account for the largest portion, an estimated 46 percent, of Verizon Wireless’ full-year capex. The company is using small cells and DAS to implement an ambitious network densification program that extends its 3G and 4G LTE coverage and capacity closer to customers for high-speed mobile data applications. Crown Castle, as Verizon Wireless’ main contractor for small cell deployments, is realizing the benefits of this high-level activity. Crown Castle reported gains in its own 3Q16 earnings call on October 21 and signaled a very positive outlook.
The small cell/DAS capex portion includes all products and capitalized services involved in designing and building a new site: surveys, site acquisition, permitting and licensing, site engineering, infrastructure equipment (antennas, radios cable, power, cabinet, mounts), backhaul equipment (fiber cable or microwave radio), installation, testing and commissioning.
To a lesser degree, the company is still adding to its macro network, albeit mainly for site modifications and upgrades that make up 29 percent of the wireless capex. Few new macrocell sites are being added in 2016. Even with site mods, there is still a lot of equipment (antennas, cables, radios, mounts, power, backhaul) that must be engineered, installed and tested.
The remaining 25 percent is applied to the core of the network. This involves deploying enhanced packet core (EPC) with heavy-duty switches and routers that replace legacy circuit switches, software platforms for network function virtualization (NFV) and software-defined network (SDN) operations along with updated customer billing systems.
Fourth quarter capex ramp-ups are not unusual among public wireline and wireless carriers alike. For 2016, Verizon Wireless is back-end loading its network investments and will spend an estimated 34 percent of its full-year guidance in 4Q alone.
It’s been a mediocre year for wireless infrastructure equipment vendors so the 4Q boost in capital spending is a nice year-end bonus.
John Celentano is a technology marketing consultant and a wireless infrastructure expert.
Tier 1 wireless carriers’ 2Q16 financial results showed aggregate capital expenditures (capex) growing 11 percent sequentially from 1Q16 but at lower levels, down 14 percent, compared to spending in 2Q15.
The good news is that the Tier 1s maintained their guidance for full-year capex. AT&T was the outlier suggesting its 2016e capex is trending towards the “low end of the range” without specifying a number.
The Tier 1s, collectively, are planning network investments totaling $26.9 billion in 2016e. That figure is down 11 percent from the $30.2 billion these national carriers spent in 2015. The Tier 1 carriers account for an estimated 96 percent to the total public wireless carrier capex in the United States.
Yet capital spending remains heavily concentrated. Verizon leads the pack with $11 billion or 41 percent of the Tier 1s’ total. Followed by AT&T at 31 percent of the total.
The lion’s share of the investment, more than 60 percent, is applied to radio access network (RAN) infrastructure – macrocells, small cells and DAS. All carriers still are spending on macrocell upgrades and expansions to 4G LTE coverage and capacity in multiple frequency bands. Network densification is accelerating, however, with a shift in spending toward indoor and outdoor small cells, and in-building DAS deployments.
The Tier 1s spent $12.9 billion or 48 percent of their aggregate 2016e budget through mid-year. The $6.8 billion in 2Q16 was up 11 percent sequentially from $6.1 billion in 1Q16 but down 14 percent compared to $7.9 billion in 2Q15.
Capex among Tier 1s should ramp steadily through the balance of the year, even at reduced levels from 2015. We expect 3Q16 spending to stay flat with 2Q, then uptick by 8 percent to $7.2 billion in 4Q16 as the Tier 1s round out their full-year budgets.
The lower but steady spending is little conciliation for wireless equipment vendors and professional service providers for the current year, at least. Nonetheless, accelerated infrastructure spending through year-end, mainly to meet unrelenting mobile data demand, bodes well for continued network expansion into 2017 and beyond.
John Celentano is a principal in Skyline Marketing Group, which provides technology marketing & sales strategy advisory in advanced communications services, and wireless, telecom, data networking infrastructure markets. Additionally, support is provided for internal positions in market analysis, business development, strategic planning, strategic marketing, product management, product marketing, sales operations.
For more information, go to https://www.linkedin.com/in/john-celentano-4822692
July 12, 2016 — In advance of the first 3GPP work on the 5G standard, Verizon announced this week that it has completed its 5G radio specification in collaboration with the Verizon 5G Technology Forum, which includes Cisco, Ericsson, Nokia, Qualcomm and Samsung.
“The completion of the 5G radio specification is a key milestone toward the development of a complete 5G specification,” said Adam Koeppe, Verizon vice president network technology planning, who is leading the 5G trial efforts.
While there is much work to be done in the 5G standards process, Verizon’s effort will assist the international standards body 3GPP. Release-15 of the 3GPP’s 5G specifications will begin in September 2016 and end mid-2018. In March 2017, the RAN Working Group’s work will begin on specification for the 5G radio.
“The level of collaboration that we are seeing exceeds what we saw during 4G. This agile way of developing the specification and working with the ecosystem will enable us to get to market rapidly,” Koeppe added.
The specification provides guidelines to test and validate crucial 5G technical components, which allow chipset vendors, network vendors and carriers to develop interoperable solutions and contribute to pre-standard testing.
Carrier Looks to Accelerate 5G Innovation in Pre-commercial trials
Verizon has entered pre-commercial 5G testing in New Jersey, Massachusetts and Texas. Its goal is to accelerate the pace of innovation in wireless as well as in how the industry can deliver benefits of fiber functionality wirelessly to customers, according to a prepared release.
During the testing process, numerous 5G technology enablers have been validated, including bandwidth of several hundred megahertz in size, multiple antenna array processing and carrier aggregation.
Propagation and penetration testing across residential single and multi-dwelling units built in field locations has validated the feasibility of millimeter wave systems. Tests include throughput analysis with customer premises equipment at various locations inside the home to facilitate the study of line-of-sight and non-line-of-sight performance, and propagation modeling using barriers such as structures and foliage, all based on real-world fixed wireless applications.
3GPP Cements 5G Timeline
3GPP Technical Specifications Group RAN further agreed that the target NR scope for Release 15 includes support of the following:
During the discussion at TSG#72 the importance of forward compatibility – in both radio and protocol design – was stressed, as this will be key for phasing-in the necessary features, enabling all identified usecases, in subsequent releases of the 5G specification, according to the organization.
By J. Sharpe Smith, Senior Editor, AGL eDigest
February 25, 2016 — A sure sign that Wi-Fi calling is gaining traction is when Apple includes it in their Operating System (OS). The latest beta version of Apple’s iOS 9.3 includes support for Voice-over-Wi-Fi for Verizon Wireless subscribers — the final piece of the carrier puzzle.
On the hardware side, Apple’s iPhone 6, iPhone 6 Plus, iPhone 6S and iPhone 6S Plus all include support for the new VoWi-Fi service. If the user enables the function, the handset will automatically connect to a proximal Wi-Fi network when the cellular signal is either weak or not available. Verizon was the last of the big four U.S. carriers to offer VoWi-Fi to customers.
The new iOS 9.3 is in public beta. That means that Apple customers have the option to use the OS by signing up for access to public betas.
October 29, 2015 — The financial news from Verizon Wireless is upbeat.
Verizon corporate third quarter financials, reported on October 20, showed positive gains for Verizon Wireless: nearly 1.3 million new subscribers, postpaid churn below 1 percent, and $7.7 billion in operating income. Moreover, Verizon corporate maintained guidance for overall 2015 capital expenditures (capex) at $17.5-18.0 billion. We estimate that total 2015 capex budget breaks down roughly: $11.8 billion for wireless, $4.8 for wireline, and $1 billion for corporate.
For the third quarter, Verizon Wireless reported capex of $2.9 billion, down 7 percent from $3.1 billion in 2Q15 but up 18 percent year over year from $2.5 billion in 3Q14. Note that the third quarter dip was not unexpected and is in line with historical network spending patterns.
Third quarter capex accounted for 25 percent of the projected wireless network investment, estimated at $11.8 billion, for the year. Year-to-date, Verizon Wireless has invested 72 percent of its full-year 2015 budget. Capex/service revenues came in at 18 percent for the quarter indicating that the carrier is in an expansion mode.
One point of clarification: Some Wall St. analysts have suggested that Verizon is shifting its capex away from its wireline network in favor of its wireless network. Verizon’s own numbers do not support that view. The chart shows that Verizon’s investments in its wireline network have been the minor portion of its overall capex budget for the past several years.
Get Ready – a Big Uptick is Coming!
Based on full-year guidance, we think 4Q15 wireless capex will come in around $3.3 billion. That’s a 14% jump quarter to quarter, and up 23 percent over the $2.7 billion spent in the fourth quarter 2014. This means that 4Q15 capex will account for 28 percent of the full-year budget.
Verizon Wireless’ infrastructure equipment vendors and contractors should feel good about this outlook. Its capex is ramping through year-end 2015, and spending momentum likely will carry into 2016.
Where is the Wireless Capex Being Spent?
We estimate that that Verizon Wireless’ capex budget splits roughly 70/30 between radio access network (RAN) and the core switching infrastructure.
RAN includes deployments and upgrades of macrocells, small cells, and distributed antenna systems (DAS) used for in-building wireless. Radio gear still accounts for the majority of RAN capex. The balance goes into the RF subsystem including antennas and cables along with towers, shelters and power. RAN capex includes capitalized labor for site acquisition, engineering and installation (E&I). Where carriers own their backhaul systems, that investment is accounted for in RAN capex as well.
Core capex includes routers and switches, network management and operations support systems, and billing systems along with capitalized E&I. Core capex also includes investments in software-defined network (SDN) and network function virtualization (NFV) capabilities.
For now, Verizon Wireless’ focus is on increasing its network densification. This means putting radios closer to customers with high-speed connections that handle growing volumes of mobile data and video. Densification is facilitated with small cells along urban or suburban streets, and DAS inside buildings.
Stay tuned for more in-depth carrier capex analysis. Contact me with any questions.
John Celentano is a principal at Skyline Marketing Group and is on the marketing team of AGL Media Group. [email protected]