‘We expect that 2024 may be the ‘trough’ in carrier capex,’ according to Wells Fargo analysts. That’s likely welcome news to cell tower and equipment vendors suffering through this year’s spending slowdown.
After years of frenetic spending, 5G network operators started cinching up their purse strings earlier this year. Now, some financial analysts are debating when they’ll start spending again.
“We expect that 2024 may be the ‘trough’ in carrier capex [capital expenses] at ~$27 billion across the industry, with Verizon, AT&T, and Dish Network all contributing to a dip in industry capex from the early 5G peaks,” wrote the financial analysts at Wells Fargo in a recent note to investors.
They continued: “While our 5G capex forecast through 2025 implies an average of $32 billion/year in wireless network investment over the first 6 years (vs. $29 billion/year throughout the decade-long 4G deployment cycle), the ~10% capex step-up is far below the ~30-35% increase in wireless capex we saw across the industry as we transitioned from 3G to 4G.
“Of course, this is partly the natural maturation of the industry as carriers consolidate and subscriber growth starts to slow. But it’s also a sign that other macroeconomic factors, including a historically fast increase in interest rates and the highest inflation since the inception of the tower industry, are likely impeding or slowing investment beyond what might be normal in a typical cycle.”
The analysts argued that US wireless network operators spent heavily in recent years on the cell tower and radio upgrades necessary for their move from 4G to 5G. However, they have started to slow that spending amid a shortfall in revenue growth.
“Despite significant hype for new 5G use cases, the returns on the recent 5G capex cycle have remained disappointing, to say the least,” they wrote, noting that AT&T, Verizon, T-Mobile and Dish Network collectively invested over $230 billion in wireless capex and spectrum licenses from 2020 to 2023. “Yet [the operators] have only grown wireless EBITDA [earnings before interest, taxes, depreciation and amortization] by ~$10 billion, the majority of which has come through cost-cutting synergies from the Sprint/T-Mobile merger.”
The Wells Fargo analysts argued that spending may increase starting in 2024. “There is still a continual need for the carriers to invest in higher-capacity networks based on mobile data consumption and a proliferation of additional 5G devices,” they wrote, citing continued growth in wireless network usage.
Other analysts share that outlook.
“Our checks indicate there is a sense that spending will pick back up in ~spring 2024,” wrote the financial analysts at TD Cowen in a recent note to investors. However, they argued that 2024 spending activity “will still be modestly below 2023.”
