The rollout of mobile 5G networks is expected to drive the next major round of wireless infrastructure spending, but tower owners expect to see a pickup in spending long before the first 5G smartphones are announced. They see network operators continuing to invest in LTE networks even as they redesign their networks for 5G.

“The trough period between 4G and 5G isn’t going to happen – it’s just going to keep picking up,” said Vertical Bridge CEO Alex Gellman. “I think that 2018 is going to be very solid, probably not peak, but then 2019 and 2020-2021 are going to be very big peak years for investment.”

Analysts who track the tower companies are hearing the same. SBAC recently met with Wall Street analysts, and the group came away with positive projections for 2018.

“We believe, based on our channel checks, the tower operating environment has been gradually improving,” wrote analyst Robert Gutman of Guggenheim Securities. Wells Fargo’s Jennifer Fritzsche added that SBAC is the first tower company to disclose applications for tower amendments related to AT&T’s FirstNet build.

FirstNet is one reason tower owners expect to see more activity this year, but it’s not the only one. Gellman sees two other drivers of increased carrier spending. One is the carriers’ need to invest in LTE equipment to support the increasing network traffic generated by unlimited data plans and the consumer shift to mobile video as a replacement for television. Another driver is the success Verizon and AT&T have reported with 5G fixed wireless as a way to deliver residential broadband and video service.

“Verizon was very specific about using their existing network, reaching homes wirelessly, passing 30 million homes and signing up 5 to 6 million of them,” Gellman said. “This is very significant because this is an event that will require investment in the wireless network.”

Verizon expects to invest $17.0 – $17.8 billion in its networks this year, roughly the same amount it spent in 2017. The carrier did not break out wireless network investment but has said recently that it’s investing in bringing more intelligence and capacity to the edge of the network, which could be a positive sign for the tower companies.

The other three nationwide operators are all expected to increase their wireless network spending this year. Announcements about timing, geographies, and equipment choices are still to come, but it is clear that the tower industry is poised to benefit from AT&T’s FirstNet build, and has dodged a bullet with the collapse of the T-Mobile/Sprint merger talks.

Gellman noted that tax reform adds another positive element to the picture, since lower tax rates and faster equipment write-offs will give the carriers more free cash flow. AT&T has already promised extra infrastructure investment because of tax reform, while Verizon has said that in 2018 it will use its tax reform windfall to strengthen its balance sheet, donate to non-profits, and give restricted stock to 155,000 employees.

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