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.