T - AT&T Verizon may need to keep spending to catch up to T-Mobile - KeyBanc

2023-05-02 13:43:19 ET

Longtime wireless leaders AT&T ( NYSE: T ) and Verizon ( NYSE: VZ ) have indicated they'll see lower capital expenditures in 2024, with spending on 5G becoming less incremental -- but a new look at 5G statistics has KeyBanc wondering if such cuts will allow them to cut into the lead forged by T-Mobile ( NASDAQ: TMUS ).

KeyBanc tracks a number of wireless network statistics, including number of cellular sites, small cells, coverage ratios and airwaves holdings at the carriers -- and T-Mobile has a "meaningful lead" in coverage of the population of 5G high capacity, and midband spectrum holdings, analyst Brandon Nispel says.

"These stats alone show that TMUS is leading the 5G race as greater coverage enables greater availability and consistency, and greater spectrum holdings dictate performance," Nispel said.

T-Mobile ( TMUS ) leads in "virtually every metric," he said, including 5G download speeds, 5G upload speeds, 5G availability and 5G consistency -- raising the question of whether AT&T ( T ) and Verizon ( VZ ) can afford to cut capex now.

"While rationale for the pullback is based on setting investor expectations that 5G spend becomes less incremental (i.e., C-Band spend becomes [business as usual] spend), we believe the competitive nature of the industry could dictate that capital spending needs to remain higher for longer. We'll be looking for any surprise signs of shifts in capex that could result in higher capital spending in 2024," Nispel said.

What are the implications? If you believe a better network should capture market share, that puts T-Mobile ( TMUS ) in a relatively better position vs. AT&T ( T ) and Verizon ( VZ ), Nispel said, though he adds cablecos (like Comcast ( CMCSA ) and Charter ( CHTR )) are set to gain the most share given their strong mobile/broadband bundling.

But if AT&T and Verizon need to maintain higher capex for longer, that's not just a critical bear case for carriers -- the "duopoly's" postpaid phone market share is at greatest risk -- but a potential boon for communications tower REITs: American Tower ( AMT ), Crown Castle ( CCI ), and SBA Communications ( SBAC ), even if leasing trends look to be decelerating now.

More on wireless earnings

• AT&T posts worst drop in years as analysts weigh another hard cash-flow road ahead
• Verizon rises as it adds 633K subscribers in Q1
• T-Mobile US GAAP EPS of $1.58 beats by $0.10, revenue of $19.63B misses by $430M

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