Two of the nation's three big tower companies reported that T-Mobile's 5G network buildout is happening far slower than expected. The situation is such that one of those companies – American Tower – lowered its financial growth expectations for 2020 (by 50 basis points – from 5% to 4.5% growth).
"T-Mobile's network integration work is not yet at levels that were expected," wrote the Wall Street analysts at MoffettNathanson in a note to investors this week.
The situation has similarly affected Crown Castle, another massive US cell tower company. "The full rebound in activity on towers is occurring a bit slower than we previously expected," Crown Castle's financial chief Dan Schlanger explained in an oblique reference to T-Mobile, according to a Seeking Alpha transcript.
"We believe this relates to T-Mobile activity post the Sprint merger," confirmed the Wall Street analysts at Deutsche Bank Research in a note this week to investors about Crown Castle.
SBA Communication is the other big public owner of cell towers in the US; that company is scheduled to report its quarterly earnings August 3, roughly three days before T-Mobile is scheduled to report its own earnings.
What's going on here?
If you listen to T-Mobile's executives, the company is moving heaven and Earth to upgrade its network to 5G following the close of its merger with Sprint.
"So far so good," said T-Mobile CTO Neville Ray in May, noting the operator has been hanging new 2.5GHz 5G radios on its existing cell towers at the rate of roughly 1,000 towers per month. "We are ramping up in this [pandemic] environment, not actually slowing down."
Overall, T-Mobile has committed to adding 15,000 new cell towers to its network in a 5G upgrade program totalling $60 billion over the next five years.
Regardless, the operator won't make it very far without the aid of companies like Crown Castle and American Towers. As Inside Towers notes, the two companies collectively own around 81,000 of the roughly 200,000 cell towers in the US. Any major network upgrade by T-Mobile would likely need to pass under their noses.
Not surprisingly, some Wall Street analysts are taking the situation seriously. "Crown Castle admitted New T-Mobile [the company that emerged from the combination of T-Mobile and Sprint] had only recently started its build activity, but remained hopeful it would continue ramping in 2H and reiterated its 2020 guide," wrote the Wall Street analysts with Wells Fargo in a note to investors this week. "We appreciate Crown Castle's optimism that New T-Mobile might ramp activity in 2H but are revising our estimates to the low end of its guide."
It's possible that T-Mobile's initial 5G upgrade work has focused on towers owned by other companies, but the situation is nonetheless perplexing given the extra year T-Mobile's 5G buildout plan received due to the opposition it faced over its Sprint merger. Indeed, at least one executive at the company privately hinted to Light Reading of a surprisingly chaotic merger process currently taking place between the two companies.
Regardless, T-Mobile has little reason to dither. Although it commands an astounding advantage against rivals Verizon and AT&T when it comes to valuable midband and lowband spectrum, the upcoming C-band spectrum auction likely will even the odds significantly if Verizon goes big in the event, as expected.
As T-Mobile's window of opportunity narrows, many expect the operator to begin to take bigger steps in the market, beyond the relatively minor tweaks to its robocall-blocking strategy and its rate card that it has taken recently. The operator's next opportunity to impress will be August 2, when it has promised to rebrand Sprint stores with the magenta T-Mobile logo.
And based on T-Mobile's past and current performance, some analysts aren't worried. "A slow start to T-Mobile's enormous network integration project probably doesn't matter all that much in the grand scheme of things," the MoffettNathanson analysts wrote. "Instead, it's likely a modest timing issue. If one believes, like us, that the net impact of the combination in isolation is likely to be a modest negative, then delays aren't necessarily a bad thing. T-Mobile has a long track record of accomplishing a great deal of network-related work quickly and efficiently, so it would be inappropriate to draw too many conclusions so early in the process."
Crown Castle update
In other news from Crown Castle, the company tweaked the parameters around its board of directors and its financial reports in order to mollify activist hedge-fund Elliot Management. The company also reiterated its support for its small cell strategy, arguing the US market will reach 1 million small cells by 2024. That's an outlook even more optimistic than the one issued by US wireless trade group CTIA in 2018.