November 17, 2017 —
Capital expenditures (capex) vary widely from carrier to carrier making it difficult for equipment suppliers and professional service providers to count on consistent business.
Verizon Wireless, the big spender, now claims that it has the premier wireless network in the United States, both in population covered and 4G LTE penetration.
AT&T Mobility’s 2016e capex is 30 percent of the total; that is down from 35 percent in 2013. Though much of the scale-back is related to network completion, AT&T is conserving capital to support its acquisitions of DirecTV and Time Warner, as the company remakes itself into an integrated communications powerhouse, serving around 130 million subscribers.
T-Mobile US (TMUS) maintained a steady capex program for the past several years, in the $4.5-$5.0 billion range. Like Sprint, TMUS claims that its network coverage and performance is within 1 percent of Verizon’s, utilizing multiple frequency bands.
Regional cellular carriers, led by US Cellular, collectively account for 3-4 percent of aggregate capex every year. The Regionals’ sustained network modernization supports latest device usage and maintains roaming integrity with the Tier 1 carriers.
Quarterly spending in 2014 was an anomaly. The carriers, led by AT&T Mobility, spent more than half the total budget through the first six months. Then AT&T slammed on the brakes, and capex nosedived through yearend. For the year, capex averaged $7.9 billion per quarter.
QtQ capex in 2015 resumed the historic pattern, that is, a slow 1Q start, a ramp-up in 2Q, a moderate slowdown in 3Q, then an uptick in 4Q. Overall spending for that year was down 2 percent YtY, averaging $7.7 billion per quarter.
2016e quarterly capex levels started low in 1Q, grew somewhat in 2Q and stayed level through 3Q. Given the current guidance, expect a modest uptick in 4Q, but not enough to bring spending back to 2015 levels. Capex for 2016e is averaging just under $7 billion a quarter.
What to expect for 2017e and beyond?
A number of factors are impinging future wireless capex – next-gen technology adoption rates, uncertain regulatory environment and shifts in customer demand. In sum, the network investment outlook for 2017e and beyond is very fuzzy.
A ‘best case’ scenario might be that aggregate capex is flat with 2016e. A ‘worst case’ scenario could see another YtY decline, in high single- or low double-digit rates.
Much of the spending slide is tied to 4G LTE build-out completions. From a peak in 2013, aggregate wireless capex declined at a 4 percent compounded annual growth rate (CAGR) through 2016e.
But that is not the whole story. Advances in semiconductors, availability of new spectrum, and next generation wireless data technology, all are creating structural changes in wireless infrastructure builds. The trend is towards smaller, less costly, cells and access points resulting in lower overall capex even as the number of small cells grows significantly. Greater software-defined operations and decentralized cloud computing is also driving down capital expenses.
Going forward, lower capex levels likely are the norm, not the exception.
John Celentano is a tech marketing consultant and a wireless infrastructure expert. He can be reached at [email protected].