2022 turned out to be a strong year for wireless activity. Wireless capital expenditures were the highest in the last 5 years. Carrier activity focused on modifying sites for and adding mid-band 5G to existing sites. Valuations for tower and lease assets may have hit their peak but remain high. Looking forward into 2023, here is what we see:
Wireless Service Provider Predictions.
- Wireless service providers are near completion of their deployments of mid-band new spectrum on existing sites. As predicted, last year turned out to be one of the busiest in terms of site modifications in recent memory. This coming year will see a slight slowdown as T-Mobile and Verizon wind up their mid-band modifications. AT&T will continue to deploy aggressively through 2023 in their efforts to catch up with T-Mobile and Verizon.
- The Big-Three carriers will accelerate the deployment of infill sites to fill in gaps in 5G coverage between existing sites. While all Big Three carriers have 5G on low-band spectrum, it is nominally better than 4G. Thus, users will start to observe noticeable speed differences when they leave “mid-band” 5G and move into low band 5G. Because many cell sites were designed originally for 1.9GHz, more will be needed to cover the same area in 2.5GHz or C-Band. In reviewing new lease-up activity on existing towers, we are seeing both T-Mobile and Verizon propose new sites in between their existing sites.
- There will be increased interest in rural coverage sites – particularly by AT&T and Verizon. In 2022, we were surprised by the number of new AT&T and Verizon sites proposed in rural areas, especially in places where it was hard to discern why the carriers were building out the area. It seems like in some circumstances, they are just trying to fill in holes in their coverage maps.
Predictions for Tower Companies.
- US carrier activity peaked for public tower companies (AMT, CCI, SBAC, DBRG) in 2022. Between the remaining mid-band modification activity and declining capex budgets for 2023, we anticipate a slight slowdown in 2023 and a greater slowdown in 2024. What remains to be seen is how much of the capex the wireless providers dedicate back towards small cells, which could reduce new activity on tower company towers. 2023 will still be a good year for tower companies – just not as strong as 2022.
- Tower valuations will remain at or near an all-time high. We have been wondering throughout 2022 whether tower valuations would start to decline due to climbing interest rates. We are happy to say that they haven’t retreated. It appears that many buyers still have tranches of capital they have raised at lower interest rates. Furthermore, there aren’t a lot of sellers out there, which means that competition for portfolios is still high. Nonetheless, we expect increased tower acquisition activity in early 2023 due to sellers who want to capitalize on the elevated pricing and interest.
- Sprint will continue to terminate sites in 2023. While a lot of tower owners and landowners received notices of termination of their leases in 2022, quite of few of them still haven’t had Sprint remove the equipment. Sprint notified these landowners that they would be terminating the leases throughout last year, but they remained at the sites for an unknown reason. As they are still paying rent, the landowners and tower owners aren’t anxious for them to remove the equipment.
Predictions for 5G.
- 2023 will not be the year of 5G. Despite the rapid deployment of mid-band 5G, there still isn’t a killer 5G application yet. The 5G user experience still seems remarkably like the 4G experience (only faster) for the average consumer. However, venue owners and enterprises should expect a full-on rush by both the carriers and third parties interested in providing private LTE/5G networks in venues using CBRS spectrum (both licensed and unlicensed). Wireless service providers realize that the money in 5G is not with consumers but with businesses and enterprises seeking better and more secure communications. Expect the providers to promise the world of 5G, but the actual experience to fall short – at least for now.
- On a related 5G note, the carriers will start deploying small cells again. Over the previous two years, we observed little activity in the small cell sector. Most of our municipal or university clients who had been approached on small cells heard little from the carriers who had originally approached them. The capex simply wasn’t there for small cells. That should change this year as T-Mobile and Verizon both accelerate their small cell activity into 2023 through 2025.
Predictions for Leaseholders.
- Landowners will continue to reap the rewards of cell site leases, especially those with sublease revenue share clauses. Given all the bullish activity we have forecasted above, tower owners should see additional revenue. As they receive additional revenue, the value of the tower climbs. As the value of the tower climbs to the owner, the value of the ground lease underneath it typically climbs as well. Even if your lease has a while until expiration, the offers to extend the lease will continue far in advance of expiration.
- Lease optimization companies will continue to pester leaseholders to negotiate lower lease rates and better terms on existing leases despite the boon year for towers. As we observed last year, agents for lease optimization companies will continue to suggest that towers are becoming worthless due to 5G, small cells, satellites, balloons, consolidation, and every other reason they can come up with. Rest assured your lease is still very valuable, but:
Cell tower lease buyout valuations will come off recent highs especially on less desirable assets. Mid-2022 will likely be seen as the peak of the lease buyout industry – at least until interest rates fall again. While sellers are still seeing strong buyout offers for desirable leases, we did observe some buyers pulling back previous offers on less desirable leases (some for legitimate reasons, others for predatory reasons).
Predictions for Steel in the Air.
Lastly, at Steel in the Air, we look forward to another year of helping landowners and structure owners make data-driven, unbiased, and informed decisions regarding their leases and assets. As we enter our 19th year, we remain excited and engaged in the wireless industry. We love helping landowners and tower owners maximize their lease and tower assets. We expect to spend more time with private LTE and private 5G over the next year.
If you would like to discuss these predictions or need assistance relative to cell site leases or towers, please reach out to us or share a question/comment on our Q&A. We are happy to share our thoughts or learn more about what you envision for 2023.