Carrier spending is down, there’s uncertainty over future spectrum availability, public towerco valuations have dropped to the high teens, tower M&A activity has dipped, and the cost of capital has gone up, but there is nothing to worry about is the overriding message from the US tower industry at the Wireless Infrastructure Industry’s ConnectX this past week.
A cyclical drop in carrier spending and focus on monetisation of investments
As the most mature tower market globally it is reassuring to hear such calm about what could appear, on face value, to be a challenging year. What is the one factor that gives US towercos such optimism? It is the ever-growing demand for data which shows no sign of levelling off – current estimates suggest network data consumption is going up by 25-30% year. With AI just taking off, we could see a further escalation in the rate of growth as adoption and use cases mature. And growing demand for data equals more revenue for towercos. Be it new towers, new technology overlays or densification.
Yes, it’s true that carrier spending in the past year has been significantly lower than in 2022 and early 2023 but this is just part of the natural cycle when rolling out any new generation of technology, explained towerco CEOs. 2022 saw a frenzy of activity as new spectrum became available to carriers but now, we’re at the “end of the beginning” of 5G rollout as towercos describe it. There are always these “ebbs and flows” in carrier spending when a new generation of technology is being deployed, and whilst we’re currently in an ebb phase, 5G rollout is still only about half-way done in the country. There is still a long build-out cycle ahead of the US industry, but with carriers having collectively spent US$100bn on spectrum and then another US$150bn on infrastructure, they need to look at monetisation of their investments.
In the case of 4G, monetisation was centred around driving consumer data consumption. Initial rollout took place, and then the iPhone came out, spurring further investment as video consumption on phones skyrocketed. With 5G to date, the biggest monetisation success story for carriers has been the growth in fixed wireless access (FWA). FWA subscriptions have skyrocketed, and the amount of data that subscribers consume running multiple TVs, computers and phones in the house far surpasses what they consume on their mobile plans.
Yet the ultra-low latency use cases and advanced capabilities for 5G that have been touted from the beginning – private networks, network slicing et cetera, are only just starting to come in. As they do, we will see further spikes in investment as new monetisation opportunities are unlocked. One example cited was the creation of a private network for F&B points of sale during a Formula 1 race. Traditionally serving times had been slowed by the vast number of consumers accessing the same mobile network which the PoS systems relied upon; T-Mobile’s solution alleviated this challenge. There are huge opportunities in the enterprise space, the trick will be bundling together multiple connectivity products into a complete service offering which addresses an enterprise’s challenge. “Connectivity” itself is not the issue they are looking to solve.
Network rollout for 5G will happen over multiple cycles and take many forms. We have just reached the end of the first cycle.
Spectrum challenges and spending priorities in lieu of new auctions
Yes, there is uncertainty around spectrum availability. The FCC no longer has authority to auction spectrum and this needs to be renewed before another auction can take place, but there is no doubt amongst the wider industry that this will happen. Spectrum is limited and bands need to be freed up before more can be made available to auction. Incentives need to be designed to get existing users off key spectrum bands and studies are underway to explore the opening up of spectrum used by the US military for example. This will take time, the studies are likely to only be concluded in 2026, following which a whole auction process needs to be designed and run. Plus, US carriers have well documented concerns about the US becoming a “spectrum island”. With spectrum policy having bifurcated from that of other countries it is slowing down deployments and increasing costs, with the US carriers unable to benefit from international economies of scale in network technologies. Spectrum harmonisation will be key moving forward.
Whilst the deployment of new spectrum is always a popular strategy amongst carriers to meet growing data demand (as existing sites can be used), and spectrum is seen as the “fuel” of the industry, it is just one tool in a toolbox of strategies available. Carriers do still have spectrum to deploy, but in the absence of further spectrum, focus will shift to deploying new more spectrally efficient radios and adding more sites – both of which are revenue generating opportunities for towercos.
For now focus has been on macro coverage and whilst it is accepted that small cells will be a key part of network infrastructure going forward, they will be used for hotspots rather than broad coverage and will never replace the macro layer. A typical macro cell can cover 1.5 miles, whereas a typical small cell covers 100-300 yards. Whilst the cost of a small cell is about a third of that of a macro cell, you need 30-40 of them to provide the same coverage. The economics just don’t make sense. In terms of current small cell activity in the US, stakeholders report demand for small cell modifications (modification for different spectrum or power and upgrading with new radios) rather than new large-scale small cell deployments.
With half of US landmass being rural, there is also significant work that needs to be done to not only address the divide on connectivity, but also on compute and AI. When it comes to covering the vast expanses of rural US, there is no shortage of tech solutions – the issues are firstly, economics and secondly, permitting and legislation. BEAD funding put in place by government is being congratulated and there is a lot happening, particularly in respect to fibre – although access to manpower to meet the fibre rollout demands is challenging. Lobbyists are pushing hard for FWA to get access to BEAD funding, although meeting rural coverage with wireless solutions holds both advantages and disadvantages. On the plus side, wireless is much quicker and cheaper to deploy than fibre, on the minus side, FWA has the potential to quickly exhaust spectrum that could arguably be better used elsewhere. Even with a FWA solution however, fibre connectivity is essential to connect towers.
Synergies with the satellite industry
Satellite technology can provide part of the solution when it comes to rural connectivity, although there is a lot more scepticism about a wider role that the much hyped direct to device solutions can play. As more satellites are deployed in LEO constellations, latency will improve from 150ms, to 100ms and perhaps eventually 35-40ms. The hope is that we will move from today’s text and limited voice solutions to video, but it will never compete from a latency perspective with traditional terrestrial cellular solutions. Plus, the new ruling by the FCC in March of this year that satellite operators may only use terrestrial frequencies on a “secondary” basis (i.e. if signal from a primary user is available it has priority) means that satellite coverage will not displace that offered by carriers, rather will serve to fill in the gaps where no coverage exists. Additionally, the only companies that have authority to send mobile signals to consumer phones are licensed carriers and so a carrier will always need to be involved in the provision of mobile connectivity from non-terrestrial networks.
For towercos, satellite holds interesting opportunities. It can provide backhaul to sites for which it would have been economically unviable to connect and can enable sites to come on-line quicker. American Tower’s investment in AST SpaceMobile is also motivated by the idea that satellite can serve as a scouting tool, creating synergies between the two industries. Uptake of D2D services from an AST SpaceMobile like company flags where there is demand for connectivity. As demand grows and the need for higher bandwidth, lower latency solutions outstrips what satellite connectivity can provide, towercos and carriers can step in and build a tower.
New technologies altering the ways towercos work
Other new tools are streamlining the ways in which companies work. There is now a lot more RF data out there from crowd source platforms which enables more targeted planning of networks. Plus, whilst in general the adoption of AI in house is in the early stages, companies speak of using ChatGPT like generative AI tools for documentation and predictive AI alongside digital twins. Towercos are looking for off the shelf solutions to deploy into project management and financial processes. Several cost benefit analyses are underway although most towerco execs are yet to come across a solution which blows them away.
Open RAN opportunities and localisation of supply chains
The radio access network (RAN) is where carriers spend most of their money, yet it has historically been the most closed ecosystem. The MTIA has made funds available to advanced Open RAN development and test standards; a move which will be a game changer for the US. Open RAN opens the ecosystem up to new players, which not only drives up competition and thus drives down cost, but also catalyses innovation.
There is a reason that there have been so few vendors in the RAN space – developing and building both radios and well-scaled silicon is hard. A vendor has historically needed to be good at both; the disaggregation of hardware and software under Open RAN means you only need to be good at one. This opens the software layer up to an entire ecosystem of smart, nimble developers allowing innovation to accelerate. Carriers can then benefit from this innovation.
The development of a more diverse ecosystem also holds potential to localise more manufacturing in the US, something that is of significant importance from a national security perspective. Currently carriers in the US are buying RAN equipment from three main manufacturers – Nokia, Ericsson and Samsung. To push the “made in America” agenda the hope is for a whole ecosystem of players to emerge to displace these high-quality actors, but how soon could the carriers become comfortable with such new suppliers? As voiced in a keynote by US Cellular’s CEO Laurent Therival, this might take a while. There is still a requirement for the ecosystem to mature, and observers feel we are still a good few months away from a minimum viable product and inflection point in adoption. Furthermore, creating an Open RAN based brownfield deployment is significantly more challenging that Dish’s greenfield one. Yet there is huge potential and Dish feels it has benefited from a profound shift in the way that networks are designed.
Labour market and the supply chain
Looking in the more immediate term, there are constraints in the US labour market creating challenges in network deployment. The cyclical nature of activity makes it inherently challenging to maintain the right headcount, layoffs can ensue during quiet periods and then there is a shortage of skilled workers during busy times. Plus, the evolution of wireless technologies is requiring different and more sophisticated skill sets and upskilling is required across the sector.
Yet whilst this was raised as an area of concern for the industry, most felt the environment less challenging that during the COVID era, where network deployment challenges stemming from labour issues were compounded by supply chain constraints on equipment.
Towercos speak of having diverse and robust partner networks across the country and note that following recent carrier layoffs, there are skilled people in the marketplace looking for jobs. Plus, important work is being done by the industry to develop skill sets and build directories of skilled workers.
TowerXchange would like to thank our friends at the Wireless Infrastructure Association for the invitation to the event and the opportunity to take learnings back to all our international markets.
Join us for TowerXchange’s next events on the calendar:
TowerXchange Meetup Americas, 11-12 July 2024, Florida
TowerXchange Meetup Africa, 10-11 September 2024, Nairobi
TowerXchange Meetup Asia, 26-27 November 2024, Kuala Lumpur
TowerXchange Meetup MENA, February 2025, Dubai
TowerXchange Meetup Europe, April 2025, London
